Nigeria’s troubled electricity sector has suffered another major setback after the Federal Government cancelled $717.7 million in unused World Bank funding meant for power sector reforms.
The cancelled funds were part of a larger $1.52 billion World Bank support programme designed to improve electricity supply, reduce financial losses, and strengthen Nigeria’s power industry.
However, the financing arrangement reportedly collapsed after both parties agreed that critical reform targets could no longer be achieved under current conditions.
According to documents obtained from the World Bank, the cancelled amount represented the remaining undisbursed balance under the Power Sector Recovery Performance-Based Operation.
“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7m equivalent, and no further disbursements will be made under the Program following approval of this restructuring,” the bank stated.
The Federal Government had originally introduced the programme to reduce the financial pressure created by Nigeria’s struggling electricity system.
In addition, the reforms were expected to improve power supply reliability and strengthen accountability across the electricity value chain.
The World Bank initially approved about $752.5 million for the programme in June 2020.
Following early progress, another financing package worth approximately $763.5 million was approved in June 2023.
Meanwhile, the project’s completion date had already been extended to June 2027.
However, serious operational and economic problems reportedly slowed implementation of the additional financing package.
According to the World Bank, Nigeria’s electricity sector continues to struggle with weak distribution systems and major financial imbalances.
Furthermore, transmission challenges and underused generation capacity have continued affecting electricity supply nationwide.
The report also noted that high technical and commercial losses within electricity distribution companies created a major gap between operating costs and generated revenue.
Although the original programme recorded some positive outcomes, later reforms failed to meet expected targets.
The World Bank explained that tariff shortfalls reduced significantly between 2019 and 2022.
Regulatory cost recovery also improved during that period.
However, the situation reportedly changed after Nigeria liberalised the foreign exchange market in June 2023.
As a result, electricity generation costs increased sharply because natural gas prices are linked to the United States dollar.
More than 70 percent of Nigeria’s electricity supply depends on gas-powered generation plants.
Therefore, the rising exchange rate further complicated efforts to stabilize the sector financially.
Meanwhile, concerns over delays in loan approvals and disbursement had already surfaced earlier.
The Accountant-General of the Federation, Dr. Shamseldeen Ogunjimi, recently warned that Nigeria could reject future World Bank loans if delays continue.
He stressed that prolonged approval timelines could discourage the country from entering similar agreements.
