The Federal Government has cancelled $717.7 million in undisbursed funding from the World Bank meant for Nigeria’s electricity sector, bringing an early end to a major power sector recovery programme amid persistent blackouts, rising tariff deficits, and stalled reforms.
Findings showed that the cancelled amount represented the remaining balance of a $1.52 billion power sector intervention jointly backed by the Federal Government and the World Bank to improve electricity supply, strengthen financial sustainability, and enhance accountability in the sector.
According to a World Bank restructuring document, the cancellation followed a request by the Federal Government and a mutual decision to discontinue the Power Sector Recovery Performance-Based Operation after key reform objectives failed to materialise.
“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,” the World Bank stated.
The bank also announced that the programme, initially scheduled to end in June 2027, would now close on May 31, 2026, effectively ending the intervention more than a year earlier than planned.
The power sector recovery initiative was first approved in June 2020 with financing of about $752.5 million to address long-standing problems in Nigeria’s electricity industry, including poor supply reliability and weak financial performance.
In 2023, the World Bank approved an additional financing package worth approximately $763.5 million to deepen reforms and address structural challenges in the sector.
However, while the original programme reportedly achieved major milestones, the additional funding component struggled due to delays in implementing reforms and worsening economic conditions.
The World Bank noted that Nigeria’s electricity sector continues to grapple with deep-rooted challenges, including poor distribution performance, transmission constraints, and financial instability.
“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.
According to the bank, reforms under the original programme had helped reduce tariff shortfalls by 71 per cent between 2019 and 2022, while electricity supply to the national grid also improved.
“Implementation of the parent operation was satisfactory, brought substantial results, and fully disbursed the programme component as all targets were achieved,” the report noted.
Despite those gains, the additional financing package reportedly failed to achieve expected outcomes due to macroeconomic changes, particularly the sharp depreciation of the naira following the liberalisation of the foreign exchange market in 2023.
The World Bank explained that the depreciation significantly increased the cost of natural gas used for electricity generation, which powers more than 70 per cent of electricity supplied to the national grid.
“The liberalisation of the foreign exchange market in June 2023 led to a significant depreciation of the local currency, resulting in a major increase in gas prices used for electricity generation,” the bank said.
The report added that electricity tariffs remained largely unchanged for most consumers despite increasing production costs, except for Band A customers whose rates were adjusted in April 2024.
As a result, tariff shortfalls rose sharply from N140 billion in 2022 to about N1.9 trillion annually in 2024 and 2025, placing additional pressure on government finances.
“Due to the mismatch between electricity generation costs and tariff revenues, the shortfalls increased sharply, putting serious pressure on the Federal Government’s fiscal space,” the World Bank explained.
The bank further stated that Nigeria failed to meet critical reform indicators tied to the additional funding because authorities could not establish a sustainable financing framework to reduce 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 added.
The World Bank also attributed the programme’s setbacks to implementation delays involving performance improvement plans and verification requirements, particularly for the Transmission Company of Nigeria.
“These constraints have limited the ability to trigger disbursements even where elements of progress have been achieved,” it stated.
Financial records from the restructuring report showed that only a small fraction of the additional funding was released. Of the $763.5 million approved under the new package, only about nine per cent was disbursed.
“Taken together, these developments point to a misalignment between the design of the operation and the evolving implementation context,” the World Bank concluded.
Meanwhile, the Accountant-General of the Federation, Dr Shamseldeen Ogunjimi, recently warned that Nigeria could reject World Bank loan facilities if approval and disbursement processes continue to face delays.
“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” Ogunjimi said, stressing the need for quicker access to development financing.
He maintained that since the facilities are loans and not grants, prompt disbursement is necessary to support project timelines and fiscal planning.
However, a senior World Bank official, Mansir Nasir, clarified that project funds are typically released in phases depending on the financing structure and project implementation milestones.
Despite the cancellation, Nigeria remains one of the World Bank’s largest borrowers under the International Development Association, with total exposure standing at $18.5 billion as of March 2026.
