Just In: FG Cancels $717.7m World Bank Borrowing Plan

According to IReporter Online, the Federal Government has cancelled $717.7 million in undisbursed World Bank financing previously earmarked for the recovery of Nigeria’s struggling electricity sector. The decision followed a formal request by the Nigerian government and a mutual agreement with the World Bank to discontinue the remaining funding under the Power Sector Recovery Performance-Based Operation.

Documents obtained from the World Bank confirmed that the cancellation effectively terminates the remaining balance of a $1.52 billion electricity sector reform programme designed to enhance power supply reliability, strengthen financial stability, and reduce fiscal pressure on public resources. The entire undisbursed $717.7 million has now been written off, with no further disbursements expected under the scheme.

The World Bank explained that the restructuring led to the full cancellation of the remaining funds after approval, adding that implementation under the additional financing package had fallen short of key reform expectations. While the original programme, approved in June 2020, recorded substantial progress and full disbursement of its performance-based component, later reforms under the expanded financing struggled to meet critical targets.

The programme was initially designed to address tariff shortfalls, improve operational efficiency, strengthen regulatory oversight, and promote accountability across the power value chain. Following early gains, including a significant reduction in tariff shortfalls and improved cost recovery levels, an additional $763.5 million financing package was approved in 2023 to deepen reforms and consolidate progress.

However, the World Bank noted that major macroeconomic shifts, particularly the liberalisation of Nigeria’s foreign exchange market in June 2023, led to a sharp depreciation of the naira and a surge in the cost of gas used for electricity generation. With over 70 per cent of Nigeria’s electricity derived from gas, this significantly increased production costs while tariffs remained largely unchanged for most consumers.

The mismatch between rising generation costs and stagnant tariffs led to a sharp rise in sector shortfalls, which increased from ₦140 billion in 2022 to approximately ₦1.9 trillion annually by 2024 and 2025. The World Bank warned that this widening gap placed severe pressure on Nigeria’s fiscal space and undermined the sustainability of sector reforms.

The bank further disclosed that critical performance indicators under the additional financing were not achieved between 2023 and 2025 due to the absence of a credible financing plan to address mounting tariff deficits. It also highlighted ongoing structural challenges, including transmission bottlenecks, distribution inefficiencies, high technical and commercial losses, and weak institutional coordination.

As a result, only a small portion of the additional financing was disbursed, with less than 10 per cent utilisation recorded in some components. The World Bank classified overall performance under the additional financing arrangement as “moderately unsatisfactory,” citing misalignment between programme design and Nigeria’s evolving economic conditions.

Meanwhile, the Office of the Accountant-General of the Federation has warned that Nigeria may reconsider future loan arrangements with the World Bank if prolonged approval and disbursement delays continue. The government emphasized the need for faster processing of project funds to ensure alignment with national development timelines.

The cancellation of the $717.7 million now raises renewed concerns over the future of Nigeria’s power sector reforms, as persistent liquidity challenges, infrastructure deficits, and tariff shortfalls continue to weigh heavily on the electricity market.