Nigeria’s electricity sector reform programme has suffered a major setback after the Federal Government and the World Bank agreed to cancel $717.7 million in undisbursed financing tied to the country’s struggling power sector recovery initiative.
The cancellation effectively terminates the remaining balance under the $1.52 billion Power Sector Recovery Performance-Based Operation (PSRO), a flagship reform programme designed to stabilise Nigeria’s electricity industry, improve financial sustainability, strengthen accountability across the value chain, and enhance power supply reliability nationwide.
Documents obtained from the World Bank restructuring paper revealed that the cancellation followed a formal request by the Federal Government alongside a joint decision by both parties to discontinue financing under the programme due to worsening sector realities, rising fiscal pressures, implementation delays, and the inability to achieve critical reform milestones.
According to the World Bank, the cancelled amount represents the entire undisbursed balance left 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 Program following approval of this restructuring,” the bank stated.
The World Bank also disclosed that the programme’s closing date had been moved forward from June 30, 2027, to May 31, 2026, effectively ending the operation more than one year earlier than originally planned.
The PSRO was initially approved on June 23, 2020, with financing of approximately $752.5 million equivalent. The programme was created as part of broader efforts to rescue Nigeria’s troubled electricity sector, which has struggled for years with weak infrastructure, poor distribution performance, chronic liquidity shortages, low revenue collection, mounting debts, and regulatory inefficiencies.
The reform framework aimed to restore financial viability within the sector, reduce the fiscal burden on government finances, improve electricity supply reliability, and strengthen accountability among institutions operating across the power value chain.
Following what the World Bank described as early progress under the original operation, the institution approved an Additional Financing package of approximately $763.5 million equivalent on June 9, 2023, to deepen reforms and address lingering structural weaknesses within the industry.
The additional financing became effective on June 19, 2024, and extended the project’s completion date to June 30, 2027. Combined, both facilities totalled approximately $1.52 billion.
However, while the parent operation recorded substantial progress and successfully disbursed most of its funds, the additional financing arrangement struggled to meet several major reform conditions, resulting in limited disbursements and the eventual cancellation of the remaining balance.
The World Bank stated that Nigeria’s electricity sector continues to face severe structural problems despite years of reforms and extensive financial support from development institutions.
According to the report, the sector still suffers from weak distribution company performance, transmission bottlenecks, underutilisation of available generation capacity, poor collection efficiency, and recurring financial imbalances.
The bank noted that high technical, commercial, and collection losses across the distribution segment — combined with inadequate cost recovery — have created a persistent mismatch between sector revenues and actual operating costs.
“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.
To address these longstanding issues, the Federal Government had developed the Power Sector Recovery Programme as a strategic framework aimed at gradually eliminating tariff shortfalls, improving operational efficiency, strengthening governance, and reducing the sector’s dependence on public subsidies.
The World Bank noted that implementation of the original programme delivered measurable gains.
According to the report, tariff shortfalls fell by 71 per cent between 2019 and 2022, declining from N581 billion to N166 billion.
Regulatory cost recovery also improved significantly during the same period, rising from 56 per cent to 94 per cent, while annual electricity supplied to the national distribution grid increased by 13 per cent between 2018 and 2021.
The World Bank added that all standard disbursement-linked indicators and global performance indicators tied to the original programme were fully achieved.
“Implementation of the parent operation was satisfactory, brought substantial results, and fully disbursed the PforR component as all DLRs were achieved,” the bank stated.
Encouraged by those results, the World Bank approved the additional financing package to sustain reform momentum and deepen improvements within the sector.
The new financing arrangement was expected to support the creation of a sustainable financing framework for the power industry, improve operational performance through performance improvement plans, and strengthen governance among key institutions, especially the Transmission Company of Nigeria.
However, the expected reforms failed to materialise within the projected timeframe.
The World Bank attributed much of the setback to major macroeconomic developments that dramatically changed the sector’s operating environment.
According to the report, the liberalisation of Nigeria’s foreign exchange market in June 2023 triggered a sharp depreciation of the naira, significantly increasing the cost of natural gas used for electricity generation.
The bank explained that more than 70 per cent of electricity injected into Nigeria’s national grid is generated using natural gas, whose pricing is denominated in United States dollars.
“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,” the report stated.
At the same time, electricity tariffs for most consumers remained largely frozen despite rising generation costs. The World Bank noted that tariffs had effectively remained unchanged since early 2023, except for Band A customers whose rates were adjusted to cost-reflective levels in April 2024.
