Nigeria’s long-running electricity sector reforms have suffered a major setback after the World Bank and the Federal Government agreed to cancel $717.7 million in undisbursed financing under a major power sector recovery programme, in what officials describe as a mutual decision driven by stalled reforms and rising subsidy pressures.
According to a detailed report by BusinessDay and supporting restructuring documents, the funds were part of the Power Sector Recovery Performance-Based Operation, a results-based financing programme designed to strengthen electricity supply, improve revenue collection, and reduce Nigeria’s chronic tariff shortfalls.
The programme, originally valued at over $1.5 billion, has now been terminated ahead of schedule, with its closing date moved from June 2027 to May 31, 2026. The early closure reflects what both parties described as “evolving sector conditions” and implementation challenges that limited progress on key reform targets.
Reform shortfalls and rising subsidy pressure
The World Bank linked the programme’s collapse to widening financial gaps in Nigeria’s electricity market, particularly the growing mismatch between the cost of generating power and the tariffs paid by consumers.
Data cited in the restructuring analysis shows that Nigeria’s electricity subsidy burden has risen sharply in recent years, driven by:
- Depreciation of the naira
- Rising gas and generation costs priced in dollars
- Frozen or partially adjusted electricity tariffs for most consumer bands
- Weak revenue recovery in the distribution system
Tariff shortfalls, which represent the gap between actual costs and revenues collected, reportedly surged to about ₦1.9 trillion in recent periods, compared to much lower levels in previous years.
The World Bank has previously described Nigeria’s electricity subsidy structure as “regressive,” arguing that it disproportionately benefits higher-consuming households and undermines long-term sector viability.
Programme performance and withdrawal of funds
The cancelled funding represents the remaining undisbursed balance of the reform programme, which had earlier received partial disbursements after its approval between 2020 and 2023.
While initial phases of the programme recorded some improvements in tariff recovery and grid performance, later stages failed to meet key performance indicators due to:
- Persistent liquidity problems in the electricity market
- Weak implementation of agreed reforms
- Distribution company inefficiencies
- Transmission bottlenecks and technical losses
- Lack of a stable, cost-reflective tariff framework
As a result, most of the additional financing linked to performance targets was not released.
Mutual decision, not a full exit
Contrary to some interpretations, the World Bank has not exited Nigeria’s power sector entirely. Instead, the cancellation applies specifically to this structured performance-based operation.
Both the Nigerian government and the World Bank reportedly agreed to discontinue the remaining financing and reallocate focus toward more targeted interventions capable of delivering measurable short-term results in electricity access and sector efficiency.
Nigeria remains one of the World Bank’s major borrowers under concessional lending arrangements, and engagement in energy, infrastructure, and social protection programmes continues.
Economic implications
Analysts say the development underscores the deeper challenge facing Nigeria’s power reforms: the difficulty of balancing subsidy removal, tariff reforms, and public affordability in a weak economic environment.
While subsidy reforms are intended to reduce fiscal pressure and improve efficiency, they have also contributed to higher electricity costs and increased public strain, creating political and economic resistance to full cost-reflective pricing.
The collapse of the programme raises renewed concerns about Nigeria’s ability to attract long-term capital into its electricity infrastructure, which remains constrained by aging assets, limited grid capacity, and chronic supply shortages.
Nigeria currently generates an estimated 4,000 to 5,000 megawatts of electricity for over 200 million people, one of the lowest per capita supply levels globally for a country of its size.