THE Federal Government has cancelled $717.7 million in undisbursed World Bank funding earmarked for Nigeria’s struggling power sector.
According to PUNCH, the bank revealed that the cancellation followed a formal request by the Nigerian government and a mutual decision by both parties to discontinue the programme due the failure to meet key reform targets.
“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 document read.
The ICIR reports that Nigeria remained the International Development Association’s third-largest borrower in the first quarter of 2026, despite a slight decline in exposure from $18.7 billion in December 2025 to $18.5 billion as of March 31, 2026.
The latest IDA financial statements showed only Bangladesh with $22.7 billion and Pakistan with $19.2 billion ranked above Nigeria, whose exposure represented about eight per cent of the institution’s $230.8 billion loan portfolio.
Nigeria’s exposure rose by $1.2 billion from $17.3 billion in March 2025, highlighting the country’s continued dependence on concessional World Bank financing.
The Bank in its latest report also announced that the programme’s closing date had been moved forward from June 30, 2027, to May 31, 2026, effectively ending the initiative more than a year earlier than planned.
The World Bank said Nigeria’s electricity sector continued to grapple with deep-rooted structural problems including weak distribution performance, transmission bottlenecks, underutilised generation capacity, and persistent financial imbalances despite years of reforms and significant financial support.
According to the Bank, high technical, commercial, and collection losses in the distribution segment, coupled with inadequate cost recovery, have created recurring financing gaps and severe liquidity pressures across the power value chain.
“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 document added.
The ICIR reports that this development has brought an end to the remaining portion of the $1.52 billion Power Sector Recovery Performance-Based Operation amid worsening tariff deficits, mounting financial strain, and persistent implementation setbacks.
Recall that the Federal Government launched the Power Sector Recovery Performance-Based Operation on June 23, 2020, with financing of about $752.5 million aimed at improving electricity supply reliability, strengthening the sector’s financial sustainability, and boosting accountability across the power value chain.
After seeing the progress of the recovery programme, the Bank approved an additional $763.5 million on June 9, 2023, to take effect on June 19, 2024, and address the staggering structural challenges. The programme was also extended to June 2027 bringing the total additional funding to about $1.52 billion.
However, while the original programme recorded substantial results and largely disbursed its funds, the additional financing struggled to meet major reform conditions, leading to minimal disbursements and the eventual cancellation of the remaining balance.
Tariff shortfalls reportedly declined by 71 per cent between 2019 and 2022, dropping from N581 billion to N166 billion. Regulatory cost recovery also improved significantly from 56 per cent to 94 per cent, while electricity supplied to the distribution grid rose by 13 per cent between 2018 and 2021.
Encouraged by these gains, the World Bank approved additional funding to strengthen operational performance, improve governance, and support performance improvement plans, particularly at the Transmission Company of Nigeria.
However, the reforms failed to progress as expected and the World Bank blamed much of the setback on major macroeconomic developments, especially the liberalisation of Nigeria’s foreign exchange market in June 2023, which triggered a sharp depreciation of the naira and significantly increased the cost of gas used for power generation.
More than 70 per cent of electricity supplied to Nigeria’s national grid is generated from natural gas priced in US dollars.
At the same time, electricity tariffs for most consumers remained largely unchanged despite rising generation costs. The bank noted that tariffs had effectively remained frozen since early 2023, except for Band A customers whose rates were adjusted to cost-reflective levels in April 2024.
As a result, tariff shortfalls surged sharply from N140 billion in 2022 to about N1.9 trillion annually in 2024 and 2025, placing heavy pressure on government finances.
