The Federal Government has cancelled $717.7 million in undisbursed World Bank financing for Nigeria’s power sector, effectively ending the remaining portion of a $1.52 billion electricity sector recovery programme amid worsening tariff shortfalls and implementation challenges.
Documents obtained from the World Bank showed that the decision followed a joint agreement between the bank and the Federal Government to discontinue the Power Sector Recovery Performance-Based Operation due to evolving sector conditions and failure to meet key reform targets.
The cancelled amount represents the entire undisbursed balance under the programme. The World Bank said no further disbursements would be made.
“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7 million equivalent,” the bank said.
The programme’s closing date has also been moved forward from June 30, 2027, to May 31, 2026.
Originally approved in June 2020 with $752.5 million in financing, the programme was designed to improve electricity supply reliability, strengthen financial sustainability in the power sector and enhance regulatory oversight.
An additional $763.5 million financing package was approved in 2023 to deepen reforms, bringing total funding to about $1.52 billion. However, while the original component largely disbursed its funds, the additional financing struggled to meet reform conditions, leading to limited disbursement and eventual cancellation.
The World Bank said Nigeria’s electricity sector continues to face deep structural problems, including weak distribution performance, transmission bottlenecks, underutilised generation capacity and persistent financial deficits.
It said high technical and commercial losses, combined with poor cost recovery, have created recurring tariff shortfalls that strain sector finances.
“These constraints have created recurrent financing gaps, most notably in the form of tariff shortfalls,” the bank said.
The Federal Government launched the programme to restore financial stability in the electricity sector and reduce fiscal pressure on public funds.
The bank said the original operation recorded notable progress, including a 71% reduction in tariff shortfalls between 2019 and 2022 and improved regulatory cost recovery.
However, it said implementation of the additional financing package was hindered by macroeconomic shocks, particularly the liberalisation of the foreign exchange market in 2023, which sharply increased gas prices used for power generation.
The bank noted that electricity tariffs remained largely unchanged for most consumers despite rising costs, worsening the gap between costs and revenue.
It said annual tariff shortfalls rose from N140 billion in 2022 to about N1.9 trillion in 2024 and 2025, placing pressure on government finances.
According to the report, the failure to establish a credible financing plan for the sector contributed to the suspension of disbursements.
The World Bank also cited delays in implementing performance improvement plans and verification challenges in key institutions, including the Transmission Company of Nigeria.
It described overall progress under the additional financing as “moderately unsatisfactory.”
The restructuring document showed that only 9% of the additional financing had been disbursed, while about $717.7 million remained undisbursed before cancellation.
The bank said the programme’s design had become misaligned with Nigeria’s evolving economic realities.
The Federal Government earlier warned that it may reject World Bank loans if approval and disbursement processes are excessively delayed, saying such delays could disrupt project implementation.
Nigeria remains one of the largest borrowers from the World Bank’s International Development Association, with exposure of about $18.5 billion as of March 2026.
