The Federal Government has cancelled $717.7 million in undisbursed World Bank funding earmarked for reforms in Nigeria’s struggling electricity sector.
The decision followed a formal request by the government and a mutual agreement with the World Bank to discontinue the Power Sector Recovery Performance-Based Operation, citing evolving sector conditions and the failure to meet key reform milestones.
Documents obtained from the World Bank show that the move effectively winds down the remaining portion of a $1.52 billion power sector recovery programme, originally designed to restore financial stability and efficiency in the electricity value chain.
The cancelled sum represents the entire undisbursed balance under the programme. “The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7 million equivalent, and no further disbursements will be made under the Program following approval of this restructuring,” the bank stated.
It also confirmed that the programme’s closing date has been advanced from June 30, 2027, to May 31, 2026, effectively bringing the intervention to an early end.
The loan was approved on June 23, 2020, with an initial financing envelope of about $752.5 million to improve electricity supply reliability, strengthen sector finances, and enhance accountability across the power value chain.
Following early progress, the World Bank approved additional financing of about $763.5 million on June 9, 2023, to deepen reforms and extend the programme to 2027. That facility became effective in June 2024, bringing total planned funding to roughly $1.52 billion.
While the original programme recorded substantial disbursement and measurable gains, the additional financing package struggled to meet critical reform conditions, resulting in minimal disbursement and eventual cancellation of the remaining balance.
The World Bank said Nigeria’s power sector continues to face deep structural challenges, including weak distribution performance, transmission bottlenecks, underutilised generation capacity, and persistent financial imbalances.
According to the report, high technical and commercial losses in the distribution network, combined with inadequate cost recovery, have created a recurring gap between sector revenues and operating costs.
“These constraints have created recurrent financing gaps, most notably in the form of tariff shortfalls, which generate liquidity pressures across the value chain and weaken the operational and financial performance of sector institutions,” the bank said.
The Federal Government had established the Power Sector Recovery Programme to address these issues by improving financial viability, reducing fiscal pressure, and strengthening regulatory oversight.
Under the original framework, the programme delivered notable improvements, including a 71 per cent reduction in tariff shortfalls between 2019 and 2022, from N581 billion to N166 billion. Regulatory cost recovery also rose from 56 per cent to 94 per cent, while electricity supplied to the distribution grid increased by 13 per cent between 2018 and 2021.
The World Bank said all disbursement-linked indicators under the original operation were achieved, describing implementation as satisfactory.
However, implementation of the additional financing package stalled amid worsening macroeconomic conditions, particularly following the liberalisation of the foreign exchange market in June 2023, which triggered a sharp depreciation of the naira and increased gas costs for power generation.
The bank noted that over 70 per cent of electricity supplied to the grid is generated from natural gas, whose pricing is dollar-denominated, amplifying the impact of currency depreciation.
At the same time, electricity tariffs remained largely unchanged for most consumers, widening the gap between production costs and revenue recovery. Tariff adjustments were limited mainly to Band A customers in April 2024.
As a result, tariff shortfalls surged sharply—from about N140 billion in 2022 to approximately N1.9 trillion annually in 2024 and 2025—placing significant pressure on government finances.
The World Bank said the failure to establish a credible financing framework for addressing these deficits contributed to Nigeria’s inability to meet key conditions under the additional financing arrangement.
It also cited delays in aligning performance improvement plans, verification challenges, and weak implementation capacity as factors that limited disbursement under the programme.
Consequently, overall implementation of the additional financing was rated “Moderately Unsatisfactory,” with only about 9 per cent of the funds disbursed.
Financial data shows that out of a $449 million International Bank for Reconstruction and Development allocation, just $41.24 million was disbursed, leaving $407.76 million unused. Under the International Development Association component, $754.82 million was disbursed from $1.063 billion, leaving $308.53 million undisbursed.
The World Bank concluded that the design of the additional financing had become misaligned with Nigeria’s evolving electricity sector realities, making full implementation of the programme objectives increasingly difficult.
It added that achieving the intended reforms required coordinated progress across fiscal, policy, and operational areas—conditions that were not fully met within the implementation period.
The development comes amid growing concerns over Nigeria’s capacity to efficiently absorb external loans, following recent warnings from the Office of the Accountant-General of the Federation over delays in project funding approvals and disbursements.
