22 some manufacturers take advantage of this low price to export fertilizers rather than supply the domestic market to benefit local farmers.

# **Subsidies all too often create powerful incentives for commercial malpractice**

Setting different prices for the same fuel depending on use, large price differences between substitutable fuels, and large price differences across neighboring countries provide powerful financial incentives for commercial malpractice. Common examples are adulteration of higher‐priced fuel with lower‐priced fuel (such as adding kerosene to diesel); flourishing black markets combined with shortages of fuels sold at official prices to make purchase of subsidized fuels difficult, (much) higher actual prices paid by consumers, or both (examples being kerosene in India and Nigeria, and LPG in Egypt); and smuggling of fuels to neighboring countries (from Algeria, Indonesia, the Islamic Republic of Iran, Malaysia, Nigeria, and República Bolivariana de Venezuela to their neighbors). The archipelagos of Indonesia and Malaysia make it easy to use boats for fuel smuggling. This has posed special challenges to monitoring fuel subsidies provided to fishing vessels—fuel smuggling may be far more profitable than fishing. The Government of Malaysia in August 2012 even announced that a representative of the Malaysian Fisheries Development Authority would in the future verify each catch landed, and those with insufficient catch would no longer be permitted to buy lower‐priced fuel ( _Borneo Post_ 2012).

Some governments have tightened border controls to combat out‐smuggling due to low domestic prices, but without significant or lasting effects. Although data on fuel smuggling are difficult to obtain, the Government of Malaysia is reported as estimating that 3.5 billion liters a year (60,000 barrels per day) of diesel and 6 billion liters per year (100,000 barrels per day) of gasoline were being smuggled out of the country ( _Platts Oilgram Price Report_ 2014). In May 2014, the government launched an operation jointly conducted by the police, Customs Department, the Malaysian Maritime Enforcement Agency, the Malaysian Anti‐Corruption Commission, and local councils to curb fuel smuggling. While the government moved gasoline and diesel to a “managed float” pricing system in December 2014 and ended price subsidies, fuel prices in Malaysia remain much lower than those in neighboring countries on account of tax differences, thereby continuing to provide incentives for smuggling. One of the most extreme measures taken to combat fuel smuggling is the nightly closure of the border between Colombia and República Bolivariana de Venezuela, which in August 2015 turned into an indefinite closure after a state of emergency was declared. The cost of border patrol adds to the already very large price subsidies for petroleum products in República Bolivariana de Venezuela.

Price controls have caused fuel shortages, which create black markets and push up effective prices paid. Periodic fuel shortages are common in countries with price subsidies in part because of diversion of subsidized fuels to alternative markets and in many cases also because of the delays in subsidy reimbursement payments by the government. In Nigeria, the National Bureau of Statistics reports that gasoline shortages in November 2015 pushed up the actual prices paid in one state to ₦187.5 (US$0.94) per liter, more than double the official price of ₦87 (US$0.44) per liter and much higher than the price that would have prevailed without subsidies in a deregulated market. Another consumer survey conducted by NOI Polls in Nigeria in March 2015 found that 90 percent of gasoline purchasers paid on average 31 percent more than the official subsidized price, and in the northeast region of the country, more than if the price of gasoline had not been subsidized (NOIPolls 2015). The fuel shortages that pushed up black‐market prices started in this case when fuel marketers charged that the government