FG Cancels $717.7 Million World Bank Power Sector Funding Amid Reform Challenges
Nigeria Cancels $717.7m Power Loan, Highlighting Deep Structural Sector Issues
Nigeria’s Federal Government has cancelled $717.7 million in undisbursed World Bank financing earmarked for electricity sector reforms, bringing an early end to a major international intervention designed to improve power supply, strengthen sector finances and enhance accountability across the industry. The cancellation effectively terminates the remaining portion of the $1.52 billion Power Sector Recovery Programme (PSRP), highlighting the persistent structural and financial challenges facing Nigeria’s electricity market.
The decision followed a formal request by the Federal Government and a subsequent agreement with the World Bank to discontinue financing after key reform milestones were not achieved and implementation challenges continued to hinder progress. The programme’s closing date was also brought forward from June 2027 to May 2026
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A Major Setback for Power Sector Reform
The Power Sector Recovery Programme was launched to address long-standing inefficiencies within Nigeria’s electricity industry. The initiative sought to improve electricity supply reliability, reduce fiscal burdens on government, strengthen the financial viability of sector institutions and improve accountability throughout the power value chain.
The original programme, approved in 2020, received approximately $752.5 million in financing. Following what the World Bank described as satisfactory progress during its initial phase, an additional financing package of approximately $763.5 million was approved in 2023 to deepen reforms and tackle remaining structural weaknesses. Combined, the programme represented a total commitment of about $1.52 billion.
However, while the first phase achieved most of its objectives, the additional financing component struggled to meet critical performance conditions required for disbursement, resulting in the eventual cancellation of the remaining funds.
Why the Funding Was Cancelled
According to World Bank restructuring documents, several factors contributed to the programme’s underperformance.
One of the most significant challenges emerged following Nigeria’s foreign exchange market liberalisation in 2023. The depreciation of the naira substantially increased the cost of natural gas, which fuels more than 70 per cent of electricity generation connected to the national grid. As generation costs rose, electricity tariffs for most consumer categories remained largely unchanged, creating a widening gap between operating costs and sector revenues.
The resulting tariff shortfalls placed significant financial pressure on electricity generation, transmission and distribution companies. According to World Bank data, annual tariff deficits rose sharply from approximately ₦140 billion in 2022 to around ₦1.9 trillion annually in 2024 and 2025, creating substantial fiscal and operational challenges for the sector.
The World Bank concluded that Nigeria was unable to establish a credible and sustainable financing framework capable of addressing these growing deficits, preventing the achievement of key reform indicators linked to the funding programme.
Structural Challenges Continue to Weigh on the Sector
The cancellation also reflects deeper structural problems that have persisted despite years of reform efforts.
According to the World Bank, Nigeria’s electricity sector continues to struggle with transmission constraints, weak distribution performance, high technical and commercial losses, inadequate revenue collection and underutilisation of available generation capacity. These issues have created recurring liquidity shortages throughout the electricity value chain, limiting investment and reducing service reliability.
Implementation delays further complicated the programme. The World Bank cited difficulties in aligning performance improvement plans with eligible expenditures, verification challenges and delays involving sector institutions, including the Transmission Company of Nigeria. These obstacles restricted access to additional disbursements even in areas where partial progress had been recorded.
Progress Achieved Before the Programme Stalled
Despite the cancellation, the World Bank acknowledged that the original phase of the programme delivered measurable outcomes.
According to the institution, tariff shortfalls declined by approximately 71 per cent between 2019 and 2022, falling from about ₦581 billion to ₦166 billion during that period. The parent operation achieved its key performance targets and fully disbursed available funds, demonstrating that certain reform measures generated positive results before broader economic pressures emerged.
The subsequent financing package, however, was unable to sustain that momentum amid worsening macroeconomic conditions and rising financial obligations across the sector.
Implications for Infrastructure and Economic Development
Reliable electricity remains one of Nigeria’s most critical infrastructure challenges and a major determinant of economic competitiveness. Frequent power shortages continue to increase operating costs for businesses, limit industrial productivity and constrain investment across multiple sectors.
The cancellation of more than $717 million in funding raises questions about the pace of future reforms and the government’s ability to finance improvements without significant external support. For investors and policymakers, the development underscores the importance of establishing financially sustainable market structures capable of attracting long-term capital while ensuring affordable electricity access.
The decision may also influence future engagement between Nigeria and international development partners, particularly regarding performance-based financing tied to measurable reform outcomes.
Outlook
The cancellation of $717.7 million in World Bank power sector financing marks a significant moment in Nigeria’s ongoing electricity reform journey. While the initial phase of the Power Sector Recovery Programme demonstrated that targeted interventions can deliver measurable improvements, persistent structural weaknesses, tariff deficits and implementation challenges ultimately undermined the programme’s expansion.
Going forward, the effectiveness of Nigeria’s power sector strategy will depend on its ability to address cost-recovery challenges, strengthen institutional performance and create a financially viable electricity market capable of supporting long-term infrastructure investment. As energy demand continues to rise, achieving those objectives will remain essential for economic growth, industrial development and improved living standards nationwide.
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