CONSEQUENCES OF CORRUPTION IN THE NIGERIAN OIL SUBSIDY

Abdulrazaq Kayode. A.

By

OUTLINE OF PRESENTATION Introduction

What is corruption Background on the country case study

What is fuel subsidy? Facts about fuel subsidy in Nigeria Who benefits from fuel subsidy? How Corruption works Consequences of corruption

What is corruption WHAT IS CORRUPTION:

“the abuse of entrusted power for private gain”- transparency international

“the abuse of public office for private gain”- World Bank “when institutions, organisations, companies or individuals

profit inappropriately from their position in the operations and thereby cause damage or loss. This includes giving and receiving bribes, extortion, favouritism and nepotism, embezzlement, fraud, conflict of interest, and illegal monetary contributions to political parties.” SIDA

Corruption is a broad term covering a wide range of misuse of entrusted funds and power for private gain: Theft, fraud, nepotism, abuse of power etc.

Background Nigeria is a country in the Sub-

Saharan Africa with an estimated

population of 160 million population The main stay of the Nigerian economy is oil, The largest producer of Oil in Africa, 13th in

the world and the 8th largest among the OPEC countries.

The country has 38.2 billion barrels of oil reserve

Background Contd.

A daily production of 249,000 b/day An estimated revenue of US$62.2 billion/year 68% of Nigeria’s GDP comes from Oil 48% of the population still live below poverty

line Nigeria has been heavily subsidizing oil to

the entire population since the 1970s. Despite the revenue from oil and huge subsidy,

almost half of the population still live in poverty.

Nigeria’s Corruption Index

Nigeria is ranked 143th of 183 most corrupt public sectors in the world having scored as low as 2.4 of 10 in the corruption perception index by Transparency International.

The Corruption Perceptions Index ranks countries/territories based on how corrupt their public sector is perceived to be. A country/territory’s score indicates the perceived level of public sector corruption on a scale of 0 - 10, where 0 means that a country is perceived as highly corrupt and 10 means that a country is perceived as very clean. A country's rank indicates its position relative to the other countries/territories included in the index

Source: Transparency International 2012

Case Study: What is Fuel Subsidy

1.

Paid, by government, to

keep prices below free market.

2.

Causes distortions that result in huge

economic costs such as rent-

seeking behavior and smuggling etc

3.Amount of Subsidy =

difference between the consumer pump price of fuel vs. the

total cost of producing or importing

4.The price of petrol = $0.40 per litre but actual cost of supply = $0.85

per litre;

Where does the subsidy goes?

5.This means that

currently for every one litre of petrol purchased at the official price of

0.40 Government contributes $0.45

Case Study: Facts about fuel subsidy in Nigeria

It is a major fiscal and financial burden on the nation: (i) From 2006 to 2011, about US$23,462,255 was spent on subsidy.

(ii) In 2011, US$ 8.2m was spent on subsidy. (iii) This represents 30% of total FGN Expenditure, 118% of the capital

budget; 4.18% of GDP.

9

Year

Average Crude Oil Price (US$

pb)

TOTAL Subsidy

Year on year Growth Rate

2006 67.03 261.11 -

2007 74.68 278.86 7%

2008 101.78 630.57 126%

2009 63.02 463.59 -26%

2010 81.25 672.84 45%2011 (Jan -

Oct) 113.98 1,348.20 100%

TOTAL 3,655.17 -

Source: Fed. Min. of Finance, Nigeria. (2012)

Case Study: Who benefits from the subsidy

The Rich & Middle Class

Neighboring Countries

Corrupt Public Officials

Independent Marketers Smugglers

Case study: How It WorksGOVT GIVES LICENSE TO

INDEPENDENT MARKETERS TO IMPORT FUEL AT FULL PRICE

PAYMENT FOR SUBSIDY BY GOVT OFFICIALS

3. Masses get little fuel to use

DIVERSION OF FUEL TO

SMUGGLERS

HOARDING TO CREATE

ARTIFICIAL SCARCITY

Inflation of number of barrels lifted

Payment for unsupplied fuel

Payment to Quantum of “ghost”

& unregistered companies

Long queues at fuel stationsFight at the fuel

stations

Vandalization of oil pipelines

Consequences: The rise of the informal sector e.g.

Black marketers

Consequences

Operation of illegal refineries.

Smuggling of oil to neighbouring countries like Niger, Benin Republic and Togo;

How oil is been smuggled into Neighbouring Benin Republic

Consequences: Fuel scarcity which causes Long queues at

fuel dispensing stations

Cars queuing to get fuel in Lagos

Motorcycles queuing to get fuel

Consequences

Fight at the fuel stations

Unaccounted funds

Consequences: Breaking of law and order Vandalization of oil pipelines

Vandalized Pipeline

Thank you