Global lender, the World Bank has decided rather to redirect a $730 million financing facility towards reviving Nigeria’s electricity distribution network, following the discontinuance of the original Power Sector Recovery Programme (PSRP), according to several expert sources who have knowledge of the development.
Though reports are circulating about the facility’s withdrawal by the World Bank, however, sources said the detour was with the knowledge of the Nigerian government over the funding, which was initially allocated under the PSRP to support broad based reforms in Nigeria’s electricity market.
Now the facility will be used fully to strengthen the distribution segment of the power sector through expanded customer metering and critical network upgrades.
Nigeria’s electricity distribution struggles with massive financial shortfalls, inadequate infrastructure, and commercial inefficiencies. These issues result in widespread metering deficits, energy theft, and frequent power outages across the country, limiting power access for millions and crippling local economies.
The loan restructuring, according to some industry watchers, follows Nigeria’s inability to meet key reform conditions tied to the original programme, including eliminating electricity tariff subsidies and reducing the sector’s mounting revenue shortfall.
These unmet conditions also hindered the country from accessing an additional $750 million financing tranche linked to the programme.
One source explained that the World Bank has not actually cancelled the $730 million facility, against circulating reports. Rather, the global lender and the Nigeria government agreed to redesign the programme to address more immediate operational challenges in the electricity distribution network.
Nigeria’s power sector experiences a massive gap between what its infrastructure can theoretically produce and what everyday consumers actually receive. The country has total installed grid generation capacity of 13,625 megawatts (MW), but it only manages actual daily generation of 4,000 to 4,600 MW. Out of this generated amount, approximately 3,400 to 3,900 MW get to be successfully distributed to homes and businesses by the electricity distribution companies (DisCos).
One of the sources familiar with the discussions said, “Nigeria remains the beneficiary of the loan. It has not been withdrawn but re-focused on another priority area within the power sector”.
Under the revised framework, the financing will support the expansion of electricity metering, enabling the distribution companies (DisCos) to connect more customers to accurate billing systems and improve revenue collection.
A massive metering gap forces millions of consumers onto arbitrary “estimated billing”. With a total number of registered, active electricity consumers of over 12.3 million, only about 7.21 million consumers have been provided with functional meters.
As a result, the programme will also finance upgrades to key distribution infrastructure, including substations, transformers and other network assets, to improve electricity reliability and reduce technical losses across the grid.
The government believes strengthening the distribution network is critical to improving the financial sustainability of the country’s power market, where privately owned DisCos have struggled with weak revenue collection, aging infrastructure and persistent liquidity constraints.
However, the DisCos, as beneficiaries of the redirected World Bank financing programme, will be required to comply with performance benchmarks and financing conditions attached to the facility.
Why was the original programme abandoned?
Our correspondent was told by a source that, two primary issues punctuated the objectives of the original PSRP: the sharp deterioration in the sector’s financial position following Nigeria’s foreign exchange reforms, and the government’s inability to fully remove electric power subsidy, which was a requirement of the PSRP.
Under the Muhammadu Buhari administration, the electricity tariff shortfall had declined substantially from about N580 billion in 2019 to about N143 billion by 2022. Authorities had planned to reduce the deficit to roughly N100 billion in 2023, before eliminating it entirely.
The onset of Bola Tinubu administration by May 2023 caused a dramatic policy somersault, with the current administration’s introduction of unified foreign exchange market in June 2023. The consequential depreciation of the naira—from around N350 to the U.S. dollar to more than N1,500—substantially raised electricity generation costs. In particular, natural gas contracts and several industry inputs in the power sector are priced in or indexed to the U.S. dollar.
The result of the FX policy significantly expanded the sector’s tariff shortfall, reaching an estimated N2 trillion by 2025, making the financial targets underpinning the original World Bank programme unattainable.
According to World Bank’s reckoning, Nigeria government’s continued support for electricity tariffs leaves the sector with a persistent liquidity gap that prevents full implementation of the PSRP’s reform agenda. The global lender had predicted the electricity tariff shortfall could rise to over N3 trillion in 2023.
Combined, the FX shock and tariff subsidies continuation prompted the federal government and the World Bank to redesign the programme rather than terminate the financing.
An approximately $20 million allocated for technical assistance under the original programme remains largely undisbursed.
The funding was intended to strengthen key institutions overseeing Nigeria’s electricity market, including the Nigerian Electricity Regulatory Commission (NERC), the Nigeria Bulk Electricity Trading Plc (NBET) and the Federal Ministry of Power.
That component is expected to remain available under the revised distribution sector recovery programme.
Implications for Investors:
Power sector analysts say the restructuring reflects a pragmatic shift in Nigeria’s electricity reform strategy, prioritising operational improvements that can generate measurable gains in revenue collection and electricity supply over broader structural reforms that have proven politically and economically difficult to implement.
For investors and development finance institutions, the redesigned programme shows the importance of strengthening the distribution segment that has been the weakest link in Nigeria’s electricity value chain—as the country seeks to improve energy access, reduce market inefficiencies and attract additional private capital into the electric power sector.
