Nigeria has cancelled $717.7 million in undisbursed funding under the World Bank-backed Power Sector Recovery Performance-Based Operation (PSRO), dealing a major blow to efforts aimed at restoring financial sustainability in the country’s electricity sector.
According to a World Bank restructuring paper released on Tuesday, the cancellation followed a formal request by the Federal Government on March 26, 2026, as both parties agreed to discontinue financing under the programme and redirect support to alternative interventions.
The restructuring document stated that the entire undisbursed balance of $717.7 million would be cancelled, while the programme’s closing date was moved forward from June 30, 2027, to May 31, 2026.
“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 under the programme following approval of this restructuring,” the document stated.
It added that the revised closing date was intended to reflect the cancellation and completion of all disbursement activities in line with World Bank procedures.
The development comes as Nigeria continues to face persistent electricity shortages, weak revenue collection, rising subsidy obligations, and widening financial gaps across the power sector.
The World Bank attributed the collapse of the programme largely to the worsening financial condition of the sector following the devaluation of the naira and the inability of electricity tariffs to match rising generation costs.
According to the report, the liberalisation of the foreign exchange market in June 2023 significantly increased the cost of natural gas used for electricity generation, with over 70 per cent of power supplied to the national grid dependent on gas priced in US dollars.
While generation costs surged, electricity tariffs remained largely unchanged for most consumers, except Band A customers whose tariffs were adjusted to cost-reflective levels in April 2024.
The lender noted that the mismatch between sector revenues and operating costs caused tariff shortfalls to rise sharply from N140 billion in 2022 to N1.9 trillion in both 2024 and 2025, putting severe pressure on government finances and undermining key reform targets tied to the programme.
The report also highlighted persistent structural challenges in the sector, including weak distribution performance, transmission bottlenecks, underutilised generation capacity, high technical and commercial losses, and poor cost recovery.
The PSRO was approved in June 2020 to support Nigeria’s power sector reform agenda aimed at improving electricity supply, restoring financial viability, and strengthening accountability across the industry.
The World Bank said the programme initially recorded measurable progress, with tariff shortfalls dropping by 71 per cent between 2019 and 2022, while regulatory cost recovery improved significantly. Electricity supplied to distribution companies also increased during the period.
Encouraged by those gains, the bank approved an additional $750 million financing package in June 2023 to deepen reforms and address lingering structural issues. The facility became effective in June 2024 and extended the programme until 2027.
However, implementation later stalled, with the World Bank disclosing that none of the programme’s global performance indicators was achieved under the additional financing arrangement.
The lender said reform efforts were hampered by the absence of a sustainable financing framework, delays in implementing sector improvement plans, and challenges linked to verification requirements for disbursement conditions.
As a result, only about nine per cent of the additional financing package was disbursed before the cancellation, despite plans to accelerate reforms across the sector.
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 and the International Development Association. Approximately $796 million had been disbursed before the cancellation, leaving $717.7 million undrawn.
Meanwhile, the Accountant-General of the Federation, Shamseldeen Babatunde Ogunjimi, had earlier warned that Nigeria could decline or withdraw from World Bank loan arrangements if approval and disbursement processes continue to face prolonged delays.
Ogunjimi stressed that the funds sought from the World Bank were loans and not grants, adding that Nigeria deserved timely consideration and processing of its funding requests as a responsible borrower.
