FG scraps $717.7m World Bank power facility amid deepening electricity sector crisis

NIGERIA’S efforts to stabilise its troubled electricity sector have suffered a setback after the Nigerian government cancelled $717.7 million in undisbursed financing tied to the World Bank-supported Power Sector Recovery Performance-Based Operation (PSRO).

According to a restructuring paper released by the World Bank, the cancellation followed a formal request submitted by the Nigerian government on March 26, 2026, with both parties agreeing to discontinue the remaining financing under the programme and redirect support to other interventions.

The document disclosed that the entire undisbursed balance of $717.7 million would no longer be accessed, while the programme’s closing date was shortened from June 30, 2027, to May 31, 2026.

“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 World Bank stated.

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It added that the programme’s end date had been moved forward to align with the cancellation process and completion of existing disbursement activities before final closure.

The development comes at a time when Nigeria’s power industry continues to struggle with severe liquidity challenges, weak operational performance, inadequate cost recovery, and growing subsidy obligations across the electricity value chain.

The World Bank linked the programme’s breakdown to worsening financial pressures triggered by the naira devaluation and the failure of electricity tariffs to match rising generation and operational costs.

According to the lender, the June 2023 foreign exchange liberalisation sharply increased the cost of gas used by thermal power plants, which account for more than 70 percent of electricity generation on the national grid, because gas pricing is dollar-denominated.

Despite escalating costs, electricity tariffs remained largely unchanged for most consumers, with only Band A customers subjected to cost-reflective tariff adjustments introduced in April 2024. The imbalance significantly widened the gap between revenues and operating expenses within the sector.

The report revealed that annual tariff shortfalls rose from N140 billion in 2022 to about N1.9 trillion in both 2024 and 2025, creating mounting fiscal pressure for the government and disrupting key reform targets attached to the programme.

The World Bank further noted that Nigeria failed to establish a credible financing framework capable of addressing the widening deficits, making it difficult to achieve critical performance milestones between 2023 and 2025.

Beyond tariff-related concerns, the institution also highlighted long-standing structural problems in the power sector, including poor distribution efficiency, transmission constraints, high technical and commercial losses, underutilised generation capacity, and weak revenue collection.

The PSRO was originally approved in June 2020 to support Nigeria’s broader Power Sector Recovery Programme aimed at improving electricity supply, strengthening financial sustainability, and enhancing accountability across the industry.

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The World Bank acknowledged that the programme initially recorded measurable progress. Between 2019 and 2022, tariff shortfalls reportedly fell by 71 percent from N581 billion to N166 billion, while regulatory cost recovery improved from 56 percent to 94 percent. Electricity supplied to distribution companies also increased by 13 percent between 2018 and 2021.

Following those gains, the lender approved an additional $750 million financing package in June 2023 to sustain reforms and address lingering structural weaknesses. The facility became effective in June 2024 and extended the programme’s duration to 2027.

Slow execution

However, implementation later slowed significantly. The World Bank disclosed that none of the programme’s global performance indicators was achieved under the additional financing arrangement, citing delays in executing institutional reform plans, weak verification processes tied to disbursement conditions, and the absence of a fiscally sustainable financing strategy.

As a result, only around 9 percent of the additional financing package was eventually disbursed before the cancellation.

The lender subsequently downgraded the programme’s implementation status from satisfactory to moderately unsatisfactory due to missed reform targets and slow disbursement progress.

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Data contained in the restructuring paper showed that the operation had total commitments of about $1.51 billion from the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Of that amount, approximately $796 million had been disbursed before the cancellation, leaving $717.7 million undrawn.

Meanwhile, the Accountant-General of the Federation, Dr. Shamseldeen Babatunde Ogunjimi, had earlier warned that Nigeria could reconsider some World Bank loan arrangements if approval and disbursement procedures continued to experience prolonged delays.

Ogunjimi stressed that the facilities being accessed from the World Bank were loans rather than grants, adding that Nigeria deserved faster processing and timely release of funds intended to support national development priorities.