Federal Government Cancels $717m World Bank Power Loan Amid Mounting Electricity Crisis
Source: Punch Newspaper
The Federal Government has cancelled $717.7 million in undisbursed World Bank financing earmarked for Nigeria’s struggling electricity sector, effectively terminating the balance of a $1.52 billion power sector recovery programme amid worsening blackouts, rising tariff shortfalls, and persistent reform challenges.
Documents obtained from the World Bank showed that the cancellation followed a formal request by the Federal Government and a mutual agreement between both parties to discontinue financing under the Power Sector Recovery Performance-Based Operation.
According to the World Bank restructuring document, the cancelled amount represents the entire undisbursed balance remaining under the programme.
“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 programme,” the bank stated.
The World Bank also announced that the programme’s closing date had been brought forward from June 30, 2027, to May 31, 2026, effectively ending the initiative more than a year ahead of schedule.
The power recovery programme was originally approved in June 2020 with financing of about $752.5 million to improve electricity supply reliability, strengthen the sector’s financial sustainability, and enhance accountability among key institutions in the electricity value chain.
Following early progress, the World Bank approved an additional financing package of approximately $763.5 million in June 2023 to deepen reforms and consolidate gains recorded under the initial phase.
Together, both financing arrangements amounted to about $1.52 billion.
However, while the original programme recorded substantial progress and disbursed most of its funds, the additional financing struggled to meet critical reform conditions, resulting in poor disbursement performance and eventual cancellation.
The World Bank noted that Nigeria’s electricity sector continues to grapple with deep-rooted structural problems, including weak distribution performance, transmission bottlenecks, underutilisation of generation capacity, and persistent financial imbalances.
The report highlighted that technical, commercial, and collection losses across distribution companies, combined with inadequate cost recovery, continue to create huge funding gaps within the sector.
“These constraints have created recurrent financing gaps, particularly tariff shortfalls, which generate liquidity pressures across the electricity value chain and weaken sector institutions,” the bank stated.
According to the report, annual tariff shortfalls rose sharply from N140 billion in 2022 to approximately N1.9 trillion in both 2024 and 2025 due to rising generation costs and limited tariff adjustments.
The World Bank attributed much of the sector’s worsening financial condition to the liberalisation of Nigeria’s foreign exchange market in 2023, which led to a sharp depreciation of the naira and significantly increased the cost of natural gas used for electricity generation.
The bank explained that over 70 per cent of electricity supplied to Nigeria’s national grid is generated using natural gas priced in United States dollars.
At the same time, electricity tariffs for most consumers remained largely unchanged, except for Band A customers whose tariffs were adjusted in April 2024.
The resulting mismatch between electricity production costs and revenues collected from consumers widened tariff deficits and placed severe pressure on government finances.
“Recent financing plans have not fully identified sufficient sources of funding to cover tariff shortfalls or established a credible path for reducing them,” the World Bank noted.
The report further stated that implementation delays, regulatory bottlenecks, and challenges involving the Transmission Company of Nigeria also hindered progress under the programme.
Financial records showed that under one component of the additional financing package, only $41.24 million out of a committed $449 million had been disbursed, representing a disbursement rate of just 9.18 per cent.
The World Bank described implementation progress under the additional financing arrangement as “Moderately Unsatisfactory.”
Despite the cancellation, Nigeria remains one of the World Bank’s largest borrowers under the International Development Association, with exposure estimated at $18.5 billion as of March 2026.
Meanwhile, the Accountant-General of the Federation, Dr. Shamseldeen Ogunjimi, recently warned that Nigeria may reconsider future World Bank loan arrangements if delays in approvals and disbursements continue.
Speaking during a meeting with a World Bank delegation in Abuja, Ogunjimi stressed that prolonged bureaucratic delays could undermine project execution and weaken confidence in such financing arrangements.
“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” he warned.
The latest development raises fresh concerns about the future of Nigeria’s electricity reforms as consumers continue to grapple with unstable power supply, rising electricity costs, and persistent grid failures across the country.