The Federal Government has discontinued $717.7 million in undisbursed World Bank financing for Nigeria’s power sector, dealing another setback to efforts aimed at reviving the country’s troubled electricity industry.
The cancelled funds were part of the $1.52 billion Power Sector Recovery Performance-Based Operation introduced to improve electricity supply, strengthen the sector’s finances and support long-term reforms across the industry.
Documents obtained from the World Bank showed that the cancellation followed an agreement between the Nigerian government and the international lender after key reform conditions attached to the programme failed to progress as expected.
According to the restructuring document issued by the World Bank, the entire undisbursed balance under the programme has now been withdrawn, effectively bringing an end to further financing under the arrangement.
“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7m equivalent,” the report stated.
The World Bank also confirmed that the programme’s closing date had been revised from June 30, 2027 to May 31, 2026, ending the intervention earlier than initially planned.
Nigeria’s Power Sector Recovery Programme was first approved in June 2020 with initial financing of about $752.5 million. The initiative was expected to improve electricity reliability, reduce fiscal pressures on government and enhance accountability among institutions operating within the electricity supply chain.
Following initial progress recorded under the programme, the World Bank approved an additional financing package worth approximately $763.5 million in June 2023 to deepen reforms and address unresolved structural challenges.
Combined, both facilities totalled roughly $1.52 billion.
However, while the original programme reportedly achieved significant milestones and disbursed most of its funds, the additional financing package encountered serious implementation difficulties that eventually limited access to the remaining funds.
The World Bank noted that Nigeria’s electricity sector continues to grapple with major structural problems, including poor distribution efficiency, weak transmission infrastructure, inadequate cost recovery and persistent liquidity challenges.
According to the report, high technical and commercial losses across distribution companies continue to weaken the sector’s financial sustainability.
The bank explained that the electricity industry has struggled with recurring tariff shortfalls, creating severe funding gaps across the value chain and affecting the operational capacity of key institutions.
Despite the sector’s longstanding problems, the World Bank acknowledged that the original phase of the programme delivered some positive results.
Tariff shortfalls reportedly declined from N581 billion in 2019 to N166 billion in 2022, while regulatory cost recovery improved from 56 per cent to 94 per cent within the same period.
Electricity supplied to the national grid also increased by 13 per cent between 2018 and 2021.
The World Bank stated that the parent programme successfully achieved all major disbursement-linked indicators and substantially met its reform objectives.
The additional financing arrangement was intended to build on those gains by supporting sustainable financing reforms, improving sector operations and strengthening governance, particularly within the Transmission Company of Nigeria.
However, major economic developments disrupted the reform process.
The liberalisation of Nigeria’s foreign exchange market in June 2023 triggered a sharp depreciation of the naira, significantly increasing the cost of natural gas used in electricity generation.
Since more than 70 per cent of Nigeria’s electricity is generated from gas priced in United States dollars, rising exchange rates sharply increased generation costs across the sector.
At the same time, electricity tariffs for most consumers remained largely unchanged, except for Band A customers whose rates were adjusted in April 2024.
The widening gap between generation costs and revenues led to an unprecedented rise in tariff shortfalls. According to the World Bank, annual deficits increased from N140 billion in 2022 to nearly N1.9 trillion in both 2024 and 2025.
The report noted that the government was unable to establish a credible financing framework capable of addressing the growing deficits or providing a sustainable roadmap for reducing tariff shortfalls.
The World Bank also identified implementation delays, verification bottlenecks and challenges involving performance improvement plans as additional factors that slowed disbursement under the programme.
Financial records showed that only around nine per cent of the additional financing package was eventually released.
Out of $449 million approved under one component of the programme, only $41.24 million was disbursed, leaving more than $407 million untouched.
The bank concluded that the programme’s design became increasingly incompatible with prevailing realities in Nigeria’s power sector and broader economic environment.
Meanwhile, the Accountant-General of the Federation, Dr Shamseldeen Ogunjimi, recently cautioned that Nigeria could reconsider future World Bank borrowing arrangements if delays in loan approvals and disbursements continue to hinder project execution.
Despite the cancellation, Nigeria remains one of the World Bank’s largest borrowers under the International Development Association, with total exposure estimated at $18.5 billion as of March 2026.
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