Nigeria has cancelled $717.7 million in undisbursed funding under the World Bank-backed Power Sector Recovery Performance-Based Operation (PSRO), marking a major setback for efforts to restore financial sustainability in the country’s electricity sector amid rising tariff deficits, foreign exchange pressures, and persistent operational inefficiencies.
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According to a World Bank restructuring paper obtained by Nairametrics on Tuesday, the cancellation followed a formal request by the Federal Government on March 26, 2026, and forms part of a joint decision by both parties to discontinue financing under the programme and redirect support towards alternative interventions.
The restructuring document stated that the undisbursed balance of $717.7 million would be cancelled in full, with the programme’s closing date brought forward by more than a year from June 30, 2027, to May 31, 2026.
What does the document say
The document read, “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 Program following approval of this restructuring.
- “The restructuring includes an advancement of the Program closing date from June 30, 2027, to May 31, 2026, to reflect the cancellation and completion of disbursement activities, after which the operation will proceed toward closure in accordance with World Bank procedures.”
The development comes as Nigeria continues to grapple with chronic electricity shortages, weak revenue collection, mounting subsidy obligations, and widening financial gaps across the power value chain.
N1.9 trillion tariff gap derails reform targets
The World Bank attributed the programme’s collapse largely to the sharp deterioration in the sector’s financial position following the naira devaluation and the inability of electricity tariffs to keep pace with rising generation costs.
- The report noted that the liberalisation of the foreign exchange market in June 2023 significantly increased the cost of natural gas used to generate more than 70% of electricity supplied to the national grid because gas pricing is denominated in US dollars.
- While costs surged, electricity tariffs remained frozen for most consumers, except Band A customers whose tariffs were adjusted to cost-reflective levels in April 2024. This widened the gap between sector revenues and operating costs, triggering an unprecedented rise in tariff shortfalls.
- According to the World Bank, annual tariff deficits jumped from N140 billion in 2022 to N1.9 trillion in both 2024 and 2025, placing severe pressure on government finances and undermining the implementation of key reform milestones tied to the programme.
The lender stated that the absence of a credible financing framework capable of addressing these shortfalls prevented Nigeria from meeting critical performance indicators between 2023 and 2025.
Beyond tariff challenges, the report highlighted persistent structural weaknesses across the sector, including weak distribution performance, transmission bottlenecks, underutilised generation capacity, high technical and commercial losses, and poor cost recovery.
From early gains to implementation setbacks
The PSRO was approved in June 2020 to support Nigeria’s Power Sector Recovery Programme, an ambitious reform agenda aimed at improving electricity reliability, restoring financial viability, and strengthening accountability across the industry.
- The World Bank acknowledged that the original operation delivered measurable improvements. Between 2019 and 2022, tariff shortfalls declined by 71% from N581 billion to N166 billion, while regulatory cost recovery improved from 56% to 94%. Electricity supplied to distribution companies also increased by 13% between 2018 and 2021.
- Encouraged by those gains, the bank approved an additional financing package worth $750 million in June 2023 to deepen reforms and address remaining structural challenges. The facility became effective in June 2024 and extended the programme’s lifespan until 2027.
However, implementation soon faltered.
The World Bank disclosed that none of the programme’s global performance indicators was achieved under the additional financing arrangement.
Progress was hampered by the inability to establish a fiscally sustainable financing plan, delays in implementing performance improvement plans for sector institutions, and challenges in meeting verification requirements linked to disbursement conditions.
- As a result, only about 9% of the additional financing package was disbursed, despite the programme having been designed to accelerate reforms across the sector.
The lender subsequently downgraded implementation progress from satisfactory to moderately unsatisfactory as reform timelines slipped and disbursement targets remained unmet.
Data contained in the restructuring document showed that the operation had total commitments of approximately $1.51 billion from the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Of that amount, roughly $796 million had been disbursed before the cancellation, leaving $717.7 million undrawn.
What you should know
The Accountant-General of the Federation, Dr Shamseldeen Babatunde Ogunjimi, earlier warned that Nigeria may decline or withdraw from World Bank loan arrangements if approval and disbursement processes continue to suffer prolonged delays.
The AGF stressed that funds being sought from the World Bank were loans, not grants, and said Nigeria, as a responsible borrower, deserved timely consideration and processing of its funding requests.
According to the statement, Ogunjimi urged the World Bank to speed up approval processes and ensure prompt release of project funds meant to support Nigeria’s development priorities.
