The Federal Government has cancelled $717.7 million in undisbursed World Bank funding for Nigeria’s power sector, ending the remaining portion of a $1.52 billion electricity recovery programme amid worsening tariff shortfalls and persistent sector challenges.

Documents obtained from the World Bank revealed that the cancellation followed a request by the Federal Government and a joint decision by both parties to discontinue financing under the Power Sector Recovery Performance-Based Operation after key reform targets failed to materialise.

According to the World Bank, the cancelled amount represented the entire undisbursed balance 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,” the institution stated.

The programme’s closing date was also moved from June 30, 2027, to May 31, 2026, effectively ending it more than one year earlier than originally planned.

Power Sector Recovery Programme Hits Major Setback

The Power Sector Recovery Performance-Based Operation was approved in June 2020 with financing of about $752.5 million aimed at improving electricity supply reliability, strengthening financial sustainability and enhancing accountability across Nigeria’s electricity value chain.

In June 2023, the World Bank approved an additional financing package worth approximately $763.5 million to deepen reforms and support further recovery efforts.

Combined, both facilities amounted to approximately $1.52 billion.

However, despite progress recorded under the original programme, the additional financing struggled to achieve critical reform benchmarks.

Tariff Shortfalls Rise to N1.9tn

The World Bank report identified deep-rooted structural problems within Nigeria’s electricity sector, including:

• Weak distribution performance
• Transmission bottlenecks
• Underutilised generation capacity
• Poor cost recovery
• Persistent financial deficits

According to the report, tariff shortfalls increased significantly from N140 billion in 2022 to approximately N1.9 trillion annually in both 2024 and 2025.

The institution explained that rising generation costs and frozen electricity tariffs widened the gap between actual sector expenses and revenue collection.

Naira Depreciation Worsened Sector Pressure

The World Bank noted that foreign exchange reforms introduced in 2023 contributed significantly to the challenges.

The liberalisation of the forex market led to a sharp depreciation of the naira, increasing the cost of natural gas used in electricity generation.

Since more than 70 per cent of electricity supplied to Nigeria’s national grid depends on gas-powered plants, rising gas costs placed further strain on the sector.

Low Disbursement Rate Triggered Cancellation

Financial records showed weak implementation under the additional financing package.

Out of the $763.5 million approved:

• Only about 9 per cent was disbursed
• Large portions remained undrawn
• Several reform conditions were not achieved

The World Bank described overall implementation progress as “Moderately Unsatisfactory.”

It also cited delays involving the Transmission Company of Nigeria and broader implementation constraints.

FG Warns Over Delayed Loan Approvals

Meanwhile, Accountant-General of the Federation, Dr Shamseldeen Ogunjimi, recently warned that Nigeria could reconsider future World Bank loans if lengthy approval and disbursement processes continue.

He stressed that development financing should align with project timelines, especially as such facilities are loans rather than grants.

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