Nigeria has cancelled $717.7 million in undisbursed funding under the World Bank-backed Power Sector Recovery Operation (PSRO), dealing a fresh blow to efforts aimed at stabilising the country’s troubled electricity sector.
The cancellation comes amid worsening tariff shortfalls, foreign exchange pressures, weak revenue collection, and persistent operational challenges across the power industry.
According to a restructuring document obtained from the World Bank, the Federal Government formally requested the cancellation on March 26, 2026, as part of a joint decision to discontinue financing under the programme and redirect support to alternative interventions.
The document revealed that the programme’s closing date has also been brought forward from June 30, 2027, to May 31, 2026.
“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7 million equivalent, and no further disbursements will be made under the Programme,” the World Bank stated.
The lender added that the early closure reflects the termination of funding activities and the winding down of the programme under standard World Bank procedures.
The move marks a major setback for Nigeria’s long-running power sector reform agenda, which was designed to improve electricity supply, strengthen sector finances, and restore investor confidence.
The World Bank attributed the programme’s collapse largely to the sharp deterioration in the sector’s financial position following the liberalisation of Nigeria’s foreign exchange market in June 2023.
According to the report, the naira devaluation significantly increased the cost of gas used to generate electricity, as gas pricing is denominated in US dollars.
However, electricity tariffs remained largely frozen for most consumers, except Band A customers whose tariffs were adjusted in April 2024.
This created a widening gap between sector revenues and operating costs.
The World Bank disclosed that annual tariff deficits surged from N140 billion in 2022 to N1.9 trillion in both 2024 and 2025, placing severe pressure on government finances and weakening reform implementation.
The report noted that the absence of a sustainable financing framework prevented Nigeria from meeting key performance targets tied to the loan programme.
Beyond tariff shortfalls, the lender highlighted deep-rooted structural challenges across the electricity value chain.
These include weak performance by distribution companies, transmission bottlenecks, underutilised generation capacity, high technical and commercial losses, and poor cost recovery mechanisms.
The report stated that these longstanding issues continued to undermine efforts to improve electricity reliability and financial sustainability in the sector.
The PSRO programme was initially approved by the World Bank in June 2020 to support Nigeria’s broader power sector recovery plan.
According to the lender, the programme recorded measurable progress during its early phase.
Between 2019 and 2022, tariff shortfalls reportedly declined by 71 per cent, from N581 billion to N166 billion, while regulatory cost recovery improved from 56 per cent to 94 per cent.
Electricity supplied to distribution companies also increased by 13 per cent between 2018 and 2021.
Encouraged by those gains, the World Bank approved an additional $750 million financing package in June 2023 to deepen reforms and address lingering sector challenges.
The additional facility became effective in June 2024 and extended the programme through 2027.
However, implementation later stalled.
