Federal Government Cancels $717m World Bank Power Loan Amid Blackouts

The federal government has cancelled a $717 m World Bank power loan amid blackouts.

Philips News reports that the Federal Government has cancelled $717.7m in undisbursed World Bank financing for Nigeria’s troubled electricity sector, effectively terminating the remaining portion of a $1.52bn power sector recovery programme amid mounting tariff shortfalls, worsening financial pressures, and persistent implementation challenges across the industry.

Documents from the World Bank website on Monday showed that the cancellation followed a formal request by the Federal Government and a joint decision by both parties to discontinue financing under the Power Sector Recovery Performance-Based Operation due to evolving sector realities and the inability to achieve key reform milestones.

The World Bank restructuring paper showed that the cancelled amount represents the entire undisbursed balance remaining under the programme. “The restructuring will result in the cancellation of the entire undisbursed balance for $717.7m equivalent, and no further disbursements will be made under the Program following approval of this restructuring,” the bank stated.

The bank also disclosed that the programme’s closing date had been brought forward from June 30, 2027, to May 31, 2026, effectively ending the operation more than a year early. The cancelled facility was part of a broader World Bank intervention aimed at reviving Nigeria’s struggling power sector.

The original Power Sector Recovery Performance-Based Operation was approved on June 23, 2020, with financing of about $752.5m equivalent. The programme was structured to improve electricity supply reliability, strengthen the sector’s financial and fiscal sustainability, and enhance accountability among key institutions in the electricity value chain.

Following initial progress recorded under the programme, the World Bank approved an Additional Financing package of approximately $763.5m equivalent on June 9, 2023, to consolidate earlier gains and support a new phase of reforms. The financing became effective on June 19, 2024, and extended the project’s closing date to June 30, 2027.

Together, the original financing and the additional facility amounted to about $1.52bn.

However, while the parent programme achieved substantial results and largely disbursed its resources, the additional financing struggled to meet critical reform conditions, resulting in limited disbursements and eventual cancellation of the remaining funds.

The World Bank noted that Nigeria’s electricity sector continues to face deep-rooted structural challenges despite years of reforms and significant financial support.

The report stated that the sector still suffers from weak distribution performance, transmission bottlenecks, underutilisation of available generation capacity, and persistent financial imbalances.

According to the bank, high technical, commercial, and collection losses across the distribution segment, combined with inadequate cost recovery, have created a recurring mismatch between revenues generated by the sector and its actual operating costs.

“These constraints have created recurrent financing gaps, most notably in the form of tariff shortfalls, which generate liquidity pressures across the value chain and weaken the operational and financial performance of sector institutions,” the report said.

The Federal Government developed the Power Sector Recovery Programme as a framework to restore the sector’s financial viability and reduce its fiscal burden on public finances.

The programme included plans to progressively eliminate tariff shortfalls, improve operational performance among power sector institutions, and strengthen regulatory oversight and accountability mechanisms.

The World Bank said the implementation of the original operation delivered notable results. The report stated that tariff shortfalls fell by 71 per cent between 2019 and 2022, declining from N581bn to N166bn.