The Federal Government has cancelled $717.7m in undisbursed World Bank intervention financing designed to revive Nigeria’s struggling electricity sector.
The cancellation came after the Federal Government formally requested it and all parties decided to stop funding under the Power Sector Recovery Performance-Based Operation because of changing sector realities and the failure to meet important reform benchmarks.
Meanwhile, documents acquired from the World Bank indicate that the development essentially ends the remaining part of a $1.52 billion power sector recovery program.
Additionally, the cancelled amount represents the entire undisbursed balance remaining under the programme.
The bank stated that, “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.”
Backstory- Loan Approval
On June 23, 2020, the World Bank approved a loan of about $752.5 million for the initiative. The programme aimed to strengthen the sector’s financial and fiscal sustainability, improve accountability among key institutions in the electricity value chain, and enhance the reliability of electricity supply.
Subsequently, on June 9, 2023, the World Bank approved an additional financing package of more than $763.5 million to drive a new phase of reforms and build on earlier gains under the programme. The bank extended the project’s closing date to June 30, 2027, and the funding took effect on June 19, 2024.
Together, the original financing and the additional facility amounted to about $1.52bn.
However, the parent program produced significant outcomes and used most of its resources, while the additional finance failed to meet crucial reform requirements, leading to limited disbursements and the eventual cancellation of the remaining funds.
The bank also claims that substantial technical, commercial, and collection losses throughout the distribution segment, alongside insufficient cost recovery, have caused a persistent discrepancy between the sector’s real operating costs and revenues.
Nigeria’s electricity sector continues to face deep-rooted structural challenges
Despite years of changes and substantial funding, the World Bank observed that Nigeria’s power system still faces fundamental structural issues.
Meanwhile, the report said the industry still suffers from persistent financial imbalances, poor distribution performance, transmission bottlenecks, and the underuse of available generation capacity.
“Furthermore, the bank explained that natural gas, which is priced in U.S. dollars, supplies more than 70 percent of the energy to Nigeria’s national grid.”
The bank stated, “Recent financing plans have not fully identified sufficient sources of funding to cover tariff shortfalls, nor established a credible trajectory for their reduction.”
Consequently, the global bank also said it moved the programme’s closing date from June 30, 2027, to May 31, 2026, effectively ending the operation more than a year ahead of schedule.
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