Nigeria has cancelled $717.7 million in undisbursed funding under the World Bank-backed Power Sector Recovery Performance-Based Operation (PSRO), dealing a setback to ongoing efforts to reform the country’s struggling electricity sector.
According to a World Bank restructuring paper, the cancellation followed a formal request by the Federal Government on March 26, 2026. Both parties agreed to discontinue the financing arrangement and explore alternative support mechanisms.
The restructuring also brings forward the programme’s closing date from June 30, 2027, to May 31, 2026, effectively ending further disbursements under the facility.
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“The restructuring will result in the cancellation of the entire undisbursed balance of $717.7 million, and no further disbursements will be made under the programme,” the World Bank stated.
The decision comes amid mounting challenges in Nigeria’s power sector, including tariff shortfalls, foreign exchange volatility, weak revenue collection, and persistent operational inefficiencies.
The World Bank attributed the programme’s failure largely to the sharp deterioration in the sector’s finances following the naira devaluation and the inability of electricity tariffs to keep pace with rising generation costs.
Following the liberalisation of the foreign exchange market in June 2023, the cost of natural gas—used to generate more than 70 per cent of Nigeria’s grid electricity—rose significantly because gas prices are denominated in US dollars. However, tariffs remained largely unchanged for most consumers, except Band A customers whose rates were adjusted in April 2024.
As a result, annual tariff deficits surged from N140 billion in 2022 to N1.9 trillion in both 2024 and 2025, widening the financial gap across the sector and increasing pressure on government finances.
The lender noted that Nigeria was unable to meet key performance targets between 2023 and 2025 due to the absence of a sustainable financing framework to address the growing deficits.
Beyond tariff-related issues, the World Bank cited longstanding structural problems, including weak distribution performance, transmission constraints, underutilised generation capacity, high technical and commercial losses, and poor cost recovery.
The PSRO was approved in 2020 to support Nigeria’s Power Sector Recovery Programme, which aimed to improve electricity reliability, strengthen sector governance, and restore financial sustainability.
The programme initially recorded notable gains. Between 2019 and 2022, tariff shortfalls declined by 71 per cent, from N581 billion to N166 billion, while regulatory cost recovery improved from 56 per cent to 94 per cent. Electricity supplied to distribution companies also rose by 13 per cent between 2018 and 2021.
Buoyed by those improvements, the World Bank approved an additional $750 million financing package in June 2023 to deepen reforms and address lingering challenges. The facility became effective in June 2024 and extended the programme through 2027.
However, implementation stalled, with the World Bank reporting that none of the programme’s global performance indicators was achieved under the additional financing arrangement.
Only about nine per cent of the additional funding was eventually disbursed due to delays in implementing reform measures, failure to establish a sustainable financing plan, and challenges in meeting disbursement verification requirements.
The World Bank subsequently downgraded the programme’s implementation rating from satisfactory to moderately unsatisfactory.
Data from the restructuring document showed that the operation had total commitments of about $1.51 billion from the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Of this amount, approximately $796 million was disbursed before the cancellation, leaving $717.7 million undrawn.
Meanwhile, the Accountant-General of the Federation, Dr. Shamseldeen Babatunde Ogunjimi, recently warned that Nigeria could reconsider participation in some World Bank loan arrangements if approval and disbursement processes continue to face prolonged delays.
Ogunjimi stressed that World Bank funds are loans rather than grants and urged the lender to expedite approvals and the release of funds intended to support Nigeria’s development priorities.
