Nigeria has cancelled $717.7 million in undisbursed financing under the World Bank-backed Power Sector Recovery Performance-Based Operation (PSRO), dealing a major setback to efforts aimed at stabilising the country’s struggling electricity market.
Details contained in a World Bank restructuring paper released on Tuesday showed that the Federal Government formally requested the cancellation on March 26, 2026, following a joint decision with the lender to discontinue the programme and redirect support toward alternative interventions within the power sector.
The restructuring document confirmed that the entire undisbursed balance of $717.7 million would be cancelled, while the programme’s closing date was moved forward 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.
The lender added that the revised closing date reflected the completion of disbursement activities and the programme’s eventual closure in line with World Bank procedures.
The decision highlights growing financial and operational challenges across Nigeria’s electricity value chain, where mounting tariff deficits, rising generation costs, and weak infrastructure continue to undermine reform efforts.
According to the World Bank, a major factor behind the programme’s collapse was the worsening financial condition of the power sector following the liberalisation of Nigeria’s foreign exchange market in June 2023.
The bank explained that the naira devaluation sharply increased the cost of natural gas used to generate over 70 per cent of electricity supplied to the national grid because gas prices are denominated in US dollars.
Despite the increase in generation costs, electricity tariffs for most consumers remained largely unchanged, except for Band A customers who were moved to cost-reflective tariffs in April 2024.
This pricing gap caused tariff deficits to surge from N140 billion in 2022 to approximately N1.9 trillion in both 2024 and 2025, placing significant fiscal pressure on the government.
The World Bank noted that the absence of a sustainable financing framework to absorb the deficits prevented Nigeria from achieving key reform targets between 2023 and 2025.
The lender also identified persistent structural weaknesses within the power sector, including poor distribution performance, transmission bottlenecks, underutilised generation capacity, high technical and commercial losses, and weak revenue collection.
These long-standing issues, according to the bank, have continued to discourage investment and limit reliable electricity supply to households and businesses.
The PSRO, approved in June 2020, was introduced to support Nigeria’s broader Power Sector Recovery Programme aimed at restoring financial sustainability, improving electricity supply, and strengthening governance in the industry.
Initial implementation recorded notable progress. Between 2019 and 2022, tariff shortfalls declined by 71 per cent from N581 billion to N166 billion, while regulatory cost recovery improved from 56 per cent to 94 per cent. Electricity supply to distribution companies also increased by 13 per cent between 2018 and 2021.
Encouraged by these gains, the World Bank approved an additional $750 million financing package in June 2023 to deepen reforms and tackle structural challenges. The additional financing became effective in June 2024 and extended the programme timeline to 2027.
However, the reform momentum later weakened.
The World Bank disclosed that none of the programme’s global performance indicators were achieved under the additional financing arrangement due to implementation delays, unmet verification requirements, and the failure to establish a financially sustainable funding model.
As a result, only about 9 per cent of the additional financing was disbursed before the programme was halted.
The lender subsequently downgraded the programme’s implementation rating from “satisfactory” to “moderately unsatisfactory.”
According to the restructuring document, the PSRO had total commitments of about $1.51 billion from the International Bank for Reconstruction and Development and the International Development Association. About $796 million had been disbursed before the cancellation of the remaining $717.7 million balance.
The development has raised fresh concerns about Nigeria’s ability to execute large-scale infrastructure reforms amid economic pressures and institutional challenges.
Earlier, the Accountant-General of the Federation, Shamseldeen Babatunde Ogunjimi, warned that Nigeria could reconsider its participation in World Bank loan arrangements if approval and disbursement delays persist.
He stressed that World Bank funds are loans and not grants, adding that delayed processing could undermine development outcomes tied to critical national projects.
With the PSRO now discontinued, attention is expected to shift toward alternative solutions for stabilising the power sector, including tariff reforms, targeted subsidies, and improved operational efficiency.
Analysts, however, warn that without a clear and sustainable financing framework, Nigeria’s electricity crisis may continue to hinder economic growth and industrial development.
