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The World Bank and the Nigerian government have jointly cancelled a $717.7 million loan facility initially approved to support reforms in the country’s struggling electricity sector.

Documents from the World Bank showed that the cancelled amount represented the remaining balance of the $1.52 billion Power Sector Recovery Performance-Based Operation introduced to improve electricity supply, strengthen the sector’s finances, and reduce the burden on public funds.

The cancellation comes amid worsening tariff shortfalls, rising operational costs, and persistent challenges affecting Nigeria’s power industry.

Programme Ends Earlier Than Planned

According to the World Bank restructuring paper, no further disbursement will be made under the programme following approval of the restructuring.

“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 Program following approval of this restructuring,” the bank stated.

The World Bank also disclosed that the programme’s closing date had been moved forward from June 30, 2027, to May 31, 2026.

The original programme was approved in June 2020 with about $752.5 million in financing, while an additional $763.5 million package was approved in June 2023 to deepen reforms and address remaining weaknesses in the sector.

Together, both facilities amounted to about $1.52 billion.

Reason for Loan Cancellation

The World Bank explained that Nigeria’s electricity sector continued to face serious structural problems despite years of reforms and financial interventions.

According to the report, challenges such as weak distribution performance, transmission bottlenecks, underutilisation of generation capacity, and financial instability remained major setbacks.

The bank noted that high technical and commercial losses, combined with inadequate cost recovery, created huge gaps between electricity revenues and operating costs.

“These constraints have created recurrent financing gaps, most notably in the form of tariff shortfalls, which generate liquidity pressures across the value chain and weaken the operational and financial performance of sector institutions,” the report said.

Naira Devaluation Worsened Crisis

The World Bank further linked the programme’s struggles to the liberalisation of Nigeria’s foreign exchange market in June 2023, which led to a sharp depreciation of the naira.

According to the bank, the falling value of the naira significantly increased the cost of natural gas used for electricity generation since gas prices are denominated in dollars.

“The liberalisation of the foreign exchange market in June 2023 led to a significant depreciation of the local currency Naira, which resulted in a big increase in prices of natural gas used to produce above 70 per cent of electricity injected in the national power system,” the report stated.

The bank added that electricity tariffs remained mostly unchanged for consumers despite rising generation costs, except for Band A customers whose tariffs were adjusted in April 2024.

As a result, annual tariff shortfalls reportedly rose from N140 billion in 2022 to about N1.9 trillion in 2024 and 2025.

Low Disbursement and Reform Delays

Although the original programme achieved major milestones and disbursed most of its funds, the additional financing package struggled to meet key reform conditions.

The World Bank disclosed that only about nine per cent of the additional financing had been disbursed before the cancellation.

“Of the AF combination of a loan and a credit totalling $763.5m equivalent, only 9 per cent, corresponding to prior results of the PforR, have been disbursed,” the bank said.

The institution blamed implementation delays, lack of a sustainable financing framework, and verification challenges involving sector institutions for the poor performance.

The report also stated that recent financing plans failed to provide sufficient sources of funding to cover rising tariff deficits.

“Recent financing plans have not fully identified sufficient sources of funding to cover tariff shortfalls, nor established a credible trajectory for their reduction,” the report added.

FG Warns Over Delays in Loan Approvals

Meanwhile, the Accountant-General of the Federation, Shamseldeen Ogunjimi, recently warned that Nigeria could reject World Bank loans if delays in approvals and disbursement continue.

Speaking during a meeting with a World Bank delegation in Abuja, Ogunjimi stressed that Nigeria expected timely processing of funding requests since the facilities were loans and not grants.

“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” he said.

However, Mansir Nasir explained that World Bank project funds are usually released in phases depending on project progress and financing conditions.

Despite the latest cancellation, Nigeria remains the third-largest borrower from the International Development Association, trailing only Bangladesh and Pakistan.