The Federal Government and the World Bank have agreed to cancel approximately $717.7 million in undisbursed funding under the Power Sector Recovery Operation (PSRO), marking a significant shift in Nigeria’s electricity reform strategy. The decision follows concerns over escalating tariff shortfalls, implementation setbacks, and changing economic realities that have hindered the programme’s progress. According to a restructuring document, the government formally requested the termination of the financing arrangement in March 2026, prompting the World Bank to approve an early closure of the operation.
Originally launched to support Nigeria’s Power Sector Recovery Programme, the initiative recorded notable achievements during its early years. Between 2019 and 2022, tariff shortfalls reportedly declined by 71 percent, dropping from N581 billion to N166 billion, while cost recovery levels improved significantly. These gains were seen as important milestones in efforts to stabilise the country’s electricity market and improve the financial health of the sector.
However, the World Bank noted that many of those improvements were reversed following the liberalisation of Nigeria’s foreign exchange market in June 2023. The sharp depreciation of the naira significantly increased the cost of electricity generation, particularly because more than 70 percent of power supplied to the national grid comes from gas purchased in US dollars. With electricity tariffs largely unchanged for most consumers since early 2023, revenue generation failed to keep pace with rising operational costs, creating a widening financial gap across the sector.
As a result, annual tariff shortfalls surged dramatically from about N140 billion in 2022 to nearly N1.9 trillion in both 2024 and 2025. The World Bank said the growing deficits, coupled with the absence of a credible financing strategy, prevented Nigeria from meeting key performance targets tied to an additional $750 million financing package approved in 2023. Only about 9 percent of that facility was eventually disbursed, leading to a downgrade of the programme’s implementation and development performance ratings.
Despite the cancellation, the World Bank maintained that achievements already recorded under the programme remain valid and continue to benefit the sector. Of the total $1.51 billion committed through the programme, approximately $798 million had already been disbursed before the cancellation, leaving the remaining $717.7 million unused. Moving forward, both parties have reportedly agreed that future support should focus on targeted investments capable of delivering measurable improvements in electricity supply, operational efficiency, and revenue recovery, while the federal government explores alternative funding options to sustain ongoing power sector reforms.