Nigeria and the World Bank have cancelled $717.7 million in unused power sector funding following delays in major electricity reforms, rising tariff deficits that hit N1.9 trillion, and growing financial pressures within the sector.
- Nigeria forfeited access to the remaining $717.7 million World Bank power sector funding after failing to meet key reform benchmarks.
- The World Bank stated that increasing electricity generation costs, the depreciation of the naira, and stagnant tariffs deepened the financial challenges facing the power sector.
- Tariff deficits surged from ₦140 billion in 2022 to nearly ₦1.9 trillion in 2024 and 2025, increasing strain on government finances.
- Nigeria has lost access to approximately $717.7 million in unutilized World Bank funding after the Federal Government and the international lender agreed to terminate the remaining balance of the country’s Power Sector Recovery Programme.
The cancellation, disclosed in newly released World Bank restructuring documents, effectively concludes the wider $1.52 billion power sector reform programme ahead of schedule.
“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 World Bank initially approved a financing package of about $752.5 million in June 2020. Following what it described as significant progress during the early stages of implementation, the bank later approved an additional $763.5 million funding package in June 2023 to further support reforms in the power sector.
The additional funding took effect in June 2024 and was initially scheduled to continue until June 30, 2027. However, the latest restructuring document indicates that the programme will now end on May 31, 2026, over a year earlier than originally planned.
While the initial phase of the programme achieved significant milestones, the additional financing component faced major setbacks due to deteriorating economic conditions and the inability to achieve critical reform targets.
The World Bank said Nigeria’s electricity sector still faces deep structural challenges despite years of reforms and financial interventions.
The report highlighted ongoing issues such as inefficient distribution, transmission constraints, poor revenue recovery, and escalating operational expenses, all of which continue to undermine the sector’s performance.
“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.
A major setback occurred after the Federal Government liberalised the foreign exchange market in June 2023, triggering a steep depreciation of the naira and significantly raising the cost of natural gas used for power generation.
The World Bank noted that more than 70% of electricity supplied to Nigeria’s national grid is produced from gas that is 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 bank declared.
Despite increasing generation costs, electricity tariffs for most consumers remained largely stable for most of the period. The only significant change occurred in April 2024, when Band A customers were shifted to cost-reflective pricing.
The inability to fully align tariffs with costs created a significant mismatch between the true cost of electricity generation and the revenue collected by the sector.
The World Bank reported that tariff deficits rose sharply from ₦140 billion in 2022 to almost ₦1.9 trillion per year in both 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 3 years, moving from a low of ₦140bn in 2022 to a high of ₦1.9tn per year in 2024 and 2025, putting serious pressure on the limited Federal Government of Nigeria’s fiscal space,” the report said.
The bank further stated that Nigerian authorities failed to develop a credible and fiscally sustainable plan to address the widening tariff deficits, which hindered compliance with key conditions attached to the additional financing package.
“Recent financing plans have not fully identified sufficient sources of funding to cover tariff shortfalls, nor established a credible trajectory for their reduction,” the World Bank stated.
The report also attributed the slow progress of the programme to delays in executing performance improvement plans and verification issues involving agencies like the Transmission Company of Nigeria.
Financial records included in the restructuring documents indicate that of the $449 million allocated under a component of the additional financing package, only $41.24 million was disbursed—just over 9% of the total commitment.
