The Federal Government of Nigeria and the World Bank have jointly cancelled $717.7 million in undisbursed power sector financing, effectively ending a multi-year electricity reform programme more than a year before its scheduled close. The Federal Government formally requested the cancellation on March 26, 2026. The World Bank confirmed it shortly after, setting a new programme closing date of May 31, 2026, down from the original June 30, 2027 target.

The money was part of the Power Sector Recovery Performance-Based Operation, known as the PSRO, a programme approved in June 2020 to push Nigeria toward a financially sustainable electricity sector. For a country where power cuts are a daily reality for homes and businesses, the loss of nearly three-quarters of a billion dollars in reform financing is not an administrative footnote.

World Bank $718 Million Nigeria Loan Cancellation: What Happened & Why

The World Bank $718 million Nigeria loan cancellation is rooted in a reform architecture that produced real results between 2019 and 2022, then broke apart when Nigeria’s foreign exchange market was liberalised in June 2023. That single macroeconomic shift set off a chain of events that neither the government nor the power sector was financially equipped to absorb. Understanding what went wrong requires tracing both the early gains the programme achieved and the specific conditions that made those gains impossible to sustain.

What the PSRO Was Designed to Do

The Power Sector Recovery Operation was Nigeria’s most ambitious multilateral-backed electricity reform programme in years. The World Bank approved it in June 2020 with an initial allocation to support a broad agenda: restore cost-reflective electricity tariffs, reduce the chronic gap between what the sector earned and what it cost to run, improve utility performance, and strengthen regulatory oversight across the value chain.

The underlying logic was that Nigeria’s electricity sector had for years operated as a financial black hole. Distribution companies collected less than the cost of power they distributed. Generation companies struggled to recover costs. The Transmission Company of Nigeria ran on strained infrastructure. The gap between what consumers paid and what electricity actually cost was filled, imperfectly and inconsistently, by federal government support. The PSRO aimed to systematically close that gap.

Between 2019 and 2022, the programme delivered measurable results. Annual tariff shortfalls fell from N581 billion to N166 billion, a reduction of approximately 71 percent. Regulatory cost recovery improved from 56 percent to 94 percent. These were genuine structural improvements. Encouraged by the progress, the World Bank approved an additional financing package of approximately $763.5 million in June 2023, extending the programme to 2027 and adding targets for transmission infrastructure and governance reforms.

How the Naira Devaluation Reversed Years of Progress

The timing of the additional financing package was unfortunate. It was approved in June 2023, the same month the federal government liberalised Nigeria’s foreign exchange market, triggering a sharp depreciation of the naira.

The connection to electricity costs is direct. More than 70 percent of Nigeria’s electricity is generated from gas, and gas pricing in Nigeria is denominated in US dollars. When the naira lost significant value against the dollar, the cost of running thermal power plants surged in naira terms almost overnight. Generation companies were suddenly paying far more to produce the same amount of electricity.

At the same time, electricity tariffs for most Nigerians remained largely frozen. The Nigerian Electricity Regulatory Commission adjusted tariffs for Band A customers in April 2024, moving that category to cost-reflective rates. Band A customers are those receiving the most reliable supply, typically a subset of urban consumers. Everyone else continued paying tariff rates that bore little relationship to actual generation costs.

The result was a financial rupture. Annual tariff shortfalls, which had been brought down to N140 billion in 2022, climbed to nearly N1.9 trillion annually in both 2024 and 2025. That is an increase of more than thirteen times in three years. The World Bank described the pressure this placed on Nigeria’s fiscal space as severe.

The Reform Conditions Nigeria Could Not Meet

Performance-based financing from the World Bank works through disbursement-linked indicators, specific reform milestones that a government must achieve before each tranche of money is released. The PSRO’s additional financing package, totalling roughly $763.5 million, was structured around a set of such indicators related to tariff adjustment, sector governance, transmission improvements, and the development of a credible financing plan.

According to the World Bank’s restructuring report, Nigeria failed to meet the required indicators in 2023, 2024, and 2025. The core problem was the inability to establish a credible and fiscally sustainable financing plan to address the growing tariff shortfalls. The bank was clear that without a demonstrated path to closing the revenue gap, disbursing funds tied to reform progress was not justifiable under programme rules.

Other factors compounded the problem. The World Bank cited delays in aligning performance improvement plans for major sector agencies, including the Transmission Company of Nigeria. It also flagged verification difficulties and what it characterised as weak implementation capacity. These were not minor procedural lapses. They reflected the broader institutional fragility of a sector trying to manage an escalating financial crisis while simultaneously implementing complex structural reforms.

