The subsidy is expected to shield local pump prices from rising international oil prices. Tellingly, subsidy expenses should rise with and fall with world oil prices while keep domestic retail prices relatively constant. However, the reality on the ground is a far cry from this in that Nigerian pump prices, global prices and the subsidy bill change in the same direction .
The domestic supply of and demand for gasoline in Nigeria have not always been matched. The excess demand has always been preceded by truckloads of products smuggled abroad. Higher pump prices relative to Nigeria’s in neighbouring countries are argued to have fuelled the racketeering: Benin ; Niger ; Cameroon Chad ; Togo ; and Ghana .
A caveat: theoretically, the BMP can be less than zero, but this is practically impossible because all distributors/sellers are expected to be rational, meaning they will never want to sell the product below its official price. Abia is the state with the highest BMP: N25.71/litre, making it the least compliant state. Other least compliant states can be found on the bottom right and top right of the graph. This simply means big state-level consumers tend to comply, more than other states, with the official price.If the distance from the refinery and the cost of transporting the product significantly determines the variations, then the graph will be a straight 45-degree line and all the dots will cluster around the line.
On the graph, Delta, Kaduna and Rivers appear in the same area. The reason is simple: the distance from Delta to Delta is zero; the distance from Kaduna to Kaduna is also zero and so on.
Source: News Formal (newsformal.com)
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