FG Cancels $717.7m World Bank Power Loan Amid Nationwide Blackouts

• The Federal Government has cancelled $717.7 million in undisbursed World Bank funding for Nigeria’s power sector after persistent implementation failures, rising tariff shortfalls and worsening financial pressures within the electricity industry.

The Federal Government has cancelled $717.7 million in undisbursed World Bank financing meant for Nigeria’s troubled electricity sector.

According to documents obtained from the World Bank website, the cancellation affected the remaining balance of a $1.52 billion Power Sector Recovery Programme initially designed to support reforms in Nigeria’s electricity industry.

The World Bank disclosed that the cancellation followed a formal request by the Federal Government and a joint decision by both parties to discontinue financing under the programme due to implementation challenges and failure to achieve 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 Program following approval of this restructuring,” the World Bank stated.

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

The Power Sector Recovery Programme was originally approved on June 23, 2020, with financing of about $752.5 million aimed at improving electricity supply, strengthening the financial sustainability of the sector and enhancing accountability among power institutions.

An additional financing package of about $763.5 million was later approved in June 2023 to support further reforms and consolidate gains already achieved under the programme.

Combined, both facilities amounted to approximately $1.52 billion.

However, while the original programme recorded significant progress, the additional financing reportedly struggled due to worsening economic conditions and inability to meet major reform conditions.

The World Bank stated that Nigeria’s electricity sector continues to face deep-rooted structural challenges, including weak distribution performance, transmission bottlenecks, poor cost recovery and severe financial imbalances.

According to the report, the liberalisation of Nigeria’s foreign exchange market in June 2023 led to a sharp depreciation of the naira, significantly increasing the cost of natural gas used for electricity generation.

The bank explained that over 70 per cent of electricity supplied into Nigeria’s national grid is generated using gas priced 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 report stated.

At the same time, electricity tariffs for most Nigerians remained largely unchanged despite the rise in generation costs, except for Band A customers whose tariffs were adjusted in April 2024.

This widening gap between electricity production costs and revenues reportedly caused tariff shortfalls to rise sharply 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 World Bank noted.

The report further revealed that Nigeria failed to establish a credible financing framework capable of addressing the growing deficits within the sector.

According to the bank, the absence of a sustainable financing plan and implementation delays made it difficult to achieve key programme conditions required for continued disbursement.

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

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Financial records contained in the restructuring document showed that under one component of the programme, only $41.24 million was disbursed out of a committed $449 million, leaving over $407 million unused.

The bank added that while about 95 per cent of the original programme funding had been successfully disbursed, only around nine per cent of the additional financing package was released.

The World Bank concluded that the programme’s original structure became increasingly incompatible with the evolving realities in Nigeria’s power sector.

The development comes amid growing concerns over Nigeria’s rising dependence on foreign loans and persistent electricity challenges despite years of reforms and financial interventions.