The Federal Government has cancelled $717.7 million in undisbursed World Bank intervention funds meant to support reforms in Nigeria’s troubled electricity sector.

The decision followed a formal request by the Federal Government and a joint agreement with the World Bank to discontinue financing under the Power Sector Recovery Performance-Based Operation after key reform targets failed to materialise amid changing realities in the sector.

Documents obtained from the World Bank showed that the cancellation affects the remaining balance of a broader $1.52 billion power sector recovery programme.

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

The Power Sector Recovery Programme was introduced by the Federal Government to restore financial stability in the electricity sector, reduce pressure on public finances, improve operational efficiency and strengthen regulatory oversight.

The initial facility, approved on June 23, 2020, provided about $752.5 million to improve electricity supply, enhance accountability across the power value chain and strengthen the sector’s financial sustainability.

Following early gains recorded under the programme, the World Bank approved an additional financing package worth about $763.5 million on June 9, 2023, to deepen reforms and address lingering structural challenges. The extra funding became effective on June 19, 2024, with the project’s completion date extended to June 30, 2027.

Combined, both facilities totalled approximately $1.52 billion.

However, the additional financing package struggled to meet major reform conditions, leading to limited disbursements and the eventual cancellation of the remaining funds, although the original programme recorded substantial achievements and largely utilised its allocation.

According to the World Bank, Nigeria’s power sector continues to battle deep-rooted structural problems, including weak distribution performance, transmission bottlenecks, underutilisation of generation capacity and persistent financial imbalances.

The bank noted that high technical, commercial and collection losses across electricity distribution companies, alongside poor cost recovery, continue to create major revenue gaps within the sector.

“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 stated.

Despite the challenges, the World Bank said the parent programme achieved notable results. Tariff shortfalls reportedly declined by 71 per cent between 2019 and 2022, falling from N581 billion to N166 billion, while regulatory cost recovery improved from 56 per cent to 94 per cent.

Annual electricity supplied to the national distribution grid also increased by 13 per cent between 2018 and 2021.

“Implementation of the parent operation was satisfactory, brought substantial results, and fully disbursed the PforR component as all DLRs were achieved,” the bank said.

The World Bank explained that Nigeria’s foreign exchange liberalisation policy introduced in June 2023 significantly worsened conditions in the electricity sector by triggering a sharp depreciation of the naira.

The depreciation increased the cost of natural gas used for electricity generation, with over 70 per cent of power supplied to the national grid generated from gas priced in US dollars.

At the same time, electricity tariffs remained largely unchanged for most consumers, except Band A customers whose tariffs were adjusted in April 2024.

The mismatch between rising generation costs and stagnant tariff revenues caused tariff shortfalls to surge from N140 billion in 2022 to about N1.9 trillion annually in 2024 and 2025.

“Due to the mismatch between the electricity generation costs and the sector tariff revenues, the tariff shortfalls increased sharply in the last three years,” the report stated.

The bank said Nigeria failed to meet critical conditions tied to the additional financing because authorities could not establish a credible and sustainable financing framework to address the growing tariff deficits.

It also cited delays involving performance improvement plans for the Transmission Company of Nigeria and verification challenges among sector institutions as factors limiting disbursements.

Financial records contained in the restructuring document showed that only $41.24 million had been disbursed from the $449 million committed under the International Bank for Reconstruction and Development component, leaving over $407 million undisbursed.

Under the International Development Association component, $754.82 million was disbursed out of a total commitment of $1.063 billion, leaving about $308.53 million unused.

The World Bank described the implementation progress under the additional financing arrangement as “Moderately Unsatisfactory.”

The bank added that the programme’s design had become increasingly disconnected from realities within Nigeria’s electricity sector.

“Taken together, these developments point to a misalignment between the design of the operation and the evolving implementation context,” the report stated.

The World Bank also disclosed that the project’s closing date had been moved forward from June 30, 2027, to May 31, 2026, effectively ending the programme more than a year ahead of schedule.

The cancellation comes days after the Accountant-General of the Federation, Shamseldeen Ogunjimi, warned that Nigeria could reconsider loan arrangements with the World Bank if approval and disbursement delays continue.

Speaking in Abuja during a meeting with a World Bank delegation led by Mrs Treed Lane, Ogunjimi stressed that Nigeria expected faster processing of loan facilities since the funds were repayable loans and not grants.

“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” he said, while urging the bank to accelerate disbursement processes to support national development priorities.

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