20 proper installation to serve as fuel tanks. Equally dangerous is siphoning off LPG from small cylinders (reserved for heavily subsidized LPG for household use) to transfer it to larger cylinders, a practice that has been blamed for some of the series of LPG cylinder explosions in Indonesia―responsible for at least 22 deaths―in the early stages of kerosene-to-LPG conversion campaign ( _Platts Oilgram News_ 2010b; _Jakarta Globe_ 2012b).

Claiming subsidy reimbursement also provides scope for corruption. Nigeria’s Petroleum Support Fund provides a recent example. A series of government-led investigations were not able to reconcile US$1.5 billion of reimbursements (All Africa 2013).

Publicized cases of large-scale corruption have led to a public perception in some countries that price subsidies are affordable if only they can be implemented efficiently and without corruption. The political debate then becomes focused on how to cut the “fat” out of subsidy delivery, or even how to get rid of corruption in the government in general. The public comes to believe that eliminating corruption will free up funds for subsidies to keep prices of fuel and food low. The scale of corruption also discredits the government’s argument that savings from subsidy removal can be used more productively and equitably, as voiced by a former secretary general of a workers’ union in Nigeria, “Until they stop corruption, all these ideas will not work... Nigeria is rich, we have money” ( _Guardian_ 2011b).

# **_Inefficiency and environmental impact_**

Ironically, price controls can end up protecting inefficient, high-cost suppliers of petroleum products, resulting in larger subsidy bills when prices are subsidized, and higher prices when subsidies are removed. This is particularly true for refineries. Globally, tightening fuel specifications and a shift away from heavier fractions to white products (gasoline, kerosene, and diesel) have resulted in economies of scale being critically important. In response, deregulated and competitive markets have seen consolidation and closure of small refineries (World Bank 2008a and 2008b). The trend in the United States is informative. In 1982, the _Oil and Gas Journal_ ’s “Worldwide Refining Survey” found 301 refineries in the country; by January 2013, the number had declined to 125, with an average size of 145,100 barrels per day (bpd). In the intervening years, 176 refineries—more than half of the refineries that existed in 1982—had been shut down and replaced by fewer, much larger refineries through expansion of existing refineries. Globally, the average size of refineries had increased to 135,800 bpd by 2013.

Against this backdrop, to give just two examples, Tunisia and the Dominican Republic have one refinery each of 34,000 bpd with the simplest configuration needed to produce gasoline and other petroleum products. Neither country is landlocked; both are close to major refining centers. If the current policy of strict price control were to be discontinued, exposing both refineries to open competition, it is far from clear that these refineries would be able to continue to operate. In the meantime, the high cost of operating these refineries is ultimately being borne by the government (Tunisia) or consumers (Dominican Republic). Many refineries in SubSaharan Africa and other regions are also uncompetitive and high-cost. Essentially all of these refineries have plans to increase capacity and modernize for this reason, but these plans are suffering from years, if not decades, of delay because they cannot attract investment, nor is it clear that it would make sense for refineries with chronic operational inefficiencies to expand.

One consequence of uncompetitive refineries is that fuel quality lags behind the EU or U.S. standards, or even the country’s own fuel specifications. For example, in Russia, the inability to meet Euro-3-compliant fuel quality standards which came into effect in January 2011