The consequences of corruption in the Nigerian Oil Sector
CONSEQUENCES OFCORRUPTION IN THENIGERIAN OIL SUBSIDY By Abdulrazaq Kayode. A.
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 estimatedpopulation 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 perceivedto be. A country/territory’s score indicates the perceived level of public sector corruption on a scale of 0 - 10, where0 means that a country is perceived as highly corrupt and 10 means that a country is perceived as very clean. Acountrys 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. 2. 3. Paid, by Causes distortions that Amount of Subsidy = government, to result in huge economic difference between the costs such as rent- consumer pump price ofkeep prices below seeking behavior and fuel vs. the total cost of free market. smuggling etc producing or importing 4. 5. The price of petrol = This means that $0.40 per litre but currently for every one Where does theactual cost of supply = litre of petrol purchased subsidy goes? $0.85 per litre; 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. Average Crude Oil TOTAL Year on year Year Price (US$ Subsidy Growth Rate pb) 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) 9
Case Study: Who benefits from the subsidy Corrupt The Rich & Neighboring Independent Middle Class Countries Public Smugglers Marketers Officials
Case study: How It Works GOVT GIVES LICENSE TO INDEPENDENT MARKETERS TO HOARDING TO IMPORT FUEL AT FULL PRICE DIVERSION OF CREATE FUEL TO ARTIFICIAL SMUGGLERS SCARCITY Inflation of number PAYMENT FOR SUBSIDY BY GOVT of barrels lifted OFFICIALS Payment for Payment to unsupplied fuel Quantum of “ghost” & unregistered companiesVandalization of oil pipelines 3. Masses get little fuel to use Long queues at fuelFight at the fuel stations stations
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 Motorcycles queuing to get Lagos fuel
Consequences Fight at the fuel stations Unaccounted funds
Consequences: Breaking of law and order Vandalization of oil pipelines Vandalized Pipeline