Out of the approximately $763.5 million in additional financing, only about 9 percent was ever disbursed. Of the $449 million International Bank for Reconstruction and Development component alone, just $41.24 million was released, leaving $407.76 million unused. The programme’s overall implementation performance under the additional financing was rated Moderately Unsatisfactory by the World Bank.

What Nigeria Did and Did Not Receive

It is worth being precise about what the cancellation means in financial terms. The $717.7 million that has now been cancelled represents the undisbursed balance under the additional financing package approved in 2023. It was not a disbursed loan that Nigeria must now repay. It was funding that was committed but never released because the conditions for disbursement were not met.

Under the earlier phase of the programme, which ran from 2020 through to the restructuring, approximately $798 million was disbursed across the original PSRO and related operations. That money did flow, and the World Bank acknowledged it produced lasting results during the period when tariff shortfalls were declining. Those earlier gains are not wiped out by the cancellation of the remaining balance.

What Nigeria has lost is access to future financing that was earmarked for deepening reforms. The money would have supported further improvements at the Transmission Company of Nigeria, funded governance reforms across the electricity value chain, and provided financial backing for the broader policy and regulatory changes needed to stabilise the sector. That support will not now arrive through this particular channel.

The Structural Problems That Outlast the Loan

The World Bank was careful to note that the PSRO’s failure to disburse its additional financing does not simply reflect a gap in reform commitment or government capacity. The sector’s underlying structural problems are deep, predating the programme and persisting through it.

Nigeria’s electricity grid suffers from transmission constraints that limit how much power can physically be moved from generators to consumers, regardless of how much generation capacity exists on paper. Distribution companies continue to record high technical and commercial losses. Revenue collection from consumers remains weak. Available generation capacity, which on paper exceeds 12,000 megawatts, is routinely underutilised because of gas supply shortfalls, inadequate transmission, and weak distribution infrastructure.

These are the structural conditions that made cost-reflective tariffs politically and economically difficult to implement at scale. Asking most Nigerian consumers to pay tariffs that reflect the true cost of electricity delivery requires delivering electricity reliably. The sector’s inability to do both simultaneously created the political resistance that kept broad tariff reform stalled even as gas costs climbed.

What Happens to Nigeria’s Power Sector Reform Now

The cancellation does not mean Nigeria and the World Bank have severed their relationship on electricity. The World Bank’s restructuring documents indicate that both parties agreed to redirect support toward alternative interventions. What those interventions will look like in practice has not been detailed in publicly available documents as of the time this article was written.

Nigeria’s total public debt stood at approximately N159.28 trillion as of recent reporting. The government will need to weigh any new multilateral financing for the power sector against its broader fiscal constraints. A $1.25 billion loan request cited in reporting as pending approval would represent a significant new commitment, and would require its own set of reform conditions.

For ordinary Nigerians, the consequences of the cancellation are less about the loss of a specific financial instrument and more about what it signals for the pace of electricity reform. The sector’s N1.9 trillion annual tariff shortfall does not disappear because the loan was cancelled. That gap has to be financed somehow, whether through government subsidy, new debt, or tariff increases that have so far proven politically difficult to implement broadly.

The sector remains in a position where generation costs have risen sharply, distribution performance remains weak, and the financial model that underpins electricity delivery is structurally unsustainable without significant reform. The World Bank’s assessment that key reform indicators were not achieved between 2023 and 2025 reflects that structural reality as much as it reflects any specific failure of implementation.

The Cancelled Loan Was a Tool, Not the Problem

It would be a misreading of this episode to treat the loss of $717.7 million as the central problem facing Nigeria’s electricity sector. The cancelled loan was an instrument designed to accelerate reforms that the sector needed independently of any external financing. The reforms stalled not because the money was unavailable but because the economic conditions that made those reforms viable were undermined by the naira devaluation and the political difficulty of passing on rising generation costs to consumers.

Nigeria’s power sector crisis is a structural problem with deep roots in decades of underinvestment, institutional weakness, and the persistent political reluctance to allow electricity prices to reach cost-reflective levels for all consumers. The World Bank’s decision to cancel the remaining balance acknowledges that the specific programmatic framework designed to address those problems could not function in the economic environment that existed between 2023 and 2025.

What comes next will require a financing approach that can survive the volatility of Nigeria’s macroeconomic environment, and a reform framework that can deliver tangible improvements in electricity reliability before asking consumers to absorb the full cost of a system that has long failed them.