The Federal Government of Nigeria (FGN) has cancelled $717.7m in undisbursed financing from the World Bank for Nigeria’s struggling electricity sector, effectively ending part of a $1.52bn power sector recovery programme ahead of schedule.
Documents obtained from the World Bank showed that the cancellation followed a formal request by the Nigerian government and a joint decision by both parties to discontinue financing under the Power Sector Recovery Performance-Based Operation.
According to the World Bank restructuring paper, the cancelled amount represents the full undisbursed balance remaining 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 programme following approval of this restructuring,” the bank stated.
The World Bank also confirmed that the programme’s closing date had been moved forward from June 30, 2027, to May 31, 2026, ending the operation more than one year earlier than originally planned.
The cancelled facility was part of a broader intervention introduced to revive Nigeria’s troubled electricity industry.
The original Power Sector Recovery Performance-Based Operation was approved on June 23, 2020, with financing of about $752.5m. The programme aimed to improve electricity supply reliability, strengthen financial sustainability within the power sector, and increase accountability among electricity institutions.
Following early progress, the World Bank approved an additional financing package of about $763.5m in June 2023 to deepen reforms and address remaining structural weaknesses within the industry.
Together, both facilities amounted to approximately $1.52bn.
However, while the original programme achieved substantial progress and disbursed most of its funds, the additional financing struggled to meet key reform conditions, resulting in limited disbursement and eventual cancellation of the remaining balance.
According to the World Bank, Nigeria’s electricity sector continues to face major structural challenges despite years of reforms and significant financial interventions.
The bank said the sector still suffers from weak distribution performance, transmission bottlenecks, underutilised generation capacity, and recurring financial imbalances.
It explained that high technical and commercial losses, combined with inadequate cost recovery, have created persistent gaps between electricity revenues and actual operating costs.
“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 Federal Government had developed the Power Sector Recovery Programme to restore the sector’s financial viability and reduce pressure on public finances.
According to the World Bank, the programme initially recorded measurable progress. Tariff shortfalls reportedly declined by 71 per cent between 2019 and 2022, falling from N581bn to N166bn.
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 grid increased by 13 per cent between 2018 and 2021.
The World Bank said all performance indicators attached to the original operation were successfully 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.
Despite the early gains, the additional financing package later encountered major setbacks due to worsening macroeconomic conditions.
According to the report, the liberalisation of Nigeria’s foreign exchange market in June 2023 led to a sharp depreciation of the naira, significantly increasing the cost of natural gas used for power generation.
The bank explained that over 70 per cent of electricity supplied into Nigeria’s national grid is generated using natural gas priced in United States dollars.
At the same time, electricity tariffs for most consumers remained largely unchanged despite rising production costs. The report noted that tariffs had effectively been frozen since early 2023, except for Band A customers whose tariffs were adjusted in April 2024.
The widening gap between generation costs and sector revenues caused tariff shortfalls to rise sharply.
According to the World Bank, annual tariff shortfalls increased from N140bn in 2022 to approximately N1.9tn 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,” the bank said.
The report explained that the worsening financial situation prevented Nigeria from meeting critical indicators tied to the additional financing package.
The bank noted that authorities failed to establish a credible and sustainable financing plan capable of reducing growing 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 stated.
The World Bank also cited implementation delays involving the Transmission Company of Nigeria and challenges linked to verification requirements for sector institutions.
According to the bank, these constraints limited the ability to trigger disbursements even where some progress had been achieved.
Financial records contained in the restructuring document showed that under the International Bank for Reconstruction and Development component, only $41.24m had been disbursed out of a committed $449m.
Under the International Development Association component, $754.82m had been disbursed from a total commitment of $1.063bn.
The World Bank further disclosed that while about 95 per cent of the parent operation was successfully disbursed, only around nine per cent of the additional financing package had been released.
The bank concluded that the programme’s design had become increasingly misaligned with 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 report stated.
Meanwhile, the Accountant-General of the Federation, Shamseldeen Ogunjimi, recently warned that Nigeria could reject future World Bank loan facilities if approval and disbursement delays continue.
Speaking during a meeting with a World Bank delegation led by Treed Lane in Abuja, Ogunjimi stressed that Nigeria expected timely processing of loans because the facilities carry repayment obligations.
“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” he said.
He urged the World Bank to accelerate the approval and disbursement of project funds to support Nigeria’s development priorities.
