Nigeria Drops $717.7m World Bank Power Loan as Electricity Sector Crisis Deepens.

Nigeria’s troubled electricity sector has suffered another major setback after the Federal Government cancelled $717.7 million in undisbursed funding under the World Bank-backed Power Sector Recovery Performance-Based Operation, also known as PSRO.

The cancellation comes at a difficult time for the power industry, where weak supply, tariff shortfalls, foreign exchange pressure, poor revenue collection and rising debts continue to threaten electricity reliability across the country.

According to Nairametrics, citing details from a World Bank restructuring document, the cancellation followed a formal request by the Federal Government on March 26, 2026. The undisbursed balance of $717.7 million is to be cancelled in full, while the programme’s closing date has been moved forward from June 30, 2027, to May 31, 2026.

What Was the Cancelled World Bank Power Loan Meant For?

The cancelled funding was part of Nigeria’s wider Power Sector Recovery Operation, a reform programme designed to improve electricity reliability, restore financial sustainability and strengthen accountability in the power industry.

The original PSRO was approved in 2020 as a $750 million International Development Association credit, with a 30-year maturity and five-year grace period. Its stated objective was to improve power supply reliability, achieve financial and fiscal sustainability, and enhance accountability in Nigeria’s electricity sector.

In June 2023, the World Bank approved additional financing of $750 million, comprising a $449 million IBRD loan and a $301 million IDA credit, to consolidate earlier gains in the reform programme. The financing was expected to support tariff reforms, improve distribution company performance, reduce technical bottlenecks and attract private investment into generation and distribution.

That ambition has now been cut short.

Why Did Nigeria Cancel the $717.7m Power Loan?

The cancellation reflects deeper problems in Nigeria’s electricity reform process. The World Bank-backed programme was structured as a performance-based operation, meaning disbursements were linked to agreed reform and performance indicators. If those targets were not met, disbursement became difficult.

According to Nairametrics, citing the World Bank restructuring document, the programme was undermined by the sharp deterioration in sector finances after the naira devaluation and the failure of tariffs to keep pace with rising generation costs.

Gas remains a major fuel source for Nigeria’s electricity generation, and gas pricing is partially linked to the dollar. This means the weaker naira sharply increased generation costs for the power sector.

At the same time, most electricity consumers did not move to fully cost-reflective tariffs. Tariff adjustments in April 2024 mainly affected Band A customers, while tariffs for most other customers remained below cost-reflective levels.

That gap became severe. Nairametrics reported that annual tariff deficits rose from N140 billion in 2022 to N1.9 trillion in both 2024 and 2025, weakening the government’s ability to meet reform obligations tied to the programme.

Nigeria’s Power Sector Still Cannot Pay for Itself.

The cancellation is not just a funding story. It is a sign that Nigeria’s electricity market remains financially fragile.

For years, the sector has struggled with a broken payment chain. Consumers underpay or fail to pay. Distribution companies struggle to collect revenue. DisCos then underpay the Nigerian Bulk Electricity Trading company and the generation companies. Gas suppliers are affected. Investors lose confidence. The result is a market that still depends heavily on government support.

The World Bank had earlier estimated that unreliable electricity supply costs Nigeria between N7 trillion and N10 trillion annually, equivalent to around 5% to 7% of GDP. That means the power crisis is not only a household inconvenience. It is a national productivity crisis.

For small businesses, the impact is direct. A barbing salon, bakery, cold room operator, printing shop or small factory may pay electricity bills while still spending heavily on diesel, petrol or gas-powered generators. This raises operating costs, reduces profit margins and pushes prices higher for consumers.

What This Means for Consumers

For Nigerian households, the cancellation does not automatically translate into an immediate tariff increase. But it raises pressure on the government and regulators to address the sector’s cost-recovery gap.

Tariff reform will remain difficult to avoid. The government may continue trying to protect poorer consumers, but the sector cannot survive in the long term if tariffs remain far below operating costs without a credible subsidy payment plan.

Electricity supply may also remain unstable if investment does not improve. Funding gaps affect distribution infrastructure, metering, transformer upgrades, transmission expansion and generation capacity utilisation.

