Nigeria Scraps $717.7m World Bank Power Funding as Sector Woes Deepen

Nigeria has cancelled $717.7 million in undisbursed World Bank financing for its electricity sector, signalling a fresh setback for efforts to stabilise a power industry still beset by weak supply, mounting tariff deficits and persistent reforms fatigue.

The decision brings an early end to the remaining phase of a $1.52 billion recovery programme set up to improve the financial health of the sector and raise the reliability of electricity supply.

According to documents obtained from the World Bank website, the Federal Government asked for the cancellation, and both sides agreed to discontinue the Power Sector Recovery Performance-Based Operation after reform targets became increasingly difficult to meet.

The bank said the full undisbursed balance would be cancelled and that no further disbursements would be made once the restructuring is approved. It also moved the programme’s closing date forward from June 30, 2027, to May 31, 2026, effectively winding down the operation more than a year ahead of schedule.

The original programme was approved in June 2020 with about $752.5 million in financing. It was intended to strengthen electricity supply reliability, improve the sector’s financial and fiscal sustainability, and enhance accountability across the power value chain. A further $763.5 million was approved in June 2023 as additional financing to deepen reforms and consolidate earlier gains.

But while the first phase largely delivered on its targets, the extra financing failed to gain traction. The World Bank said Nigeria’s power sector continues to suffer from weak distribution performance, transmission constraints, underused generation capacity and deep financial imbalances.

Those problems worsened sharply after foreign exchange liberalisation in June 2023 triggered a steep depreciation of the naira and pushed up the cost of gas, which fuels more than 70 per cent of electricity generation in the country. At the same time, tariffs for most consumers remained largely frozen, widening the gap between the cost of supplying power and the money recovered from users.

The result was a dramatic rise in tariff shortfalls, which the bank said increased from N140 billion in 2022 to about N1.9 trillion in both 2024 and 2025. That, in turn, placed additional strain on the Federal Government’s finances and made it harder for the sector to meet the conditions tied to the new funding.

The World Bank said the government failed to establish a credible financing plan to cover the shortfalls or show a clear path towards reducing them. It also cited delays in implementing performance improvement plans, especially those linked to the Transmission Company of Nigeria, as well as verification challenges affecting key institutions in the sector.

Financial data in the restructuring paper showed how limited the disbursements became. Of the $763.5 million additional financing package, only about nine per cent was released, while roughly 95 per cent of the original operation had already been disbursed.

The cancellation underscores the continuing mismatch between reform ambitions and the realities of Nigeria’s electricity market. The World Bank said the design of the additional financing had become increasingly out of step with the operating environment, even though the earlier programme recorded measurable gains in cost recovery, tariff shortfalls and electricity supply.

The development also comes against the backdrop of growing caution in Abuja about the pace of World Bank lending processes. Last week, the Accountant-General of the Federation warned that Nigeria could reconsider future loan arrangements if approvals and disbursements take too long, stressing that development loans must align with project timelines and fiscal planning.