By Seun Ibiyemi
Nigeria has cancelled $717.7 million in undisbursed funding under the World Bank-backed Power Sector Recovery Performance-Based Operation (PSRO), dealing a major blow to efforts aimed at restoring financial sustainability in the country’s electricity sector amid worsening tariff deficits, foreign exchange pressures, and persistent operational inefficiencies.
According to a World Bank restructuring paper obtained on Tuesday, the cancellation followed a formal request by the Federal Government on March 26, 2026, and was jointly agreed upon by both parties as part of plans to discontinue financing under the programme and redirect support to alternative interventions.
The restructuring document stated that the entire undisbursed balance of $717.7 million would be cancelled, while the programme’s closing date was brought forward 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 document stated.
It added that the revised closing date was intended to facilitate completion of disbursement activities before the operation proceeds toward formal closure in line with World Bank procedures.
The development comes as Nigeria’s power sector continues to struggle with chronic electricity shortages, weak revenue collection, mounting subsidy obligations, and widening financial gaps across the electricity value chain.
The World Bank attributed the collapse of the programme largely to the worsening financial condition of the sector following the naira devaluation and the inability of electricity tariffs to reflect rising generation costs.
According to the lender, the liberalisation of the foreign exchange market in June 2023 sharply increased the cost of natural gas used in generating more than 70 per cent of electricity supplied to the national grid, as gas prices are denominated in US dollars.
Despite the surge in operating costs, electricity tariffs remained largely frozen for most consumers, except Band A customers whose tariffs were adjusted to cost-reflective levels in April 2024.
This widened the gap between sector revenues and operating expenses, leading to a dramatic increase in tariff shortfalls.
The World Bank disclosed that annual tariff deficits rose from N140 billion in 2022 to N1.9 trillion in both 2024 and 2025, placing severe strain on government finances and weakening implementation of critical reform targets tied to the programme.
The lender noted that the absence of a credible financing framework to address the growing deficits prevented Nigeria from achieving key performance indicators between 2023 and 2025.
Beyond tariff-related issues, the report highlighted longstanding structural problems across the sector, including weak distribution performance, transmission bottlenecks, underutilised generation capacity, high technical and commercial losses, and poor cost recovery mechanisms.
The PSRO was originally approved in June 2020 to support Nigeria’s Power Sector Recovery Programme, which aimed to improve electricity reliability, restore financial viability, and strengthen accountability within the industry.
The World Bank acknowledged that the programme initially recorded measurable progress. Between 2019 and 2022, tariff shortfalls declined by 71 per cent from N581 billion to N166 billion, while regulatory cost recovery improved from 56 per cent to 94 per cent.
Electricity supplied to distribution companies also increased by 13 per cent between 2018 and 2021.
Encouraged by those gains, the bank approved an additional financing package of $750 million in June 2023 to deepen reforms and tackle lingering structural challenges. The facility became effective in June 2024 and extended the programme until 2027.
However, implementation later stalled.
The World Bank disclosed that none of the programme’s global performance indicators was achieved under the additional financing arrangement.
According to the report, reform progress was hindered by delays in establishing a fiscally sustainable financing plan, failure to implement performance improvement plans for sector institutions, and challenges linked to meeting verification requirements tied to disbursement conditions.
As a result, only about nine per cent of the additional financing package was disbursed despite expectations that the programme would accelerate reforms across the sector.
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The lender subsequently downgraded implementation progress from satisfactory to moderately unsatisfactory as reform timelines slipped and disbursement targets remained unmet.
Data contained in the restructuring document showed that the operation had total commitments of approximately $1.51 billion from the International Bank for Reconstruction and Development and the International Development Association. Of that amount, about $796 million had been disbursed before the cancellation, leaving $717.7 million undrawn.
