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As Fuel Prices Soar, A Country Unravels

Conakry, Guinea

Every couple of days, nurses at the Donka Hospital here scoop up the premature babies from their incubators. They rouse their mothers from sleep, lay the infants on the women's bellies and pile blankets on mother and child.

Doctors call this the "kangaroo method" -- a way to keep the babies warm enough so that they don't die during the long blackouts that plague this rundown West African port. Soaring fuel prices have forced the government to ration power across the city, and the hospital can't afford to run its oil-fired back-up generator.

"We can't keep it fueled up," says Mamadou Baldé, director of the hospital's infant-care ward, over the wail of sick babies. "The power outages are becoming more frequent."

The impact of today's energy crunch on the poor is plain in rich nations such as America: Expensive gasoline and soaring heating bills make a hard life harder. In impoverished countries such as Guinea, where per capita income is just $370 a year and surging gasoline prices have helped spark bloody riots, the energy shock has become a matter of life and death.

Global demand for oil has soared in recent years, pushing international prices to record levels. Despite a recent decline, a barrel of crude still costs about double what it did three years ago. The most powerful energy-importing nations have responded by proclaiming energy security a top policy goal. President Bush has vowed to wean America off its "addiction" to oil. The U.S. is mobilizing more ships and soldiers to protect supply lines, while Beijing is scrambling to buy oil fields from Asia to Africa.

While robust economies like America and China are withstanding the shock, the poorest countries aren't. Increasingly they can't afford to slake their citizens' thirst for petroleum -- breeding another form of energy insecurity. The pressure threatens to undermine economies and sow domestic strife, further unsettling shaky regions and presenting fresh worries for policy makers in the West. In addition to Guinea, Nepal, Yemen, Iraq and Indonesia all have been rocked by fuel protests in the past two years.

The energy shock's impact on the world's poor is uneven. An estimated 1.6 billion people, most of them rural dwellers, lack access to electricity and 2.4 billion still cook over fires of wood, charcoal or dung. Development economists call this "energy poverty," but the energy-poor aren't the frontline victims of a global price shock. Because they don't buy electricity and fossil fuels in the first place, they often escape the most immediate effects.

Instead, those hit first are one rung up on the economic ladder: an estimated 500 million poor but upwardly mobile residents of the developing world's cities. The urban poor have access to some of the entry-level perks of modern society: electric lighting, taxi service, motorbikes, cooking gas, hospital care. Soaring energy prices are moving those necessities out of reach, reversing hard-won economic strides. The World Bank recently estimated that the run-up in oil prices has increased the number of people living in poverty as much as 6% in some regions. Particularly hard hit: Africa, Eastern Europe and Central Asia.

Many governments dole out subsidies to cut the retail cost of fuel, especially when global prices take off. A World Bank study found that as world energy prices rose sharply from January 2004 through May 2006, 14 developing countries abandoned market-based pricing for at least one type of petroleum product. Those countries joined 12 others that already controlled prices.

That decision can be expensive. Fuel subsidies are expected to chew up about $7 billion of Egypt's annual budget this year, or 15% of total planned spending.

For the world's poorest countries, letting prices rise unchecked or cutting existing subsidies can be even costlier for governments, slowing economic growth sharply and unsettling citizens who have grown dependent on low-cost fuel. Police battled protesters in Jakarta last year after fuel subsidies were rolled back. Some 20 people died in fuel riots in Yemen in July 2005. This summer, Nepal reversed a subsidy cut after urban strife broke out.

Guinea's experience shows how destabilizing an energy shock can be. The country's economic woes go far beyond rising pump prices, but the government's decision to reduce gasoline subsidies over the past two years helped spark general strikes and riots that claimed at least 11 lives. The violence startled Western diplomats, who have come to depend on the former French colony as a bulwark of relative stability in one of Africa's toughest neighborhoods.

Bordering strife-torn Liberia and Sierra Leone, Guinea took in waves of refugees fleeing the region's bloodshed through much of the 1990s. U.S. Army Green Berets trained a battalion of Guinean commandos to repel border attacks backed by Liberia's then president, Charles Taylor. The U.S. still funds a modest military training program and just opened a gleaming new embassy on the outskirts of town.

