Federal Government has cancelled $717.7 million in undisbursed World Bank intervention funding meant to support reforms in Nigeria’s troubled electricity sector.
Gatekeepers News reports that the cancellation followed a formal request by the Federal Government and a mutual decision by both parties to discontinue financing under the Power Sector Recovery Performance-Based Operation following challenges in meeting critical reform targets and changing realities within the sector.
Documents obtained from the World Bank showed that the decision effectively ends the remaining portion of the $1.52 billion power sector recovery programme.
According to the bank, the cancelled sum represents the entire outstanding balance yet to be disbursed under the programme.
“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7m equivalent, and no further disbursements will be made under the Program following approval of this restructuring,” the World Bank stated.
The Power Sector Recovery Programme was introduced by the Federal Government to restore financial stability in the electricity sector and reduce the growing fiscal burden on government finances.
The programme was designed to eliminate tariff shortfalls gradually, improve operational efficiency among power institutions, and strengthen regulatory oversight and accountability across the sector.
The initial financing package, worth about $752.5 million, was approved on June 23, 2020, to improve electricity supply reliability, enhance financial sustainability, and boost accountability within Nigeria’s electricity value chain.
Following reported progress under the first phase, the World Bank approved an additional financing package of approximately $763.5 million on June 9, 2023, to deepen reforms and address lingering structural issues in the sector.
The additional financing became effective on June 19, 2024, and extended the programme’s closing date to June 30, 2027.
Combined, both facilities amounted to about $1.52 billion. However, while the original programme recorded substantial progress and largely disbursed its funds, the additional financing struggled to meet major reform conditions, resulting in limited disbursement and eventual cancellation of the remaining balance.
The World Bank said Nigeria’s electricity sector continues to face deep-rooted structural challenges despite years of reforms and financial support.
According to the report, the sector still grapples with weak distribution performance, transmission bottlenecks, underutilisation of available generation capacity, and persistent financial imbalances.
“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 report stated.
The bank explained that high technical, commercial, and collection losses in the distribution segment, coupled with poor cost recovery, continue to create a mismatch between sector revenues and operating costs.
Despite the current setback, the World Bank acknowledged that the original programme achieved notable results.
According to the report, tariff shortfalls declined by 71 per cent between 2019 and 2022, dropping from N581 billion to N166 billion.
Regulatory cost recovery also improved significantly from 56 per cent to 94 per cent within the same period, while annual electricity supplied to the national distribution grid rose by 13 per cent between 2018 and 2021.
“Implementation of the parent operation was satisfactory, brought substantial results, and fully disbursed the PforR component as all DLRs were achieved,” the report stated.
However, the expected gains from the additional financing package failed to materialise within the projected timeframe.
The World Bank blamed the setback largely on macroeconomic developments, particularly the liberalisation of Nigeria’s foreign exchange market in June 2023, which triggered a sharp depreciation of the naira and significantly increased the cost of natural gas used for electricity generation.
According to the bank, more than 70 per cent of electricity supplied to Nigeria’s national grid is generated using natural gas priced in United States dollars.
“The liberalisation of the foreign exchange market in June 2023 led to a significant depreciation of the local currency Naira, which resulted in a big increase in prices of natural gas used to produce above 70 per cent of electricity injected in the national power system,” the report stated.
The bank also noted that electricity tariffs for most consumers remained largely unchanged despite rising production costs, except for Band A customers whose tariffs were adjusted to cost-reflective levels in April 2024.
As a result, tariff shortfalls surged sharply from N140 billion in 2022 to about N1.9 trillion annually in both 2024 and 2025.
“Due to the mismatch between the electricity generation costs and the sector tariff revenues, the tariff shortfalls increased sharply in the last three years, moving from a low of N140bn in 2022 to a high of N1.9tn per year in 2024 and 2025, putting serious pressure on the limited Federal Government of Nigeria’s fiscal space,” the World Bank said.
The report added that Nigeria failed to meet major indicators tied to the additional financing package because authorities could not establish a credible and sustainable financing framework to address the growing deficits.
“Recent financing plans have not fully identified sufficient sources of funding to cover tariff shortfalls, nor established a credible trajectory for their reduction,” the bank stated.
The World Bank also cited delays in implementing performance improvement plans involving the Transmission Company of Nigeria and verification challenges affecting key sector institutions.
“These constraints have limited the ability to trigger disbursements even where elements of progress have been achieved,” the report added.
Financial records contained in the restructuring document showed that under the International Bank for Reconstruction and Development component, only $41.24 million out of the committed $449 million was disbursed, leaving $407.76 million undisbursed.
Similarly, under the International Development Association component, $754.82 million was disbursed from a total commitment of $1.063 billion, leaving $308.53 million outstanding.
The World Bank disclosed that while about 95 per cent of the original programme was successfully disbursed, only around nine per cent of the additional financing package was released.
“Of the AF combination of a loan and a credit totalling $763.5m equivalent, only 9 per cent, corresponding to prior results of the PforR, have been disbursed,” the report stated.
The bank concluded that the programme’s design had become increasingly inconsistent with the realities in Nigeria’s electricity sector.
“Taken together, these developments point to a misalignment between the design of the operation and the evolving implementation context,” the report noted.
The World Bank further disclosed that the programme’s closing date had been moved forward from June 30, 2027, to May 31, 2026, effectively ending the operation more than a year earlier than planned.
The development comes days after the Accountant-General of the Federation, Shamseldeen Ogunjimi, warned that Nigeria could reject future World Bank loan facilities if delays in approvals and disbursements continue.
Speaking in Abuja during a courtesy visit by a World Bank delegation led by Treed Lane, Ogunjimi stressed that Nigeria expects timely processing of funding requests since the facilities are loans and not grants.
“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” he said.
He urged the World Bank to expedite approval and disbursement processes to support Nigeria’s development priorities and project implementation timelines.