State-level electricity markets may also become more important. Several states, including Lagos and Enugu, have moved toward state-level electricity market frameworks following Nigeria’s constitutional and legal changes on electricity regulation. This could become a practical route for reform if the national grid continues to struggle.

Why Band A Tariff Reform Did Not Fix the Whole Sector

The Band A tariff reform was designed to charge customers who receive longer hours of supply closer to the real cost of power. In theory, this should improve sector liquidity because higher-paying customers contribute more to market revenue.

But the reform has limits.

Many Nigerians are not Band A customers. Some who are classified under Band A still complain about not receiving the promised supply hours. Distribution companies also continue to face technical losses, energy theft, poor metering and weak customer trust.

This shows why tariff increases alone cannot solve Nigeria’s electricity crisis. Consumers are more likely to accept higher tariffs when supply is reliable, metering is transparent, and billing is fair. Without those conditions, tariff reform can become politically unpopular and commercially weak.

Why the World Bank Programme Initially Looked Promising

The PSRO did not start as a failed programme. Earlier results showed progress. According to the World Bank, annual sector fiscal subsidies declined from N581 billion in 2019 to N166 billion in 2022, while DisCos improved payments to NBET from 29% of invoices in 2019 to about 80%.

Those gains explain why the additional financing was approved in 2023. The expectation was that Nigeria would build on early reforms and move the sector toward financial sustainability.

Instead, macroeconomic shocks, especially currency depreciation, exposed the sector’s weak foundations. When costs rose faster than tariffs and collections, the reform model became harder to sustain.

What Nigeria Must Do Next

Nigeria’s power crisis will not be solved by loans alone. The sector needs disciplined execution, credible financing and stronger accountability.

The first priority is a transparent subsidy framework. If the government chooses to subsidise certain consumers, the subsidy must be fully budgeted and paid on time. Hidden subsidy gaps only create debt across the value chain.

The second priority is metering. Estimated billing continues to damage trust between consumers and DisCos. Without mass metering, revenue collection will remain weak, and tariff reform will face public resistance.

The third priority is distribution performance. DisCos sit at the sector’s cash collection point. If they cannot reduce losses, improve billing, upgrade networks and serve customers better, generation and transmission reforms will not deliver full value.

The fourth priority is decentralised power. Nigeria needs more embedded generation, mini-grids, industrial clusters, solar-plus-storage projects and state-led electricity markets. The national grid remains important, but it cannot carry the full burden of Nigeria’s power future.

The Real Lesson From the Cancelled Loan

The cancellation of the $717.7 million World Bank power loan should be seen as a warning. Nigeria’s electricity problem is no longer mainly about the absence of reform plans. The country has had several. The real problems are implementation, market discipline and political consistency.

A credible power-sector reform must answer simple questions. Who pays for electricity? Who pays for subsidies? Who bears foreign exchange risk? How are DisCos held accountable? How quickly will metering close the trust gap? How will private investors recover their capital?

Until these questions are answered clearly, new loans may struggle to deliver lasting change.

FAQs

Why did the Federal Government cancel the $717.7 million World Bank power loan?

The loan balance was cancelled after Nigeria and the World Bank agreed to discontinue further financing under the PSRO due to poor disbursement progress, missed reform targets, and worsening financial gaps in the electricity sector.

What was the World Bank power loan meant to achieve?

The funding was meant to support Nigeria’s Power Sector Recovery Operation, which aimed to improve electricity reliability, restore financial sustainability and strengthen accountability across the power sector.

Will the cancellation affect electricity supply in Nigeria?

The cancellation may not cause an immediate drop in supply, but it reduces available reform funding at a time when the sector needs investment in distribution, metering, transmission and financial recovery.

Why is Nigeria’s electricity sector still in crisis?

The sector faces weak revenue collection, high technical and commercial losses, tariff shortfalls, foreign-exchange pressure, poor metering, grid instability, and underinvestment across the value chain.

What is the biggest lesson from the cancelled loan?

The biggest lesson is that power-sector reform cannot rely solely on loans. Nigeria needs credible implementation, transparent subsidy payments, stronger regulation, better DisCo performance and a more decentralised electricity market.

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