Guinea's 9.7 million people, mostly Muslims, inhabit an Oregon-size land of rain forests, savannahs and misty mountains. The interior holds one of the world's largest troves of bauxite, used to make aluminum. Guinea produces no oil, coal or natural gas and must import all the fossil fuels it uses. Even in the capital of Conakry -- a maze of shantytowns and rutted roads lined with mango trees -- almost a fifth of the population of two million cooks with wood and most of the rest with charcoal.

In 2004, when gas cost about $2.55 a gallon, the cash-strapped government of Gen. Lansana Conté sought to win aid from international donors by vowing another swipe at economic overhauls. Decades of authoritarian misrule had scared off foreign investment and swollen Guinea's debt, pressuring the country's currency.

In March 2005, the government liberalized its foreign-exchange market. The local currency's value plummeted, sending the price of imported goods soaring -- everything from rice to cheap textiles for clothing. Inflation hit 31% last year.

Meanwhile, international oil prices were rising. Guinea's fuel-import bill rocketed to the equivalent of 8% of gross domestic product last year, up from 3% in 2003. Government-regulated pump prices weren't keeping pace. The government balked at raising retail prices and angering city dwellers, who already were contending with rampant inflation for everything else. As a result, the government was racking up debts to the country's biggest fuel suppliers, Total SA of France and Anglo-Dutch oil giant Royal Dutch Shell PLC.

The oil companies threatened to stop shipments if the government didn't come up with a plan to pay back its IOUs, says Madikaba Camara, the economics minister.

"The oil companies said, if you don't come to an agreement, we won't sell you anymore," he said in an interview, a few minutes after a power outage snuffed out his lights and computer.

Officials at Total, the largest supplier of gasoline in Guinea, declined several requests for comment on the company's business in the country.

A Shell spokeswoman in London said the company is committed to cooperating with the government, and she said Shell executives never threaten to cut off supplies.

"In Africa we have made a commitment to maintain a sustainable presence where possible," the spokesman said in a statement. "We consider Shell to have some responsibilities in countries like Guinea," the statement said, adding that Shell has invested in local antipoverty programs, along with health and education initiatives in Guinea.

Government officials say pressure from the oil companies forced their hand, and they started raising pump prices. By early last year, official pump prices at Total and Shell filling stations had risen 66% to about $3.70 a gallon in local currency terms. With monthly salaries averaging less than $200, even senior civil servants struggled to afford their daily commutes.

As oil prices kept climbing and the revalued currency sank, the big increase in pump prices wasn't enough to ease the fiscal crunch. So, through 2005 and 2006, gasoline prices were raised four more times. For days after the sharpest increases, the rusted-out taxis and minibuses that clog Conakry's pot-holed streets would thin out.

Two years ago, Abdoullaye Diallo started medical school at the university here. His family has a home in a suburb of Conakry, and the daily commute to classes was a long slog -- except when he could afford the 30-minute taxi ride. Like thousands of Conakry residents with enough pocket change, he would wave down one of the city's banged-up cabs and squeeze in with other passengers headed in the same direction. If money was tight, he would hail a packed "magbana" -- a modified minibus, usually with a bench or two welded to the floor in the back and a few windows cut out of the sides.

As gas prices ticked higher the past two years, taxi fares did, too. The cost of the rides to campus and back again more than doubled, to about $2 a day. The minibus was less expensive, but often unbearable with so many passengers crammed inside.

Reluctantly, Mr. Diallo moved into a spare room offered by a family friend who lived near campus. That eased the financial strain, but it means he can't keep an eye on his mother and three sisters when his father works late. The neighborhood can be dangerous at night, and family cohesion is prized here. "We've been broken," he says of his family.

As fuel prices ticked higher, Mariama Diallo, an organizer for the country's banking workers' union, marked down each increment in a small notebook that she kept in her office. She and other union leaders started meeting to grumble about out-of-control inflation, their paltry pay and sky-rocketing gas prices. Weak opposition parties were powerless to push change.

In November 2005, unions staged a two-day general strike demanding better pay to cope with rising prices. It turned violent when Conakry protestors smashed up cars and taxis. A second strike in late February 2006 shuttered businesses and partially closed some of the country's biggest mining operations. Nonunion workers respected the strike and stayed home, too.

