FG Cancels $717.7 Million World Bank Power Loan as Nigeria’s Electricity Crisis Deepens
Nigeria’s efforts to revive its struggling electricity sector suffered a major setback after the Federal Government cancelled $717.7 million in undisbursed funding under the World Bank-backed Power Sector Recovery Performance-Based Operation (PSRO). The decision comes at a time when the country is battling persistent power shortages, rising operational costs, and growing financial pressures across the electricity value chain, further casting doubt on the future of long-awaited sector reforms.
According to a World Bank restructuring document, the cancellation followed a formal request from the Federal Government on March 26, 2026. Both parties agreed to discontinue the remaining financing under the programme and redirect support to alternative interventions. As part of the restructuring, the programme’s closing date was brought forward from June 30, 2027, to May 31, 2026, effectively ending further disbursements under the initiative.
The World Bank attributed the collapse of the programme largely to the worsening financial condition of Nigeria’s power sector. Following the liberalisation of the foreign exchange market in 2023, the cost of natural gas used for electricity generation surged due to dollar-denominated pricing. While generation costs increased sharply, electricity tariffs remained largely unchanged for most consumers, creating a massive revenue gap. Annual tariff deficits ballooned from N140 billion in 2022 to an estimated N1.9 trillion in both 2024 and 2025, making it increasingly difficult for the government and industry operators to sustain operations.
Beyond tariff challenges, the lender highlighted several long-standing structural problems that continue to hamper the sector’s growth. These include weak performance by electricity distribution companies, transmission infrastructure bottlenecks, underutilised generation capacity, high technical and commercial losses, and poor cost recovery mechanisms. The World Bank noted that Nigeria failed to meet key performance indicators tied to the additional $750 million financing package approved in 2023, resulting in only about 9 percent of the funds being disbursed before the programme was halted.
The development marks a significant reversal from earlier successes recorded under the recovery programme. Between 2019 and 2022, tariff shortfalls fell by more than 70 percent, while regulatory cost recovery improved significantly and electricity supply to distribution companies increased. However, recent economic pressures and implementation delays stalled momentum, prompting the World Bank to downgrade the programme’s performance rating. With nearly $718 million left undrawn and electricity sector reforms facing fresh uncertainty, stakeholders now await the government’s next strategy for addressing Nigeria’s deepening power crisis and restoring investor confidence in the industry.
source: nairametrics