World Bank, Nigerian Government Cancel $717.7 Million Power Sector Loan

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

According to World Bank documents, the cancelled amount represents the remaining balance of the $1.52 billion Power Sector Recovery Performance-Based Operation introduced to improve electricity supply, strengthen sector finances and reduce pressure on public funds.

The development comes amid worsening tariff shortfalls, rising operational costs and persistent structural problems affecting Nigeria’s power industry.

Programme Ended Earlier Than Planned

The World Bank disclosed in a restructuring document that no additional disbursement would be made under the 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 Program following approval of this restructuring,” the bank stated.

The institution also revealed that the programme’s closing date was moved forward from June 30, 2027, to May 31, 2026.

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

Combined, both facilities amounted to approximately $1.52 billion.

World Bank Explains Cancellation

According to the World Bank, Nigeria’s electricity sector continues to face major structural and operational challenges despite years of reforms and financial support.

The institution identified weak electricity distribution, transmission bottlenecks, underutilisation of generation capacity and financial instability as key obstacles.

It further noted that high technical and commercial losses, alongside poor cost recovery mechanisms, created significant gaps between revenues and operating expenses.

“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.

Naira Devaluation Increased Pressure

The World Bank also linked the programme’s difficulties to the liberalisation of Nigeria’s foreign exchange market in June 2023, which triggered a major depreciation of the naira.

According to the report, the weaker naira significantly increased the cost of natural gas used for electricity generation since gas transactions are largely denominated in US 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 bank explained.

Despite rising costs, electricity tariffs reportedly remained largely unchanged for most consumers, except Band A customers whose tariffs were adjusted in April 2024.

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

Low Disbursement, Delayed Reforms

The World Bank disclosed that although the original programme recorded significant milestones and disbursed most of its funds, the additional financing package struggled to achieve major reform conditions.

Only about nine percent of the additional financing was reportedly 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 institution stated.

The bank blamed implementation delays, weak financing frameworks and verification challenges involving sector institutions for the poor performance.

It also noted that recent financing plans failed to identify adequate funding sources to address growing 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 Delayed Loan Processing

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

Speaking during a meeting with World Bank officials in Abuja, Ogunjimi stressed that Nigeria expected timely processing since the facilities are loans rather than grants.

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

Despite the latest cancellation, Nigeria reportedly remains the third-largest borrower from the World Bank’s International Development Association, behind Bangladesh and Pakistan.