By Oluwadarasimi Omiyale
Nigeria has cancelled $717.7 million in undisbursed funding under the World Bank-backed Power Sector Recovery Performance-Based Operation (PSRO), marking a significant setback for electricity sector reforms aimed at improving financial sustainability, tariff efficiency, and operational reliability.
According to a restructuring document from the World Bank, the federal government formally requested the cancellation on March 26, 2026. The decision was subsequently approved by both parties, leading to the termination of remaining disbursements under the programme.
The document stated that the entire undisbursed balance would be cancelled and that no further funds would be released under the PSRO framework.
“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7 million equivalent, and no further disbursements will be made under the Program,” the World Bank paper noted.
It also confirmed that the programme closing date has been revised forward from June 30, 2027, to May 31, 2026, effectively accelerating the closure of the intervention.
The restructuring follows a deterioration in Nigeria’s electricity sector finances, driven largely by foreign exchange volatility, rising gas costs, and tariff rigidity across most consumer bands.
The World Bank said the liberalisation of Nigeria’s foreign exchange market in June 2023 significantly increased the cost base of power generation, particularly gas-fired plants, which account for more than 70 percent of grid electricity supply.
While input costs increased, retail electricity tariffs remained largely unchanged for most customer categories, except for Band A consumers, where price adjustments were introduced in April 2024.
According to data cited in the restructuring report, annual tariff shortfalls rose from N140 billion in 2022 to N1.9 trillion in 2024 and 2025, underscoring the widening gap between revenue recovery and actual generation and distribution costs.
The World Bank stated that the absence of a credible financing framework to close these gaps undermined Nigeria’s ability to meet key reform indicators under the programme.
The PSRO, approved in June 2020, was designed to support Nigeria’s broader Power Sector Recovery Programme aimed at restoring cost-reflective tariffs, improving utility performance, and strengthening regulatory compliance across the electricity value chain.
Between 2019 and 2022, the programme recorded early improvements. The World Bank reported that tariff shortfalls declined by 71 percent, falling from N581 billion to N166 billion over the period, while regulatory cost recovery improved from 56 percent to 94 percent.
Electricity supply to distribution companies also rose by 13 percent between 2018 and 2021.
Encouraged by these outcomes, the World Bank approved an additional $750 million financing package in June 2023 to deepen reforms.
However, the restructuring paper noted that only about 9 percent of the additional financing had been disbursed before the cancellation decision. It added that none of the programme’s performance indicators under the additional financing window were achieved.
Beyond pricing distortions, the World Bank highlighted persistent structural inefficiencies in Nigeria’s power sector, including weak distribution performance, transmission constraints, high technical and commercial losses, and limited cost recovery across utilities.
The lender said these challenges were compounded by delays in implementing performance improvement plans across sector institutions and difficulties in meeting verification requirements tied to disbursement conditions.
As a result, implementation progress was downgraded from satisfactory to moderately unsatisfactory as reform momentum slowed.
Total programme commitments stood at approximately $1.51 billion across the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Of this, about $796 million had already been disbursed before cancellation, leaving $717.7 million undrawn.
The cancellation also comes amid rising scrutiny of Nigeria’s external financing framework.
Earlier in May 2026, Shamseldeen Babatunde Ogunjimi warned that Nigeria could reconsider or withdraw from World Bank loan arrangements if approval and disbursement delays persist.
Despite early progress under the PSRO framework, the cancellation highlights the fragility of Nigeria’s electricity reform programme, particularly in the face of FX volatility, tariff resistance, and weak institutional alignment.
Analysts say the outcome underscores the challenge of aligning cost-reflective pricing with political and economic realities in a sector still heavily dependent on subsidies and regulatory interventions.
With the programme now formally closed, attention is expected to shift toward alternative financing mechanisms and renewed policy approaches aimed at stabilising Nigeria’s power sector and closing its widening revenue gap.
