The Federal Government has cancelled $717.7 million in undisbursed World Bank intervention financing designed to revive Nigeria’s struggling 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 due to evolving sector realities and the inability to achieve key reform milestones.
According to documents obtained from the World Bank, the development effectively terminates the remaining portion of a $1.52 billion power sector recovery programme. The cancelled amount represents the entire undisbursed balance remaining under the programme.
“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7 million equivalent, and no further disbursements will be made under the Program following approval of this restructuring,” the bank stated.
The loan was approved on June 23, 2020, with financing of about $752.5 million equivalent. Following initial progress, the World Bank approved an additional financing package of approximately $763.5 million equivalent on June 9, 2023. Together, the original financing and the additional facility amounted to about $1.52 billion.
However, while the additional financing struggled to meet critical reform conditions, resulting in limited disbursements and eventual cancellation of the remaining funds, the parent programme achieved substantial results and largely disbursed its resources.
According to the World Bank, implementation of the original operation delivered notable results. Tariff shortfalls fell by 71 per cent between 2019 and 2022, declining from N581 billion to N166 billion. During the same period, regulatory cost recovery improved significantly from 56 per cent to 94 per cent.
However, the anticipated reforms under the additional financing failed to materialise within the expected timeframe. The World Bank attributed much of the setback to major macroeconomic developments that dramatically altered the operating environment.
The liberalisation of Nigeria’s foreign exchange market in June 2023 triggered a sharp depreciation of the naira, leading to a substantial increase in the cost of natural gas used for electricity generation. The bank explained that more than 70 per cent of electricity supplied into Nigeria’s national grid is generated using natural gas, whose pricing is denominated in United States dollars.
At the same time, electricity tariffs for most consumers remained largely unchanged despite rising generation costs. This widening gap between actual electricity production costs and revenues collected from consumers resulted in a sharp increase in tariff shortfalls. Annual tariff shortfalls rose from a low of N140 billion in 2022 to approximately N1.9 trillion 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 bank noted that the required 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.
Financial data contained in the restructuring document shows that under the International Bank for Reconstruction and Development component, the World Bank had committed $449 million. However, only $41.24 million had been disbursed, leaving $407.76 million undisbursed and a disbursement rate of just 9.18 per cent.
The development followed an earlier warning by the Accountant-General of the Federation, Dr Shamseldeen Ogunjimi, that Nigeria may reject loan facilities from the bank if delays in approval and disbursement persist. He stressed that prolonged timelines could undermine the country’s willingness to proceed with such arrangements.
“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” Ogunjimi had warned, highlighting concerns over bureaucratic delays in accessing development financing. He urged the World Bank to expedite the approval and disbursement of project funds to Nigeria to support the country’s priorities.
The World Bank also disclosed that the programme’s closing date had been brought forward from June 30, 2027, to May 31, 2026, effectively ending the operation more than a year ahead of schedule.
