csrreporters 
Nigeria’s power sector reform efforts have suffered a major setback following the cancellation of a $717.7 million undisbursed World Bank loan facility, originally designed to support structural improvements in electricity supply, revenue recovery, and sector efficiency.
The decision, which effectively brings an early closure to a major component of the Power Sector Recovery Performance-Based Operation (PSRO), underscores the persistent challenges facing Nigeria’s electricity market, including tariff shortfalls, liquidity crises, and long-standing implementation gaps.
According to official restructuring documents, both the Federal Government and the World Bank agreed to discontinue the remaining financing after it became clear that key reform targets under the programme could no longer be met under current economic conditions.
The development also advances the programme’s closing date from June 30, 2027, to May 31, 2026, formally ending one of the most significant multilateral interventions in Nigeria’s electricity reform history.
What the Loan Was Designed to Achieve
The Power Sector Recovery Performance-Based Operation (PSRO) was introduced in 2020 as part of Nigeria’s broader electricity sector reform agenda.
The programme was structured to:
- Improve electricity supply reliability
- Strengthen financial sustainability in the power sector
- Reduce tariff shortfalls
- Support performance-based reforms across generation and distribution
- Enhance accountability within the electricity value chain
At its core, the intervention was meant to address Nigeria’s long-standing electricity crisis by linking funding support to measurable performance outcomes within the sector.
While the initial phase of the programme recorded some progress—particularly in reducing tariff shortfalls between 2019 and 2022—the second phase struggled to maintain momentum due to macroeconomic pressures and structural inefficiencies.
Why the World Bank Cancelled the $717.7m Facility
Documents from the World Bank indicate that the cancellation was not abrupt but rather the result of a gradual deterioration in programme performance.
Several key factors contributed to the outcome:
- Worsening Tariff Shortfalls
Nigeria’s electricity sector has long faced a mismatch between the cost of electricity production and the revenue collected from consumers.
Following macroeconomic shifts in 2023, particularly the liberalisation of the foreign exchange market, the cost of gas (which is largely dollar-denominated) increased significantly.
However, electricity tariffs remained largely unchanged for most consumers, creating a widening financial gap.
This led to tariff deficits rising sharply from about ₦140 billion in 2022 to approximately ₦1.9 trillion annually in 2024 and 2025.
- Liquidity Crisis in the Power Sector
The persistent tariff imbalance created a severe liquidity crisis across the electricity value chain.
Distribution companies (DisCos) struggled to remit payments, generation companies faced funding constraints, and transmission bottlenecks worsened system inefficiencies.
The result was a cycle of underinvestment, weak infrastructure maintenance, and unstable power supply.
- Weak Reform Implementation
Although the PSRO programme had clear performance indicators, implementation challenges limited progress in the second phase.
According to the World Bank assessment, Nigeria’s implementation performance was downgraded to “moderately unsatisfactory,” reflecting difficulties in meeting key reform milestones required for continued disbursement.
Only a small fraction of additional financing—estimated at around 9%—was successfully drawn before the programme was suspended.
- Macroeconomic Pressures and Currency Devaluation
The devaluation of the naira further complicated the programme’s viability.
Because a large portion of Nigeria’s electricity generation depends on natural gas priced in dollars, the weaker currency significantly increased operating costs for power producers.
This widened the gap between production costs and regulated tariffs, further destabilising sector finances.
The Scale of the Electricity Sector Challenge
Nigeria’s electricity sector remains one of the most complex infrastructure challenges in Africa’s largest economy.
Despite decades of reform attempts, the sector continues to struggle with:
- Inadequate generation capacity
- Transmission grid bottlenecks
- Weak distribution efficiency
- High technical and commercial losses
- Poor cost recovery mechanisms
These structural issues have made it difficult for successive reform programmes to achieve sustainable improvements.
Experts argue that without a fully cost-reflective tariff system and improved revenue collection mechanisms, the sector will continue to rely heavily on external financing and government interventions.
Impact on Nigeria’s Development Financing Landscape
The cancellation of the $717.7 million facility also reflects broader concerns about the sustainability of development financing in Nigeria’s infrastructure sectors.
Nigeria remains one of the largest borrowers from multilateral institutions, including the World Bank and the International Development Association (IDA).
However, increasing difficulties in meeting reform conditions and implementation benchmarks have raised questions about the effectiveness of loan-funded reform programmes in structurally constrained sectors such as power.
While these loans are typically structured as long-term, low-interest development financing tools, their effectiveness depends heavily on domestic policy alignment and execution capacity.
Implications for Businesses and Economic Growth
The electricity sector is central to Nigeria’s broader economic performance, particularly for small and medium-sized enterprises (SMEs), manufacturing firms, and service-based industries.
Persistent power shortages and inefficiencies have forced many businesses to rely on alternative energy sources, increasing operational costs and reducing competitiveness.
The cancellation of a major reform-linked financing programme raises concerns about:
- Slower improvements in electricity reliability
- Continued reliance on self-generated power
- Higher production costs for businesses
- Reduced investor confidence in the energy sector
For many stakeholders, the development underscores the urgent need for a more sustainable and locally driven reform framework that addresses both pricing and infrastructure constraints.
Policy Challenges and Reform Dilemmas
At the heart of Nigeria’s electricity crisis is a difficult policy balancing act: maintaining affordable electricity tariffs for consumers while ensuring cost recovery for operators in a dollar-exposed energy market.
This tension has repeatedly stalled reform efforts.
Key unresolved policy issues include:
- Whether to fully adopt cost-reflective tariffs
- How to manage subsidy removal without triggering social backlash
- How to improve revenue collection efficiency
- How to attract long-term private investment into the sector
Without clear resolution of these issues, analysts warn that similar reform programmes may continue to face implementation setbacks.
What Happens Next
Following the cancellation, the Power Sector Recovery Performance-Based Operation will enter a formal wind-down phase in line with World Bank procedures.
Although the programme has ended, broader electricity sector reforms are expected to continue under separate policy frameworks and investment initiatives.
Stakeholders will now be watching whether the Federal Government introduces alternative financing mechanisms or restructuring plans to address the widening electricity funding gap.
Conclusion
The cancellation of the $717.7 million World Bank power sector loan highlights the deep structural and financial challenges facing Nigeria’s electricity industry.
While the original programme delivered early gains in reducing tariff shortfalls and improving sector performance, macroeconomic instability, currency pressures, and implementation gaps ultimately limited its long-term impact.
For Nigeria, the development represents not just the end of a financing facility, but a broader reminder of the complexity of reforming a power sector that sits at the intersection of economic policy, infrastructure development, and social equity.
As the country continues its search for a sustainable electricity framework, attention will increasingly focus on whether future reforms can balance affordability, efficiency, and financial viability in a sector critical to national development.
Further Reading: World Bank Approves $500m for Nigeria’s Agricultural Transformation
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