Nigeria cancels $717.7m World Bank power facility as electricity sector worsens

The Federal Government has terminated $717.7 million in undisbursed World Bank funding earmarked for Nigeria’s electricity sector, underscoring the growing financial and operational crisis facing the country’s power industry.

The cancelled funds formed part of the $1.52 billion Power Sector Recovery Performance-Based Operation introduced to support reforms, improve electricity supply and restore financial stability within the sector.

Documents obtained from the World Bank showed that the cancellation followed a request by the Nigerian government and a mutual decision by both parties to discontinue the programme after major reform targets failed to materialise.

According to the World Bank’s restructuring report, the entire outstanding balance under the programme has now been cancelled, effectively ending any further disbursement.

“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7m equivalent,” the bank stated.

The World Bank also revealed that the programme’s terminal date had been moved forward from June 30, 2027 to May 31, 2026, bringing the intervention to an earlier-than-planned conclusion.

The power recovery programme was initially approved in June 2020 with financing of about $752.5 million. It was designed to strengthen electricity supply reliability, improve cost recovery and enhance accountability among key institutions within Nigeria’s electricity value chain.

Following what the World Bank described as early gains, an additional financing package worth approximately $763.5 million was approved in June 2023 to deepen ongoing reforms and address unresolved structural weaknesses in the sector.

Together, both financing packages totalled roughly $1.52 billion.

However, while the original programme reportedly achieved substantial progress and recorded high levels of disbursement, the additional financing struggled to meet critical conditions required for release of funds.

The World Bank noted that Nigeria’s electricity sector remains burdened by deep-rooted structural challenges, including poor distribution efficiency, weak transmission infrastructure, underutilised generation capacity and persistent liquidity problems.

The report identified high technical losses, weak revenue collection and inadequate cost-reflective tariffs as key factors worsening the sector’s financial instability.

“These constraints have created recurrent financing gaps, most notably in the form of tariff shortfalls,” the bank stated.

According to the report, tariff shortfalls initially declined from N581 billion in 2019 to N166 billion in 2022 under the first phase of reforms. Regulatory cost recovery also improved significantly during the period, while electricity supply to the national grid recorded modest growth.

The World Bank said the parent operation achieved its core performance indicators and fully disbursed most of its allocated resources.

The additional financing package was expected to consolidate those gains by supporting sustainable financing mechanisms, improving operational performance and strengthening governance across the sector, particularly within the Transmission Company of Nigeria.

But the reforms suffered major setbacks following macroeconomic changes triggered by the liberalisation of Nigeria’s foreign exchange market in June 2023.

The depreciation of the naira significantly increased the cost of gas used for electricity generation, with over 70 per cent of Nigeria’s grid power generated from gas priced in United States dollars.

Despite rising generation costs, electricity tariffs remained largely unchanged for most consumers, except Band A customers whose tariffs were adjusted in April 2024.

The mismatch between production costs and sector revenues resulted in a dramatic increase in tariff deficits. According to the World Bank, annual tariff shortfalls surged from N140 billion in 2022 to nearly N1.9 trillion in both 2024 and 2025.

The bank explained that Nigeria failed to establish a credible financing framework capable of reducing the growing deficits, making it impossible to achieve major reform indicators tied to the additional financing arrangement.

It added that recent financing plans did not provide sufficient funding sources to cover tariff shortfalls or outline a sustainable path for reducing them.

Implementation delays also affected the programme. The World Bank cited challenges involving performance improvement plans, verification procedures and delays associated with the Transmission Company of Nigeria.

Financial records in the restructuring document showed that only about nine per cent of the additional financing package was eventually disbursed.

Out of the $449 million committed under one component of the programme, only $41.24 million was released, leaving over $407 million undisbursed.

The World Bank concluded that the programme’s design became increasingly disconnected from the realities of Nigeria’s changing economic and electricity market conditions.

Meanwhile, the Accountant-General of the Federation, Dr Shamseldeen Ogunjimi, recently warned that Nigeria could reconsider future World Bank loan arrangements if delays in approval and disbursement continue to undermine project implementation timelines.

Despite the cancellation, Nigeria remains one of the largest beneficiaries of World Bank concessional lending through the International Development Association, with outstanding exposure estimated at $18.5 billion as of March 2026.