The Federal Government and the World Bank have jointly cancelled a $717.7 million loan facility meant to support reforms in Nigeria’s struggling electricity sector, amid worsening tariff deficits, rising operational costs and persistent instability across the power industry.
The cancelled amount formed part of the $1.52 billion Power Sector Recovery Performance-Based Operation introduced to improve electricity supply, strengthen the financial health of the sector and reduce pressure on public funds.
Programme Cut Short
According to documents released by the World Bank, the programme has now been formally restructured, with the entire undisbursed balance withdrawn.
“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 facility was initially approved in two phases.
The first phase, valued at about $752.5 million, was approved in June 2020, while an additional $763.5 million package was introduced in June 2023 to deepen reforms and tackle unresolved weaknesses in the electricity sector.
World Bank Lists Sector Failures
The World Bank said Nigeria’s power sector continues to suffer from deep-rooted structural problems despite years of reforms and financial interventions.
According to the report, weak distribution systems, transmission bottlenecks, underutilised generation capacity and poor financial sustainability remain major setbacks.
The institution also pointed to high technical and commercial losses, alongside poor cost recovery, as key reasons behind the widening financial crisis in the sector.
“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.
Naira Devaluation Worsened Situation
The World Bank further linked the worsening crisis to the liberalisation of Nigeria’s foreign exchange market in June 2023, which triggered a sharp depreciation of the naira.
According to the bank, the falling value of the naira significantly increased the cost of natural gas used for electricity generation since gas payments are denominated in 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 added.
The bank noted that electricity tariffs remained largely unchanged for most consumers despite the rising cost of generation, except for Band A customers whose tariffs were adjusted in April 2024.
As a result, annual tariff shortfalls reportedly jumped from N140 billion in 2022 to about N1.9 trillion in 2024 and 2025.
Low Disbursement, Reform Delays
Although the original programme reportedly achieved some milestones, the additional financing package struggled to meet critical reform conditions.
The World Bank disclosed that only about nine per cent of the additional financing had been disbursed before the cancellation.
“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 bank said.
The institution blamed implementation delays, poor verification processes and the absence of a sustainable financing framework for the poor performance of the programme.
It also stated that recent financing plans failed to identify enough funding sources to cover the growing tariff deficits.
“Recent financing plans have not fully identified sufficient sources of funding to cover tariff shortfalls, nor established a credible trajectory for their reduction,” the report stated.
FG Warns Over Delayed Loan Approvals
Meanwhile, the Accountant-General of the Federation, Shamseldeen Ogunjimi, recently warned that Nigeria may reject future World Bank loans if approval and disbursement delays persist.
Speaking during a meeting with a World Bank delegation in Abuja, Ogunjimi stressed that Nigeria expects timely processing of loan facilities since the funds are not grants.
“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” he said.
Despite the latest cancellation, Nigeria remains the third-largest borrower from the International Development Association, behind Bangladesh and Pakistan.
