BY FRONTLINE REPORTERS
The Federal Government has cancelled a massive $717.7 million undisbursed World Bank intervention facility meant to support Nigeria’s troubled electricity sector, in a move that underscores the deepening financial and structural crisis confronting the nation’s power industry.
The cancellation followed a formal request by the Federal Government and a mutual agreement with the World Bank to discontinue financing under the Power Sector Recovery Performance-Based Operation, a flagship reform programme initially designed to restore stability, improve electricity supply, and strengthen the financial health of Nigeria’s power sector.
The development effectively brings an abrupt end to the remaining portion of a broader $1.52 billion World Bank-backed electricity recovery programme, which had been expected to drive critical reforms across the sector.
According to official World Bank restructuring documents obtained by journalists, the cancelled sum represents the entire undisbursed balance left 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 bank further disclosed that the project’s closing date had been moved forward from June 30, 2027, to May 31, 2026, effectively terminating the programme more than a year ahead of schedule.
The decision marks a major setback for Nigeria’s electricity reform agenda at a time when consumers and businesses continue to grapple with poor power supply, rising electricity costs, and worsening operational challenges across the energy value chain.
The programme itself was originally approved on June 23, 2020, with financing of approximately $752.5 million equivalent. It was designed to improve electricity supply reliability, strengthen the sector’s fiscal and financial sustainability, and enhance accountability among institutions operating within the power value chain.
Following what the World Bank described as encouraging early progress, the bank later approved an additional financing package worth about $763.5 million equivalent on June 9, 2023, to deepen reforms and consolidate gains already achieved under the initial phase.
That additional financing became effective on June 19, 2024, and extended the project’s implementation timeline to June 2027.
Combined, both facilities amounted to roughly $1.52 billion.
However, while the parent programme reportedly recorded substantial progress and achieved significant disbursements, the additional financing component struggled to meet critical reform benchmarks, resulting in limited releases and the eventual cancellation of the remaining funds.
According to the World Bank, Nigeria’s power sector continues to face severe structural and operational weaknesses despite years of reforms, policy interventions, and massive financial support.
The bank identified persistent technical, commercial, and collection losses within the electricity distribution segment as major contributors to the sector’s ongoing crisis.
It explained that poor cost recovery mechanisms and weak operational performance have continued to create a dangerous mismatch between actual operating costs and revenues generated within the sector.
“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 World Bank further noted that Nigeria’s electricity sector still struggles with transmission bottlenecks, underutilisation of available generation capacity, weak distribution performance, and persistent financial imbalances.
According to the report, these long-standing challenges have continued to undermine efforts aimed at building a stable and financially viable electricity market.
The Federal Government had introduced the Power Sector Recovery Programme as a strategic framework intended to restore the sector’s financial viability while reducing the fiscal burden of electricity subsidies on public finances.
The programme included plans to gradually eliminate tariff shortfalls, improve operational efficiency among electricity institutions, and strengthen regulatory oversight and accountability.
Despite the eventual cancellation of the remaining loan balance, the World Bank acknowledged that the original phase of the programme delivered notable achievements.
According to the bank, tariff shortfalls fell significantly by 71 per cent between 2019 and 2022, declining from N581 billion to N166 billion.
The report also stated that regulatory cost recovery improved from 56 per cent to 94 per cent during the same period, while annual electricity supplied to the national distribution grid increased by 13 per cent between 2018 and 2021.
The bank confirmed that all standard disbursement-linked indicators and global performance targets attached to the original operation were fully achieved.
“Implementation of the parent operation was satisfactory, brought substantial results, and fully disbursed the PforR component as all DLRs were achieved,” the report noted.
Buoyed by those gains, the World Bank approved the additional financing package to address lingering structural weaknesses and deepen reforms within the sector.
The new funding was expected to support the establishment of a sustainable financing framework, improve operational performance among sector institutions, and strengthen governance structures, particularly within the Transmission Company of Nigeria.
However, those anticipated reforms failed to materialise within the expected timeframe as major macroeconomic developments dramatically altered the operating environment.
According to the World Bank, one of the biggest turning points came with the liberalisation of Nigeria’s foreign exchange market in June 2023, which triggered a sharp depreciation of the naira.
The depreciation significantly increased the cost of natural gas used for electricity generation, with the bank noting that over 70 per cent of electricity supplied to Nigeria’s national grid is generated using 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.
SHAMSEELDEEN OGUNJIMI
At the same time, electricity tariffs for most consumers remained largely unchanged despite soaring generation costs.
The bank explained that tariffs had effectively remained frozen since early 2023, except for Band A customers whose rates were adjusted to cost-reflective levels in April 2024.
This growing mismatch between electricity production costs and sector revenues triggered an explosive rise in tariff shortfalls.
According to the report, annual tariff shortfalls jumped from N140 billion in 2022 to approximately N1.9 trillion in both 2024 and 2025, placing enormous pressure on government finances.
“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 bank stated.
The World Bank explained that the worsening financial situation prevented Nigeria from meeting key reform indicators attached to the additional financing package.
According to the report, authorities failed to establish a credible and fiscally sustainable financing framework capable of addressing the widening tariff 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 report added.
The bank also pointed to implementation delays, including setbacks involving performance improvement plans linked to the Transmission Company of Nigeria and challenges associated with verification processes for key institutions.
“These constraints have limited the ability to trigger disbursements even where elements of progress have been achieved,” the report said.
Financial records attached to the restructuring document reveal the scale of the programme’s underperformance.
Under the International Bank for Reconstruction and Development component, only $41.24 million was disbursed out of a committed $449 million, leaving $407.76 million undisbursed.
Similarly, under the International Development Association component, $754.82 million was disbursed out of $1.063 billion, leaving another $308.53 million unused.
The World Bank noted that while approximately 95 per cent of the original programme was successfully disbursed, only about nine per cent of the additional financing package had been 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 ultimately concluded that the programme’s original design had become increasingly incompatible with prevailing economic and operational realities within Nigeria’s electricity sector.
“Taken together, these developments point to a misalignment between the design of the operation and the evolving implementation context,” the World Bank stated.
The cancellation comes amid growing concerns within government circles over delays associated with international loan approvals and disbursements.
Only days earlier, the Accountant-General of the Federation, Shamseldeen Ogunjimi, warned that Nigeria could reconsider future World Bank loan arrangements if approval timelines and disbursement processes continue to suffer prolonged delays.
Speaking during a courtesy visit by a World Bank delegation led by Mrs Treed Lane in Abuja, Ogunjimi stressed that Nigeria expects timely processing of development financing requests since such facilities are loans that must ultimately be repaid.
“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” he warned.
The Accountant-General argued that prolonged bureaucratic procedures could disrupt project execution schedules, weaken fiscal planning, and undermine national development objectives.
He therefore urged the World Bank to accelerate approval and disbursement processes for projects involving Nigeria to ensure timely implementation of critical infrastructure and development programmes.
The latest cancellation now raises fresh questions about the future of Nigeria’s electricity reform efforts and the government’s ability to stabilise a sector widely considered essential to economic growth, industrial expansion, and national competitiveness.
For millions of Nigerians still battling unstable electricity supply, rising tariffs, and worsening energy costs, the development may further deepen concerns about the pace and direction of reforms in the country’s troubled power sector.
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2026-05-25