The mismatch between rising electricity generation costs and stagnant tariff revenues caused tariff shortfalls to surge dramatically.
According to the report, annual tariff deficits rose sharply from a low of N140 billion in 2022 to approximately N1.9 trillion per year in both 2024 and 2025.
“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 N140bn in 2022 to a high of N1.9tn per year in 2024 and 2025, putting serious pressure on the limited Federal Government of Nigeria’s fiscal space,” the World Bank said.
The report explained that the worsening financial position of the sector prevented Nigeria from meeting several critical indicators attached to the additional financing package.
The bank disclosed that the required global indicators were not achieved in 2023, 2024, or 2025 because authorities failed to establish a credible and fiscally sustainable financing plan capable of addressing the growing tariff deficits.
According to the report, recent financing plans did not identify sufficient funding sources to cover the deficits or establish a realistic path toward reducing the shortfalls over time.
“Recent financing plans have not fully identified sufficient sources of funding to cover tariff shortfalls, nor established a credible trajectory for their reduction,” the bank stated.
Apart from financial challenges, implementation delays also contributed heavily to the programme’s difficulties.
The World Bank cited delays in aligning performance improvement plans with eligible expenditures, especially projects involving the Transmission Company of Nigeria, alongside verification-related challenges affecting key institutions within the electricity value chain.
“These constraints have limited the ability to trigger disbursements even where elements of progress have been achieved,” the report added.
As a result, wider disbursements under the additional financing arrangement failed to materialise.
The World Bank classified overall implementation progress under the additional financing package as “Moderately Unsatisfactory.”
Financial records attached to the restructuring document revealed the scale of underperformance under the programme.
Under the International Bank for Reconstruction and Development component, the World Bank committed $449 million. However, only $41.24 million was eventually disbursed, leaving $407.76 million undisbursed and a disbursement rate of just 9.18 per cent.
Under the International Development Association component, $754.82 million had been disbursed out of a total commitment of $1.063 billion, leaving $308.53 million undisbursed.
The World Bank further explained that while approximately 95 per cent of the original operation had been successfully disbursed, only around nine per cent of the additional financing package was eventually released.
“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 report stated.
The World Bank concluded that the original design of the programme had become increasingly incompatible with prevailing realities in Nigeria’s electricity sector.
“Taken together, these developments point to a misalignment between the design of the operation and the evolving implementation context,” the bank said.
According to the institution, achieving the programme’s objectives required coordinated progress across fiscal, policy, and operational areas — conditions that became increasingly difficult to realise within the anticipated timeframe.
The development comes amid growing concerns over Nigeria’s dependence on World Bank financing and delays associated with accessing multilateral loans.
Earlier, the Accountant-General of the Federation, Shamseldeen Ogunjimi, warned that Nigeria could reject future World Bank loan arrangements if approval and disbursement delays continue to affect project timelines.
Speaking during a courtesy visit by a World Bank delegation led by Treed Lane in Abuja, Ogunjimi stressed that Nigeria expects faster processing of funding requests since the facilities are loans and not grants.
“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” Ogunjimi said.
He added that prolonged approval timelines could undermine project execution and broader national development objectives.
The Accountant-General urged the World Bank to accelerate approval and disbursement processes to better support Nigeria’s development priorities and fiscal planning needs.
However, the World Bank’s Senior External Affairs Officer, Mansir Nasir, earlier clarified that World Bank project financing is typically disbursed in stages rather than released all at once, depending on the financing structure and project requirements.
Despite the latest cancellation, Nigeria remains one of the World Bank’s largest borrowers under the International Development Association framework.
Recent financial statements showed that Nigeria retained its position as the third-largest borrower from the IDA in the first quarter of 2026, despite a slight reduction in exposure from $18.7 billion in December 2025 to $18.5 billion as of March 31, 2026.
Only Bangladesh, with $22.7 billion, and Pakistan, with $19.2 billion, ranked ahead of Nigeria in terms of total borrowing exposure.
The report further revealed that Nigeria’s exposure accounted for approximately eight per cent of the IDA’s total $230.8 billion loan portfolio.
On a year-on-year basis, Nigeria’s borrowing exposure increased by $1.2 billion, representing a 6.9 per cent rise from $17.3 billion recorded in March 2025, highlighting the country’s continued dependence on concessional World Bank financing despite mounting fiscal pressures and growing concerns about debt sustainability.