- The Federal Government cancelled the undisbursed $717.7 million World Bank financing under the Power Sector Recovery Programme.
- The original PSRP was approved in June 2020 with financing of approximately $752.5 million to improve electricity supply reliability, strengthen sector finances, and enhance accountability across the electricity value chain.
The Federal Government has cancelled $717.7 million in undisbursed World Bank financing for Nigeria’s electricity sector, bringing an early end to the remaining portion of the $1.52 billion Power Sector Recovery Programme (PSRP) amid mounting tariff shortfalls, liquidity pressures, and persistent implementation challenges across the industry.
According to restructuring documents released by the World Bank, the cancellation followed a formal request by the Federal Government and a joint decision by both parties to discontinue financing under the Power Sector Recovery Performance-Based Operation due to evolving sector realities and delays in achieving critical reform milestones.
The World Bank confirmed that the cancelled amount represents the entire undisbursed balance under the programme. The Bank also moved the programme’s closing date forward from June 30, 2027, to May 31, 2026, effectively ending the operation more than a year ahead of schedule.
The original PSRP was approved in June 2020 with financing of approximately $752.5 million to improve electricity supply reliability, strengthen sector finances, and enhance accountability across the electricity value chain. Following progress recorded under the programme, the World Bank approved an additional financing package of about $763.5 million in June 2023 to deepen reforms and address remaining structural weaknesses.
However, while the parent programme recorded substantial results and largely disbursed its funds, the additional financing component struggled to meet key reform conditions, resulting in limited disbursements and the eventual cancellation of the remaining balance.
According to the World Bank, Nigeria’s electricity sector continues to face entrenched structural issues, including weak distribution performance, transmission bottlenecks, underutilised generation capacity, and recurring financial imbalances.
The report noted that the liberalisation of Nigeria’s foreign exchange market in June 2023 triggered a sharp depreciation of the naira, significantly increasing the cost of natural gas used for power generation. With more than 70 per cent of electricity supplied to the grid generated from gas priced in US dollars, generation costs rose sharply while tariffs for most consumers remained largely unchanged.
As a result, tariff shortfalls reportedly increased from N140 billion in 2022 to approximately N1.9 trillion annually in 2024 and 2025, placing additional strain on government finances and sector liquidity.
The World Bank stated that the worsening financial condition of the sector prevented Nigeria from achieving key reform indicators tied to the additional financing package, particularly the establishment of a credible and fiscally sustainable financing framework to address tariff deficits.
Financial data from the restructuring document showed that only about nine per cent of the additional financing package had been disbursed before the programme was cancelled.
The Bank concluded that the programme’s design had become increasingly misaligned with prevailing realities in Nigeria’s electricity sector, making it difficult to achieve the intended reform objectives within the expected timeframe.
Experts React
Speaking on News Central TV, Olajumoke Delano, Managing Director/CEO of Competence Builders Limited, Jumoke Delano explained that the World Bank’s Power Sector Recovery Programme (PSRP) was introduced in two phases in 2020 and 2023, with each phase valued at approximately $750 million. According to her, the programme was designed to improve electricity supply, restore financial sustainability in the sector, and reduce subsidy pressures.
She noted that the facility was tied to strict disbursement-linked indicators (DLIs), meaning Nigeria had to meet specific reform conditions, including tariff reforms, before funds could be accessed. While the country recorded positive performance under the initial phase of the programme, she said the macroeconomic realities changed significantly following the foreign exchange liberalisation in 2023, which increased generation costs and altered the assumptions underpinning the programme.
Delano stressed that the cancellation should not be viewed as a vote of no confidence in Nigeria’s electricity sector or reform trajectory. Rather, she described it as a mutual decision between Nigeria and the World Bank to revisit the structure of the programme and redesign it to reflect current market realities.
She also highlighted the continued significance of the Electricity Act 2023, describing it as one of the most transformative reforms in Nigeria’s electricity sector because it decentralises electricity governance and creates a framework for state electricity markets. According to her, states now have clearer pathways to establish independent electricity markets, mini-grids, and embedded generation projects.
Delano added, “This was a mutual decision not to proceed with the agreement as structured, and an opportunity to redesign something that actually works for the sector under current realities.”
Odion Omofonman said the cancellation of the undisbursed portion of the World Bank facility was primarily due to the fact that the agreed reform indicators became unrealistic after Nigeria’s FX liberalisation altered the macroeconomic conditions within the electricity market.
He emphasised that the decision was mutually agreed upon by both the Federal Government and the World Bank and explained that discussions are already underway to restructure the programme into a new framework better suited to the realities of Nigeria’s current power sector.
Omofonman clarified that the cancellation only affects the undisbursed portion of the PSRP, noting that over $700 million had already been released under the programme. He further explained that the Distribution Sector Recovery Programme (DISREP), a separate $500 million World Bank facility supporting DisCos, remains active.
On tariffs, he argued that service-based tariffs and banding, though conceptually sound when introduced in 2020, have not delivered the intended outcomes due to poor implementation. He suggested that states may eventually need to develop alternative tariff methodologies under the decentralised electricity market framework.
“What has been cancelled is the undisbursed portion of the programme because the agreed indicators became untenable after the macroeconomic shifts; it is not the end of support, but a restructuring toward a more realistic framework,” Omofonman noted.