Diallo Mamodon Cillou, a senior civil servant, supplements his monthly $65 by selling dry goods and plastic bags of water to neighbors from a small stall next to his house. When the power is out, he keeps his store lighted for a few hours each night with a small bulb connected by wires to the battery of his car.

The government gave in to many of the unions' demands, promising raises for some workers. But inflation offset the gains.

In May 2006, the government raised pump prices to about $4.30. Merchants blamed the doubling and tripling of food prices on the rising cost of fuel. Unions demanded fresh salary increases and cuts in the price of rice and gasoline.

On June 8, unions led a third strike. It shut down cities across Guinea and emptied Conakry's streets.

The next Monday, students expecting to take their year-end exams showed up to classes, but many teachers had stayed home because of the strike. At the Lycée Donka, a weed-choked high-school campus of colonial-era lecture halls, officials were ready to hand out tests. Outside the classrooms, a crowd of students from a nearby school had gathered. Their teachers hadn't come to work, and the students were seething. A stone sailed through a window, then another and another, according to a student who witnessed the melee. The angry students stormed the administrative building, then ransacked the library.

As the riot spread across the street, the police struck back. "First, they fired gas canisters, then bullets," said the student. He saw a girl fall to the ground, screaming and clutching her leg.

Word of the rioting spread, and Mr. Diallo, the medical student, raced on foot to a school attended by his sister. Students there, too, were agitated at being shut out of exams. The police fired tear gas. Students stampeded. Mr. Diallo saw a security officer fire into the crowd, hitting a female student. "She died on the spot," he says. His own sister made it back home safe that night.

After the bloodshed, the government confirmed 11 deaths across the country. International human-rights groups put the toll at 13 to 21 dead.

After the strikes, government negotiators agreed to raise some government salaries and bring down the price of rice. They stood fast on gasoline, promising to roll back the cost only after global prices fell. Global crude oil prices have fallen about 27% from record levels since July. Early this month, the government trimmed pump prices 9%.

Government officials say they can't afford to cut prices too much, because they still owe millions of dollars to the oil companies.

In theory, "when international prices go down, the pump price will go down," says Mamadou Doumbouya, the inspector general of finance, who is the head of the government committee that sets gasoline prices. In reality, "we have to sop up what we owe to the oil companies" before lowering prices significantly, he says.

Even with the recent cut, pump prices are 233% higher than they were in August 2004, in local currency terms. Taxi and minibus drivers haven't lowered fares. Each morning, hundreds of workers troop to central Conakry by foot.

Gasoline isn't the only flash point. Conakry's electric utility is struggling to keep its oil-burning power plant running. Kékoura Grovogui the procurement boss, paid $200 a ton of fuel in early 2003. Now he pays about $400. Rates for consumers are fixed, and many don't pay their bills. Losses are mounting and Mr. Grovogui can't afford to fill his reserve tanks: They hold just 3% as much fuel as before the price spike. "We're always under pressure," he says.

The new fuel shortages make life tough at Donka Hospital, where Mr. Diallo, the aspiring doctor, just started making his rounds as a student intern. The hospital has priority on the city's electricity grid, but blackouts are frequent. Patients bring their own flashlights. The main backup generator burns through 40 liters of fuel an hour, at a cost of about $40 an hour at current rates. So, that generator sits idle.

Dr. Baldé and his team of 14 doctors at the infant-care ward cope as they can. If a blackout lasts longer than an hour or so, temperatures inside the incubators start to fall. Nurses pick babies out and bury them in blankets on their mothers' warm bellies.

Mohammed Lamine Joumah, a doctor working under him, says not all are so lucky. A baby boy arrived at the hospital in early October with severe jaundice. Doctors tried to put him on a routine of phototherapy, exposing him to regular doses of blue light -- when the electricity was working.

"There were too many stoppages in his therapy" because of the blackouts, Dr. Joumah says, wincing and shaking his head. The baby died after about a week. He had other complications, but Dr. Joumah blames the power cuts. "It happens all the time," he says.

Editorial Notes: So now you know why Demand Destruction is such a popular euphemism - can't have those who can still afford to buy rocking the boat. Rationing by price is only the default system, not the best.-LJ

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