The Federal Government has cancelled $717.7 million in undisbursed World Bank intervention financing meant to support the recovery of Nigeria’s troubled electricity sector.
The cancellation followed a formal request by the Federal Government and a joint decision by both parties to discontinue financing under the Power Sector Recovery Performance-Based Operation.
According to documents obtained from the World Bank, the development has effectively terminated the remaining portion of a $1.52 billion power sector recovery programme designed to improve electricity supply, strengthen sector finances and reduce the fiscal burden on public funds.
The cancelled $717.7 million represents the entire undisbursed balance left under the programme.
The World Bank stated, “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 Program following approval of this restructuring.”
The Federal Government developed the Power Sector Recovery Programme as a framework to restore financial stability in the electricity sector and improve the performance of key institutions in the power value chain.
The programme was expected to progressively eliminate tariff shortfalls, improve operational performance, strengthen regulatory oversight and promote accountability in the sector.
The original loan was approved on June 23, 2020, with financing of about $752.5m equivalent.
It was structured to improve electricity supply reliability, strengthen the financial and fiscal sustainability of the power sector and enhance accountability among major institutions in the electricity market.
Following initial progress under the programme, the World Bank approved an additional financing package of about $763.5m equivalent on June 9, 2023, to deepen reforms and consolidate earlier gains.
The additional financing became effective on June 19, 2024, and extended the project’s closing date to June 30, 2027.
Together, the original financing and the additional facility amounted to about $1.52 billion.
The World Bank said the original operation achieved substantial results and largely disbursed its resources.
According to the bank, tariff shortfalls fell by 71 per cent between 2019 and 2022, declining from ₦581bn to ₦166bn.
During the same period, regulatory cost recovery improved from 56 per cent to 94 per cent, while annual electricity supplied to the distribution grid increased by 13 per cent between 2018 and 2021.
The bank said all standard disbursement-linked indicators and global indicators attached to the original programme were fully achieved.
It stated, “Implementation of the parent operation was satisfactory, brought substantial results, and fully disbursed the PforR component as all DLRs were achieved.”
The additional financing was later approved to tackle remaining weaknesses in the sector, including poor operational performance, weak governance arrangements and unresolved financial gaps.
Reform Targets Missed
However, the World Bank said the additional financing package failed to meet critical reform conditions.
The bank attributed the setback to major macroeconomic developments, especially the liberalisation of Nigeria’s foreign exchange market in June 2023, which led to a sharp depreciation of the naira.
According to the report, the depreciation significantly increased the cost of natural gas used for electricity generation.
The bank noted that more than 70 per cent of electricity supplied to Nigeria’s national grid is generated from natural gas, whose pricing is denominated in United States dollars.
The report stated, “The liberalisation of the foreign exchange market in June 2023 led to a significant depreciation of the local currency Naira, which resulted in a big increase in prices of natural gas used to produce above 70 per cent of electricity injected in the national power system.”
At the same time, electricity tariffs for most consumers remained largely unchanged despite the increase in generation costs.
The World Bank said electricity tariffs had effectively been frozen since early 2023, except for Band A customers, whose tariffs were adjusted to cost-reflective levels in April 2024.
Tariff Shortfalls Rise To ₦1.9 Trillion
The bank said the mismatch between actual electricity production costs and revenue collected from consumers caused tariff shortfalls to rise sharply.
According to the report, annual tariff shortfalls rose from ₦140bn in 2022 to about ₦1.9tn in both 2024 and 2025.
The World Bank said, “Due to the mismatch between the electricity generation costs and the sector tariff revenues, the tariff shortfalls increased sharply in the last 3 years, moving from a low of ₦140bn in 2022 to a high of ₦1.9tn per year in 2024 and 2025, putting serious pressure on the limited Federal Government of Nigeria’s fiscal space.”
The report said the worsening financial position of the sector prevented Nigeria from achieving key global indicators attached to the additional financing package.
It noted that the indicators were not achieved in 2023, 2024 or 2025 because the authorities failed to establish a credible and fiscally sustainable financing plan to address rising tariff deficits.
The bank stated, “Recent financing plans have not fully identified sufficient sources of funding to cover tariff shortfalls, nor established a credible trajectory for their reduction.”
The World Bank also noted that Nigeria’s electricity sector continues to suffer from deep structural problems despite years of reform and financial support.
According to the bank, high technical, commercial and collection losses in the distribution segment remain major obstacles.
It added that weak distribution performance, transmission bottlenecks, underutilisation of available generation capacity and persistent financial imbalances continue to undermine the sector.
The report said, “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 bank said delays in aligning performance improvement plans with eligible expenditures also affected implementation.
It specifically cited challenges involving the Transmission Company of Nigeria and verification requirements for key sector institutions.
The report stated, “These constraints have limited the ability to trigger disbursements even where elements of progress have been achieved.”
Financial data in the restructuring document showed that the additional financing underperformed significantly.
Under the International Bank for Reconstruction and Development component, the World Bank committed $449m.
However, only $41.24 million had been disbursed, leaving $407.76m undisbursed, with a disbursement rate of just 9.18 per cent.
Under the International Development Association component, $754.82m had been disbursed out of a total commitment of $1.063bn, leaving $308.53m undisbursed.
The bank further noted that while about 95 per cent of the parent operation had been successfully disbursed, only about nine per cent of the additional financing package had been released.
It stated, “Of the AF combination of a loan and a credit totalling $763.5m equivalent, only 9 per cent, corresponding to prior results of the PforR, have been disbursed.”
The World Bank described overall implementation progress under the additional financing as “Moderately Unsatisfactory.”
The World Bank said the original design of the programme had become increasingly misaligned with current realities in Nigeria’s power sector.
It stated, “Taken together, these developments point to a misalignment between the design of the operation and the evolving implementation context.”
According to the bank, achieving the programme’s objectives required coordinated progress across fiscal, policy and operational areas, but those conditions proved difficult to realise within the expected timeframe.
As part of the restructuring, the programme’s closing date was brought forward from June 30, 2027, to May 31, 2026.
This means the operation will now end more than one year ahead of its earlier schedule.
AGF Warns Over Delayed Loan Approvals
PrimeTimes Nigeria reports that the cancellation comes after the Accountant-General of the Federation, Dr Shamseldeen Ogunjimi, warned that Nigeria may reject loan facilities from the World Bank if approval and disbursement delays persist.
Ogunjimi’s warning was contained in a statement issued last week by the Director of Press and Public Relations at the Office of the Accountant-General of the Federation, Bawa Mokwa.
The AGF spoke in Abuja during a courtesy visit by a World Bank delegation led by Treed Lane.
He said Nigeria expected timely processing of funding requests, especially because the facilities were loans and not grants.
Ogunjimi said the loans carried repayment obligations and, therefore, disbursement timelines must align with project schedules and fiscal planning.
He said, “If approvals take more than six months, the Nigerian Government may no longer honour such arrangements.”
The AGF added that as a responsible borrower, Nigeria should not be subjected to prolonged approval processes that could affect project execution timelines and development objectives.
He urged the World Bank to “expedite the approval and disbursement of project funds to Nigeria” in order to support the country’s development priorities.
The cancellation of the $717.7m balance now raises fresh concerns about the future of power sector reforms, especially as tariff shortfalls, infrastructure weaknesses and liquidity problems continue to weigh heavily on Nigeria’s electricity market.