[chef] chef-server not loading merb-assets

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chef-server -N -e production shows following error:

Merb root at: /usr/lib64/ruby/gems/1.8/gems/chef-server-api-10.16.2
Loading init file from ./config/init.rb
/usr/lib64/ruby/gems/1.8/gems/chef-server-api-10.16.2/config/init.rb:20:in
`require': no such file to load -- merb-assets (LoadError)

chef-server-api-10.16.2 in not in the path to merb-assets.  The location of
this file is /usr/lib64/ruby/gems/1.8/gems/merb-assets-1.1.3/lib/merb-assets.

Tried using the -m option to chef-server and it did not help:

 chef-server -N -e production -m
/usr/lib64/ruby/gems/1.8/gems/merb-assets-1.1.3
/usr/lib64/ruby/gems/1.8/gems/chef-server-api-10.16.2/config/init.rb:20:in
`require': no such file to load -- merb-assets (LoadError)

What configuration entries are necessary for chef to find those entries listed
in the init.rb require statements?