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The federal government and the World Bank have agreed to cancel about $717.7 million in undisbursed financing under the power sector recovery operation (PSRO) programme.
The cancellation was due to worsening tariff shortfalls, implementation delays, and changing realities in Nigeria’s electricity sector, according to a restructuring paper shared with TheCable on Tuesday.
In the paper, the World Bank said the development followed a formal request by the federal government on March 26 to discontinue financing under the programme and close the operation ahead of schedule.
This comes weeks after the office of the accountant-general of the federation (OAGF) denied threatening to cancel World Bank loans with delayed approvals beyond six months.
“The proposed Level Two restructuring is undertaken in response to a formal request from the Federal Government of Nigeria (FGN), received on March 26, 2026,” the document reads.
“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of US$717.7 million equivalent, and no further disbursements will be made under the Program following approval of this restructuring.
“The restructuring includes an advancement of the Program closing date from June 30, 2027, to May 31, 2026, to reflect the cancellation and completion of disbursement activities, after which the operation will proceed toward closure in accordance with World Bank procedures.”
The bank said the programme, designed to support Nigeria’s power sector recovery programme (PSRP), had initially recorded “substantial results” under the parent operation approved in 2020, including a 71 percent reduction in tariff shortfalls between 2019 and 2022.
According to the document, tariff shortfalls fell from N581 billion to N166 billion during the period, while regulatory cost recovery improved from 56 percent to 94 percent.
‘GAINS RECORDED WERE REVERSED DUE TO NAIRA DEPRECIATION’
The World Bank said gains recorded under the initial phase were reversed after the liberalisation of the foreign exchange (FX) market in June 2023 triggered a sharp depreciation of the naira.
This, the multilateral said, significantly increased the cost of gas used for electricity generation, since over 70 percent of power supplied to the national grid is generated from gas priced in dollars.
The Washington-based institution also said tariffs remained largely frozen since early 2023, except for Band A customers whose tariffs were raised to cost-reflective levels in April 2024.
“Due to the mismatch between the electricity generation costs and the sector tariff revenues, the tariff shortfalls increased sharply in the last three years, moving from a low of N 140 billion in 2022 to a high of N1.9 trillion per year in 2024 and 2025,” the document reads.
The World Bank said the absence of a credible financing plan and the rising trajectory of tariff deficits prevented Nigeria from meeting key disbursement-linked indicators (DLIs) tied to the additional financing package approved in 2023.
The additional financing, valued at $750 million according to the document, was meant to support further reforms in the power sector, including implementation of performance improvement plans for key institutions such as the Transmission Company of Nigeria (TCN), and measures to improve governance and accountability.
However, the bank said only 9 percent of the financing was disbursed due to implementation delays and failure to achieve the programme’s global DLIs.
Consequently, the operation’s implementation progress rating was reportedly downgraded from “satisfactory” to “moderately unsatisfactory”, while progress toward achieving its development objective was also downgraded in March 2025.
The World Bank said recent financing plans failed to fully identify sources of funding to cover tariff shortfalls or establish a “credible trajectory” for reducing them.
The organisation said the programme’s structure, which depended on coordinated fiscal, regulatory, and operational reforms, had become increasingly difficult to implement within the original timeline.
“Taken together, these developments point to a misalignment between the design of the operation and the evolving implementation context,” the bank said.
The lender noted that discussions with the federal government led to a “shared recognition” that future support to Nigeria’s power sector should focus more on targeted investments capable of delivering measurable improvements in electricity supply, operational efficiency, and revenue recovery within a shorter timeframe.
According to the restructuring document, the programme had total funding commitments of approximately $1.51 billion from the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).
Out of that amount, about $798 million had been disbursed before the cancellation, leaving $717.7 million balance.
Despite the cancellation, the World Bank said all previously achieved results under the programme would remain valid, adding that the federal government intends to continue pursuing power sector reforms through alternative financing instruments and operations.
