Nigeria cancels $717.7m World Bank facility as tariff crisis deepens

By Uche Usim

Nigeria has cancelled $717.7 million in undisbursed financing under the World Bank-backed Power Sector Recovery Performance-Based Operation (PSRO).

This has dealt a fresh blow to efforts to stabilise the country’s fragile electricity market already weighed down by ballooning tariff shortfalls, forex volatility and entrenched inefficiencies.

Details contained in a World Bank restructuring paper on Tuesday show that the Federal Government formally requested the cancellation on March 26, 2026, in a move jointly agreed with the lender to discontinue the programme and refocus support on alternative interventions within the power sector. The document confirmed that the entire undisbursed balance, amounting to $717.7 million, will be scrapped, with the programme’s closing date also brought forward significantly 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 Program following approval of this restructuring,” the World Bank stated.

“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,” it added.

The decision accentuates deepening stress across Nigeria’s electricity value chain, where revenue shortfalls, rising generation costs, and weak operational performance continue to undermine reform efforts and threaten the sector’s financial viability.

Key to the programme’s collapse is a sharp deterioration in the sector’s financial position, triggered largely by the liberalisation of the foreign exchange market and the inability of electricity tariffs to adjust in line with mounting costs.

According to the World Bank, the naira devaluation and the June 2023 foreign exchange reforms significantly increased the cost of natural gas, the dominant fuel used to generate more than 70 per cent of electricity supplied to the national grid, because gas prices are denominated in US dollars.

While generation costs surged, tariffs for most consumers remained largely frozen, with only Band A customers subjected to cost-reflective pricing adjustments in April 2024. This mismatch widened the gap between sector revenues and operating costs, leading to an unprecedented escalation in tariff deficits. The lender revealed that annual tariff shortfalls rose dramatically from N140 billion in 2022 to about N1.9 trillion in both 2024 and 2025, placing immense fiscal pressure on the government and weakening its capacity to sustain reform commitments tied to the programme.

It noted that the absence of a credible financing framework to absorb these deficits ultimately derailed implementation, preventing Nigeria from meeting key performance benchmarks between 2023 and 2025.

Beyond pricing distortions, the World Bank also flagged persistent structural weaknesses across the power sector, including poor distribution performance, transmission constraints, underutilised generation capacity, high technical and commercial losses, and weak revenue collection.

These long-standing challenges have continued to erode investor confidence and limit the sector’s ability to deliver reliable electricity to homes and businesses.

The PSRO, approved in June 2020, was designed to support Nigeria’s broader Power Sector Recovery Programme, an ambitious reform agenda aimed at restoring financial sustainability, improving service delivery, and strengthening governance across the electricity industry.

Initial results under the programme showed promising progress. Between 2019 and 2022, tariff shortfalls dropped by 71 per cent from N581 billion to N166 billion, while regulatory cost recovery improved significantly from 56 per cent to 94 per cent. Electricity supply to distribution companies also rose by 13 per cent between 2018 and 2021.

Buoyed by these gains, the World Bank approved an additional $750 million financing package in June 2023 to deepen reforms and address lingering structural bottlenecks. The facility became effective in June 2024 and extended the programme’s timeline to 2027.

However, momentum quickly faded.

The bank disclosed that none of the programme’s global performance indicators were achieved under the additional financing arrangement, reflecting widespread implementation setbacks and policy slippages.

Progress was hindered by delays in executing performance improvement plans for key sector institutions, difficulties in meeting verification requirements tied to disbursement conditions, and the failure to establish a fiscally sustainable funding model for the sector.

As a result, disbursement under the additional financing remained extremely limited, with only about 9 per cent of the funds released before the programme was halted.

The World Bank subsequently downgraded implementation progress from “satisfactory” to “moderately unsatisfactory” as reform timelines slipped and expected outcomes failed to materialise.

Figures from the restructuring document show that the PSRO had total commitments of about $1.51 billion from the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Of this amount, roughly $796 million had been disbursed prior to the cancellation, leaving the now-terminated balance of $717.7 million.

The latest development raises fresh concerns about Nigeria’s ability to execute large-scale sector reforms amid macroeconomic headwinds and institutional constraints.

It also highlights growing tension between the country and multilateral lenders over funding processes and reform expectations.

Earlier, the Accountant-General of the Federation, Dr Shamseldeen Babatunde Ogunjimi, warned that Nigeria could reconsider its participation in World Bank loan arrangements if approval and disbursement timelines continue to suffer prolonged delays.

According to him, funds obtained from the World Bank are loans—not grants—and therefore require timely processing to ensure they deliver intended development outcomes.

He urged the lender to accelerate its internal procedures and ensure prompt release of funds tied to critical national projects.

Ogunjimi said Nigeria, as a responsible borrower, expects efficiency and responsiveness in handling its financing requests, particularly at a time when the country is grappling with fiscal pressures and urgent infrastructure needs.

With the PSRO now effectively discontinued, attention is expected to shift toward alternative strategies for stabilising the power sector, including tariff reforms, targeted subsidies, and improved operational efficiency across the electricity value chain.

However, without a clear and sustainable financing framework, analysts warn that the sector’s structural challenges may persist, prolonging Nigeria’s long-standing electricity crisis and its ripple effects on economic growth.