Mounting tariff shortfalls, naira depreciation, and delayed reforms force early shutdown of major electricity recovery programme….
The Federal Government has lost access to $717.7 million in World Bank funding after both parties agreed to cancel the undisbursed balance of a major electricity sector recovery programme aimed at stabilising Nigeria’s troubled power industry.
The cancellation effectively brings an early end to the $1.52 billion Power Sector Recovery Programme, one of the country’s largest electricity reform financing arrangements in recent years.
According to official World Bank documents, the decision followed the Federal Government’s request to discontinue financing under the programme after key reform targets failed to materialise and sector realities changed significantly.
“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7 million equivalent, and no further disbursements will be made,” the World Bank stated.
The intervention programme was originally introduced to restore financial stability to Nigeria’s electricity sector, improve power supply reliability, reduce the burden of government subsidies, and strengthen accountability among institutions operating within the industry.
The World Bank first approved about $752.5 million for the programme in June 2020. Following what it described as early progress, the bank later approved an additional financing package of approximately $763.5 million in June 2023 to deepen reforms and address persistent structural weaknesses in the sector.
Combined, both facilities amounted to roughly $1.52 billion.
While the initial phase of the programme achieved several targets and recorded strong disbursement levels, the additional financing package struggled to meet critical reform conditions, leading to low fund utilisation and eventual cancellation of the remaining balance.
The World Bank said Nigeria’s electricity sector continues to suffer from deep-rooted structural problems, including weak distribution performance, transmission bottlenecks, underutilised generation capacity, and chronic financial instability.
According to the report, these issues created recurring funding gaps that weakened the operational performance of institutions across the power value chain.
The bank noted that although tariff shortfalls reduced significantly between 2019 and 2022, recent economic developments reversed much of the progress achieved under the reform programme.
One of the biggest setbacks came after the liberalisation of Nigeria’s foreign exchange market in June 2023, which triggered a sharp depreciation of the naira and dramatically increased the cost of natural gas used for electricity generation.
Since more than 70 per cent of Nigeria’s electricity is generated using gas priced in US dollars, the collapse of the naira significantly raised operating costs for power producers.
At the same time, electricity tariffs for most consumers remained largely frozen despite rising production costs. Apart from Band A customers whose tariffs were adjusted in April 2024, the government maintained existing tariff structures for the majority of electricity users.
This widening gap between actual electricity generation costs and revenue collected from consumers caused tariff shortfalls to surge from N140 billion in 2022 to nearly N1.9 trillion annually in both 2024 and 2025.
The World Bank warned that the growing financial burden placed enormous pressure on government finances and made it impossible to achieve several key conditions attached to the additional financing arrangement.
According to the report, authorities failed to establish a sustainable financing framework capable of addressing the sector’s mounting deficits and reducing tariff shortfalls over time.
The bank also identified delays involving performance improvement plans, verification processes, and implementation challenges linked to the Transmission Company of Nigeria as major obstacles preventing further disbursements.
Financial records attached to the restructuring report showed that under one component of the programme, only $41.24 million was disbursed out of a committed $449 million, leaving over $407 million untouched.
Overall, the World Bank disclosed that while the original phase of the programme achieved almost full disbursement, only about nine per cent of the additional financing package was released before the project was halted.
The global lender concluded that the programme’s design no longer aligned with the realities facing Nigeria’s electricity sector, particularly amid worsening macroeconomic conditions and unresolved structural weaknesses.
As part of the restructuring, the programme’s closing date was also moved forward from June 30, 2027, to May 31, 2026, ending the intervention more than a year earlier than initially planned.
The development comes amid growing frustration within government circles over delays in accessing multilateral funding.
Last week, the Accountant-General of the Federation, Shamseldeen Ogunjimi, warned that Nigeria could reconsider future World Bank loan arrangements if approval and disbursement processes continue to face lengthy delays.
Speaking during a meeting with a World Bank delegation in Abuja, Ogunjimi stressed that Nigeria expected faster processing timelines, noting that the facilities were loans requiring repayment and not grants.
“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” he warned.
He further urged the World Bank to speed up funding approvals and disbursement procedures to prevent disruptions to critical national development projects.
