FG Cancels $717.7 Million World Bank Loan for Power Sector Over Stalled Reforms

The Federal Government of Nigeria has canceled a $717.7 million undisbursed loan from the World Bank that was originally intended to revitalize the country's struggling electricity sector.

The termination of the funds under the Power Sector Recovery Performance-Based Operation was a joint decision by both parties. It was prompted by changing realities in the power sector and the government's inability to achieve critical reform milestones. This development aligns with a prior warning from the Accountant-General of the Federation, Dr. Shamseldeen Ogunjimi, who cautioned that Nigeria might reject World Bank loans if prolonged delays in approval and disbursement processes continued to undermine the country's willingness to borrow.

According to World Bank documents, the cancellation effectively ends the remaining portion of a broader $1.52 billion power sector recovery program. The bank confirmed that the restructuring would result in the cancellation of the entire $717.7 million undisbursed balance, with no further disbursements planned for the program.

The Federal Government initially launched the Power Sector Recovery Programme to reduce the sector's fiscal burden on public finances, progressively eliminate tariff shortfalls, and improve regulatory oversight.

The first phase of the initiative saw notable success. Supported by a $752.5 million loan approved in June 2020, the program helped reduce tariff shortfalls by 71 percent—dropping from ?581 billion in 2019 to ?166 billion in 2022—while regulatory cost recovery improved from 56 percent to 94 percent.

Building on this progress, the World Bank approved an additional financing package of approximately $763.5 million in June 2023, extending the project's lifespan to June 2027. However, this second phase struggled heavily to meet critical reform conditions.

The World Bank noted that despite years of financial support, Nigeria's electricity sector remains plagued by deep-rooted structural challenges. These include weak distribution performance, transmission bottlenecks, severe technical and commercial losses, and underutilization of available generation capacity, all of which created a persistent mismatch between sector revenues and operating costs.

Furthermore, major macroeconomic shifts drastically altered the operating environment, rendering the anticipated reforms nearly impossible. Following the liberalization of Nigeria’s foreign exchange market in June 2023, the naira depreciated sharply. Because more than 70 percent of electricity supplied to Nigeria’s national grid is generated using natural gas priced in US dollars, the cost of power generation skyrocketed, derailing the program's financial sustainability goals.