Understanding the Service Reflective Tariffs (SRT)

The recent report by the World Bank on the status of the Nigerian electricity market shows, 82% of Nigerian electricity consumers, do not know what tariff classification band they fall into. This shows a total disconnect between the power sector policies and consumer sensitization. For the benefit of consumers, we will take a summary look at the Service Reflective Tariffs.

What is a Service Reflective Tariff?

Service Reflective Tariffs (SRT) are the tariffs approved by the Nigeria Electricity Regulatory Commission (NERC), which is based on the duration of supply. The NERC has approved six distinct Bands (R1 and Bands A-E) for the classification of electricity consumers. The hours of supply determine the tariff for each Band.

For example, Customer A who lives in Maitama, Abuja, has a total of at least 23 hours of electricity supply daily and on the other hand, Customer B who lives in Karu, Abuja, receives between 12 and 16 hours of electricity daily. Based on the approved SRT, Customer A will be charged a higher tariff than Customer B because he receives a higher supply compared to Customer B.

The NERC approved SRT Bands are as follows:

1. Lifeline
2. Band A – 20 Hours and above
3. Band B – 16 Hours and above (But less than 20 hours)
4. Band C – 12 Hours and above (But less than 16 hours)
5. Band D – 8 Hours and above (But less than 12 hours)
6. Band E – 4 Hours and above (But less than 8 hours)

Pros and Cons of a Service Reflective Tariff

The implementation of a Service Reflective Tariff (SRT) may impact both consumers and the Distribution Companies (DisCos) in different ways.

Pros

• Consumers now have a fair sense of supply expectations.
• Commercial customers will be able to reduce the electricity costs in the production process.
• On the part of the DisCos, an improvement in DisCos supply to consumers barring any unforeseen issues relating to the national grid.
• The securitization of DisCos revenue accrued from the tariffs will ensure an improvement in network infrastructure.
• The liquidity crisis of the sector will be addressed.
• The government will stop subsidizing the electricity consumption of customers who can afford to pay the full tariff.
• The market may see an increase in the minimum remittances of the DisCos.

Cons

• Consumers will be charged higher for electricity consumption.
• DisCos may prioritize service delivery to areas where a return on investment is guaranteed i.e. areas where supply is higher.
• There is still no assurance on the reliability of supply.
• Inadequate metering infrastructure may mean, DisCos continue with the practice of estimated billing.
• Unmetered consumers may likely see an increase in outrageous billing based on the new tariff rates.
• The high cost of living may impact tariff affordability for many Nigerians.

While the implementation of the new tariff offers hope to many Nigerians on the realization of 24 hours of electricity supply. In order to successfully implement the new SRT structure, two things must be in place; adequate metering and reliable network infrastructure. With more than 50% of electricity consumers unmetered, the cost of significantly reducing Collection and Technical Losses comes at a high price both to the DisCos (CAPEX) and the consumers (Tariff).