NEWS

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.