Nigeria loses $718m World Bank power sector loan as reforms stall, tariff shortfalls hit ₦1.9tn

Precious Omolu 11:35 - 26 May 2026

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Nigeria has lost access to $718 million in World Bank financing as the Power Sector Recovery Programme shuts down a year ahead of schedule due to stalled reforms and rising debts.

Nigeria and the World Bank have cancelled $717.7m in undisbursed power sector funding after key electricity reforms stalled, tariff shortfalls surged to N1.9tn, and sector financing challenges worsened.

Nigeria lost access to $717.7m in remaining World Bank power sector funds after reform targets were not achieved.
The World Bank said rising electricity costs, naira depreciation, and frozen tariffs worsened the sector’s financial crisis.
Tariff shortfalls jumped from ₦140bn in 2022 to about ₦1.9tn in 2024 and 2025, putting pressure on government finances.

Nigeria has lost access to about $717.7m in undisbursed World Bank financing after the Federal Government and the global lender agreed to cancel the remaining balance under the country’s Power Sector Recovery Programme.

The cancellation, confirmed in new World Bank restructuring documents, effectively brings an end to the broader $1.52bn electricity sector reform programme earlier than planned.

“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 Power Sector Recovery Programme was created by the Federal Government to improve electricity supply, reduce the financial burden of the sector on government finances, and strengthen the operational performance of key electricity institutions across the country.

The liberalization of the foreign exchange market in 2023 caused the cost of gas, priced in dollars, to skyrocket, while electricity revenues remained stagnant in local currency.

The initial financing package worth around $752.5m was approved by the World Bank in June 2020. After what the bank described as notable progress in the early phase of implementation, an additional financing package of about $763.5m was later approved in June 2023 to deepen reforms in the sector.

That additional financing became effective in June 2024 and was originally expected to run until June 30, 2027. But the latest restructuring document shows the programme will now close on May 31, 2026, more than one year ahead of schedule.

Although the original phase of the programme recorded major achievements, the additional financing component struggled badly due to worsening macroeconomic conditions and failure to meet key reform targets.

The World Bank said Nigeria’s electricity sector still faces deep structural challenges despite years of reforms and financial interventions.

According to the report, problems including weak electricity distribution performance, transmission bottlenecks, poor revenue collection, and rising operational costs continue to weaken the sector.

“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 said.

Despite initial progress, the World Bank noted that weak distribution performance and transmission bottlenecks continue to drain the sector's financial health.

One of the biggest setbacks came after the Federal Government liberalised the foreign exchange market in June 2023. The move caused a sharp depreciation of the naira, leading to a major increase in the cost of natural gas used to generate electricity.

The World Bank explained that over 70 per cent of electricity on Nigeria’s national grid is generated using gas 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 stated.

Despite the rising cost of generation, electricity tariffs for most Nigerians remained largely unchanged for much of the period. The only major adjustment came in April 2024 when Band A customers were moved to cost-reflective tariffs.

The failure to fully adjust tariffs created a huge gap between actual generation costs and revenues earned by the sector.

According to the World Bank, tariff shortfalls jumped from ₦140bn in 2022 to nearly ₦1.9tn annually 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 added that Nigerian authorities were unable to establish a “credible and fiscally sustainable financing plan” to reduce the growing tariff deficits, making it impossible to meet important conditions tied 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 added.

The report also blamed delays in implementing performance improvement plans and verification challenges involving agencies such as the Transmission Company of Nigeria for slowing down progress under the programme.

Financial records attached to the restructuring documents show that out of the $449m committed under one component of the additional financing arrangement, only $41.24m was eventually disbursed, representing just over nine per cent.

Under another component funded through the International Development Association, about $754.82m was disbursed from a total commitment of $1.063bn, leaving more than $308m undisbursed.

The World Bank noted that while nearly all funds tied to the original programme were successfully released, only around nine per cent of the additional financing package was eventually accessed.

Failure to implement cost-reflective tariffs has created a massive liquidity crisis, leaving the government unable to cover the difference between generation costs and consumer payments.

“Of the AF combination of a loan and a credit totalling $763.5m equivalent, only 9 per cent, corresponding to prior results of the PforR, have been disbursed,” the report stated.

Despite the eventual collapse of the additional financing arrangement, the World Bank acknowledged that the original programme achieved measurable improvements in the sector.

The bank said tariff shortfalls reduced by 71 per cent between 2019 and 2022, dropping from ₦581bn to ₦166bn. Regulatory cost recovery also improved from 56 per cent to 94 per cent during the same period.

It further stated that electricity supplied to Nigeria’s distribution grid increased by 13 per cent between 2018 and 2021.

“Implementation of the parent operation was satisfactory, brought substantial results, and fully disbursed the PforR component as all DLRs were achieved,” the report stated.

The latest development comes shortly after the Accountant-General of the Federation, Dr Shamseldeen Ogunjimi, warned that Nigeria could reconsider future World Bank loans if approval and disbursement delays continue.

Speaking during a meeting in Abuja with a World Bank delegation led by Mrs Treed Lane, Ogunjimi said slow processing timelines could affect the country’s willingness to continue with such financing arrangements.

“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” he said.

He stressed that because the facilities are loans and not grants, Nigeria expects faster approvals and timely disbursements to support project implementation and fiscal planning.

Nigeria’s power sector has struggled for decades with poor infrastructure, low generation levels, inadequate transmission capacity, energy theft, weak distribution networks, and mounting debts owed to generation companies and gas suppliers. Analysts say without major structural reforms and sustainable financing, the sector may continue to face liquidity crises and unreliable electricity supply.