ABUJA, Nigeria — The Nigerian government and the World Bank have cancelled $717.7m (£563m) in undisbursed financing originally earmarked to salvage the country’s struggling electricity sector, bringing a major power infrastructure programme to an abrupt end.
The decision effectively terminates the remaining portion of a $1.52bn power sector recovery package. It comes amid soaring multi-trillion naira tariff shortfalls, severe macroeconomic shocks, and a failure by Nigerian authorities to meet key reform milestones.
According to official World Bank restructuring documents, the termination followed a formal request by the Nigerian government. Both parties jointly agreed to discontinue the funding due to “evolving sector realities” that have left the programme misaligned with the current economic climate.
The global lender confirmed that the remaining $717.7m balance has been completely nullified, with no further disbursements to be made. Additionally, the closure date for the operation has been brought forward by more than a year, moving from June 2027 to May 2026.
Currency Crisis Sparks Energy Collapse
The collapse of the funding package is heavily rooted in sweeping fiscal reforms introduced by the Nigerian government.
While an initial phase of the World Bank programme launched in 2020 yielded positive results—slashing annual tariff deficits from ₦581bn to ₦166bn—an additional $763.5m injection approved in 2023 was completely derailed by macroeconomic instability.
The primary catalyst was the liberalisation of Nigeria’s foreign exchange market:
- The Currency Shock: The floating of the local currency led to a sharp depreciation of the Nigerian naira.
- The Gas Mismatch: More than 70 percent of Nigeria’s grid electricity is generated by natural gas, the pricing of which is pegged to the US dollar.
- The Tariff Deficit: While production costs soared alongside the dollar, consumer electricity tariffs remained largely frozen by the state to protect citizens from inflation, except for a subset of premium “Band A” consumers.
This widening gap between generation costs and consumer pricing caused Nigeria’s annual electricity tariff shortfalls to explode from a low of ₦140bn in 2022 to a staggering ₦1.9trn per year. The massive financial deficit placed unsustainable pressure on the country’s limited public finances, making it impossible for the state to establish a viable, sustainable financing plan required to unlock further World Bank tranches.
Persistent Structural Failures
Beyond the immediate currency crisis, the World Bank noted that Nigeria’s electricity infrastructure continues to suffer from deep-seated structural issues.
Despite years of international financial backing, the national grid remains plagued by weak distribution networks, severe transmission bottlenecks, and an underutilisation of available generation capacity. High technical and commercial losses, combined with poor revenue collection by distribution companies, have created a permanent financial deficit across the entire energy value chain.
The bank further cited significant administrative and bureaucratic delays within Nigeria, particularly regarding the alignment of performance improvement plans at the state-owned Transmission Company of Nigeria (TCN). Consequently, while 95 percent of the original 2020 loan was successfully utilized, less than 10 percent of the 2023 additional financing package was ever disbursed before its cancellation.
Tensions Over Bureaucracy
The loan cancellation coincides with growing friction between Abuja and international development lenders over the pace of aid delivery.
Nigeria’s Accountant-General, Dr. Shamseldeen Ogunjimi, recently issued a stark warning that the country might begin rejecting World Bank facilities if prolonged approval and disbursement timelines continue to stall critical project execution.
“If approvals take more than six months, the Nigerian Government may no longer honour such arrangements,” Dr. Ogunjimi stated during a meeting with a visiting World Bank delegation in Abuja, emphasizing that the facilities are interest-bearing loans rather than grants and must align with national fiscal schedules.
In response, World Bank officials clarified that development funds are structurally designed to be released in staggered instalments based on project verification and the fulfillment of specific policy targets, rather than in lump sums.
Despite the friction and the recent power sector cancellation, Nigeria remains the third-largest borrower from the World Bank’s concessional lending arm, the International Development Association (IDA), carrying a total loan exposure of $18.5bn.
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