This document discusses corruption in Nigeria's oil subsidy system. It begins with definitions of corruption and background on Nigeria's oil industry. It then explains that Nigeria heavily subsidizes fuel prices, spending over $23 billion from 2006-2011 on subsidies. However, much of the subsidy money goes to corrupt politicians, marketers, and smugglers rather than citizens. As a result, there are issues like fuel scarcity, black markets, pipeline vandalization, and fights at fuel stations. In conclusion, corruption in Nigeria's oil subsidy system has significant negative economic and social consequences for the country.

1. CONSEQUENCES OF
CORRUPTION IN THE
NIGERIAN OIL SUBSIDY
By
Abdulrazaq Kayode. A.

2. 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

3. 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.

4. 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

5. 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.

6. 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.

7. 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

8. 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 of
keep 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 the
actual cost of supply = litre of petrol purchased subsidy goes?
$0.85 per litre; at the official price of
0.40 Government
contributes $0.45

9. 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

10. Case Study: Who benefits from the subsidy
Corrupt
The Rich & Neighboring Independent
Middle Class Countries Public Smugglers
Marketers
Officials

11. 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
companies
Vandalization of oil
pipelines
3. Masses get little fuel to use Long queues at fuel
Fight at the fuel stations
stations

12. Consequences:
 The rise of the informal sector e.g.
Black marketers

13. Consequences
 Operation of illegal refineries.

14.  Smuggling of oil to neighbouring countries like
Niger, Benin Republic and Togo;
How oil is been smuggled into
Neighbouring Benin Republic

15. Consequences:
 Fuel scarcity which causes Long queues at
fuel dispensing stations
Cars queuing to get fuel in Motorcycles queuing to get
Lagos fuel

16. Consequences
 Fight at the fuel stations
 Unaccounted funds

17. Consequences: Breaking of law and order
 Vandalization of oil pipelines
Vandalized Pipeline

18.  Thank you