The Federal Government has cancelled a $717.7m World Bank loan originally approved to support reforms and recovery efforts in Nigeria’s struggling electricity sector, following concerns over delayed reforms and worsening financial challenges within the industry.
Key Highlights
•Federal Government cancels $717.7m World Bank loan for power sector reforms
•Cancellation affects undisbursed balance under $1.52bn recovery programme
•World Bank cites failure to achieve key reform milestones
•Nigeria’s electricity tariff shortfall rises to N1.9tn in 2024 and 2025
•Programme closing date moved forward to May 31, 2026
•Power sector continues to face transmission, distribution and financing challenges
•FG warns against prolonged delays in World Bank loan approvals and disbursements
The cancellation followed a formal request by the Federal Government and a joint agreement with the World Bank to discontinue financing under the Power Sector Recovery Performance-Based Operation.
According to documents obtained from the World Bank, the cancelled amount represents the entire undisbursed balance remaining under the broader $1.52bn intervention programme designed to improve electricity supply, financial sustainability, and governance within Nigeria’s power sector.
Read Also:
“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 Power Sector Recovery Programme was introduced by the Federal Government as part of efforts to restore the financial viability of Nigeria’s electricity sector and reduce pressure on public finances.
The programme aimed to improve electricity supply reliability, strengthen regulatory oversight, reduce tariff shortfalls, and improve operational performance across key institutions in the power value chain.
The initial financing package worth about $752.5m was approved on June 23, 2020, while an additional financing package of approximately $763.5m was approved in June 2023 to deepen ongoing reforms and address structural weaknesses in the sector.
However, the World Bank noted that implementation challenges, worsening macroeconomic conditions, and the inability to achieve critical reform targets contributed to the eventual cancellation of the remaining funds.
According to the report, the liberalisation of Nigeria’s foreign exchange market in 2023 led to a sharp depreciation of the naira, significantly increasing the cost of natural gas used for electricity generation.
The bank explained that over 70 per cent of electricity supplied into Nigeria’s national grid depends on gas-powered plants, with gas pricing denominated in US dollars.
At the same time, electricity tariffs remained largely unchanged for most consumers, except for Band A customers whose tariffs were adjusted in 2024.
The widening gap between electricity generation costs and revenues reportedly caused tariff shortfalls to surge from N140bn in 2022 to about N1.9tn annually in both 2024 and 2025.
“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 World Bank stated.
Despite the challenges, the bank acknowledged that the original phase of the programme achieved notable progress, including a 71 per cent reduction in tariff shortfalls between 2019 and 2022 and improved regulatory cost recovery.
However, the additional financing package struggled to meet disbursement conditions, with only about nine per cent of the funds eventually released.
The World Bank also disclosed that the programme’s closing date had been moved forward from June 30, 2027, to May 31, 2026.
Meanwhile, the Accountant-General of the Federation, Shamseldeen Ogunjimi, recently warned that Nigeria may reconsider future loan arrangements with the World Bank if approval and disbursement processes continue to suffer prolonged delays.
According to Ogunjimi, Nigeria expects timely processing of development financing requests since such facilities are loans that must eventually be repaid.
