FG cancels $717.7 million World Bank power sector loan

The Federal Government of Nigeria has cancelled $717.7 million in undisbursed financing tied to a World Bank-backed electricity reform programme.

The funds were part of a broader intervention designed to stabilise Nigeria’s power sector and reduce long-standing financial pressure on public finances. 

The decision was taken jointly with the World Bank after both sides agreed to discontinue the remaining portion of the Power Sector Recovery Performance-Based Operation, following difficulties in meeting key reform conditions and shifting sector realities. 

According to documents from the World Bank, the cancellation covers the entire undisbursed balance of the programme, effectively bringing an early close to the facility.

The bank said no further disbursements would be made after the restructuring is approved. 

The programme, backed by the Federal Government of Nigeria, was originally designed to improve electricity supply, strengthen revenue collection, and reduce subsidy-related strains on the national budget.

Reform pressure and rising sector costs 

The Power Sector Recovery Programme was approved in 2020 with about $752.5 million in financing and later expanded in 2023 to $1.52 billion through additional support.

It aimed to restore financial stability across the electricity value chain and improve governance in sector institutions. 

But implementation slowed as cost recovery gaps widened, driven by weak distribution efficiency, gas-linked generation costs, and tariff freezes for most consumers.

The World Bank noted that structural problems across the sector continued to weigh on performance.

Deepening financial strains and policy gaps 

The World Bank reported that tariff shortfalls rose sharply in recent years, reflecting the widening gap between generation costs and revenue collection.

Earlier gains, including improved collection rates and reduced losses, were not sustained under newer conditions. 

Despite progress in the early phase of the programme, later financing disbursements stalled, with only a small portion of the additional funding released.

Issues linked to verification delays and underperformance at agencies such as the Transmission Company of Nigeria further slowed execution. 

A broader fiscal warning also came from Nigeria’s Accountant-General, who cautioned that prolonged delays in loan approvals and disbursements could affect future engagements with multilateral lenders, including the World Bank.