POWER FAILURE: NIGERIA CANCELS $717.7M WORLD BANK ELECTRICITY LOAN AS REFORMS COLLAPSE

POWER FAILURE: NIGERIA CANCELS $717.7M WORLD BANK ELECTRICITY LOAN AS REFORMS COLLAPSE

In a development that lays bare the deepening crisis in Nigeria's electricity sector, the Federal Government has cancelled $717.7 million in undisbursed World Bank funding meant to rescue the country's struggling power industry even as it simultaneously seeks a fresh $1.25 billion loan from the same institution.

The cancellation affects the World Bank-backed Power Sector Recovery Performance-Based Operation (PSRO), a programme designed to improve financial sustainability, tariff efficiency, and operational reliability across Nigeria's electricity value chain. The federal government formally requested the cancellation on March 26, 2026, and the decision was subsequently approved by both parties, terminating all remaining disbursements under the programme.

The timing is striking. Millions of Nigerians continue to endure daily blackouts across the country, and the power sector remains one of the most cited obstacles to economic growth and industrial productivity. That a loan of this magnitude designed specifically to address these failures  has been abandoned mid-stream will raise serious questions about the government's reform capacity and its ability to meet the conditions attached to multilateral financing.

A Programme That Never Delivered Its Promise

The loan was originally approved on June 23, 2020, with an initial financing envelope of about $752.5 million to improve electricity supply reliability, strengthen sector finances, and enhance accountability across the power value chain. Following early progress, the World Bank approved additional financing of about $763.5 million in June 2023 to deepen reforms and extend the programme to 2027, bringing total planned funding to roughly $1.52 billion.

That the programme has now been wound down with hundreds of millions of dollars uncollected is a significant indictment of the pace and depth of Nigeria's power sector reforms.

According to the World Bank, the restructuring followed a deterioration in Nigeria's electricity sector finances, driven largely by foreign exchange volatility, rising gas costs, and tariff rigidity across most consumer bands. The liberalisation of Nigeria's foreign exchange market in June 2023 significantly increased the cost base of power generation, particularly gas-fired plants, which account for more than 70 per cent of grid electricity supply. While input costs increased, retail electricity tariffs remained largely unchanged for most customer categories, except for Band A consumers, where price adjustments were introduced in April 2024.

In plain terms: the economics of the sector fell apart faster than the reforms could keep up, and the government could not meet the policy benchmarks required to unlock the remaining funds.

The World 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 ahead of schedule.

Government Blames World Bank's Bureaucracy

Rather than accept sole responsibility for the collapse of the programme, the Federal Government has pointed fingers at the World Bank's own internal processes. The Accountant-General of the Federation, Dr. Shamseldeen Ogunjimi, issued a blunt warning that Nigeria may reject future loan facilities from the bank if delays in approval and disbursement persist, saying prolonged timelines could undermine the country's willingness to proceed with such arrangements. "If approvals take more than six months, the Nigerian Government may no longer honour such arrangements," he said, urging the World Bank to expedite the approval and disbursement of project funds to Nigeria.

While bureaucratic delays at multilateral institutions are a legitimate concern shared by many developing nations, critics argue that the government's posture deflects attention from Nigeria's own failure to achieve key power sector reform milestones that were conditions for disbursement.

Back to the Table for More Borrowing

In what many observers will find contradictory, the same government cancelling a nearly three-quarter-billion-dollar power loan is simultaneously in advanced talks with the World Bank for a fresh facility. The proposed $1.25 billion deal, if approved, would raise total World Bank approvals under President Bola Tinubu between June 2023 and May 2026 to approximately $10.6 billion spanning power, education, healthcare, agriculture, social protection, renewable energy, MSME financing, and economic reform support. 

The new loan, titled Nigeria Actions for Investment and Jobs Acceleration, is designed to finance ongoing economic reforms, job creation, and competitiveness, with approval expected on June 26, 2026. 

The optics are uncomfortable. Nigeria walks away from nearly three-quarters of a billion dollars earmarked for electricity one of the most critical infrastructure gaps in the country and within weeks returns to borrow more. For ordinary Nigerians who have invested in generators, petrol, and inverters to survive the power deficit, the announcement will offer little comfort.

What It Means

The collapse of the PSRO programme is not merely a financial story. It is a governance story. It speaks to the structural inability of successive Nigerian administrations to push through the difficult but necessary reforms particularly on electricity tariffs and sector financing — that would make the power grid functional and commercially viable.

Until those underlying problems are resolved, no loan from the World Bank or anywhere else will fix Nigeria's lights.