Nigeria’s energy sector has been thrown into fresh uncertainty following the joint decision by the Federal Government and the World Bank to discontinue a major portion of a multi-billion-dollar electricity reform programme. The move involves the cancellation of $717.7 million in undisbursed funds originally tied to a broader initiative aimed at stabilising and strengthening Nigeria’s struggling power supply system.
The funds formed part of the larger $1.52 billion Power Sector Recovery Performance-Based Operation (PSRO), a World Bank-supported programme designed to improve electricity reliability, restore financial discipline within the sector, and support long-term reforms across generation, transmission, and distribution. However, with the latest decision, the remaining phase of the programme has now been formally brought to an early close.
How the Decision Was Reached
Official restructuring documents released by the World Bank indicate that the cancellation was not imposed unilaterally but followed a formal request submitted by the Nigerian government. Records show that the request for restructuring was made on March 26, 2026, setting in motion discussions that eventually led to the termination of the undisbursed balance.
In its final assessment, the World Bank confirmed that the restructuring would result in the cancellation of the entire remaining balance of $717.7 million, and that no further disbursements would take place once the restructuring was approved. As a result, the programme’s lifespan has been significantly shortened, with the closing date moved forward from June 30, 2027, to May 31, 2026.
This adjustment effectively ends the intervention more than a year ahead of its original schedule, signalling a decisive shift in the direction of the project.
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Background of the Power Sector Reform Programme
The PSRO was originally approved in June 2020 with an initial funding package of approximately $752.5 million. It was structured as a performance-based intervention, meaning disbursement of funds depended on Nigeria meeting specific reform targets and operational milestones.
The core objectives of the programme included improving the reliability of electricity supply across the country, ensuring that the power sector became financially sustainable, and strengthening accountability mechanisms within the entire electricity value chain.
During its early phase, the programme recorded some measurable progress. Reports indicate that tariff shortfalls were reduced by about 71 percent between 2019 and 2022, suggesting that certain reform measures had begun to take effect. Despite this improvement, the momentum did not continue into the additional financing phase, which eventually stalled due to a combination of operational and structural challenges.
Reasons Behind the Stalling of the Programme
Both the Federal Government and the World Bank pointed to what they described as evolving sector realities and difficulties in achieving key reform benchmarks as major reasons for the programme’s early termination.
A closer look at the challenges facing the power sector reveals deep and persistent structural issues that have continued to undermine reform efforts over the years. One of the most significant problems is the high level of technical, commercial, and collection losses within electricity distribution companies. These inefficiencies mean that a large portion of generated electricity either never reaches consumers or is not properly billed and collected, leading to substantial revenue leakage.
Another major concern is the ongoing mismatch between the actual cost of providing electricity and the tariffs charged to consumers. This gap has created a situation where revenue generated in the sector is insufficient to cover operational expenses, resulting in continuous financial strain.
The combined effect of these issues has been a liquidity crisis that affects every level of the electricity supply chain. From generation companies to transmission operators and distribution firms, the lack of adequate funding has made it increasingly difficult to maintain infrastructure, expand capacity, or deliver stable electricity to consumers.
According to the World Bank, these conditions have made further financial disbursement under the current structure less effective, ultimately contributing to the decision to wind down the programme.
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Tensions and Policy Misunderstandings
The cancellation also comes amid recent confusion surrounding Nigeria’s position on international borrowing and development financing. Earlier in May, reports circulated suggesting that the Office of the Accountant-General of the Federation had issued a six-month ultimatum to the World Bank over delays in approvals and disbursements.
Although the Office of the Accountant-General later clarified that the statement had been misrepresented and that no formal threat was issued, the episode highlighted growing frustration within government circles over slow administrative processes and delays in project execution.
Officials did, however, acknowledge concerns about the lengthy timelines often associated with externally funded projects, noting that such delays can complicate fiscal planning and reduce the effectiveness of development programmes. This backdrop of administrative tension is believed to have contributed to the mutual decision to bring the intervention to a close.
Implications for Nigeria’s Power Sector
For Nigeria, the immediate impact of the cancelled funding raises fresh questions about the future of electricity reform and infrastructure development. The power sector remains one of the country’s most critical yet underperforming sectors, with millions of households and businesses still experiencing frequent outages and unreliable supply.
While some stakeholders have welcomed the decision as a step toward reducing reliance on external borrowing, others have expressed concern that the withdrawal of such a significant financial injection could further slow down urgently needed reforms.
Without the additional funding, attention is likely to shift toward alternative sources of investment, including private sector participation, domestic funding strategies, and potential new partnerships aimed at addressing the persistent gaps in transmission and distribution infrastructure.
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Summary of the Programme Status
The Power Sector Recovery Performance-Based Operation now stands partially completed, with the initial tranche of funding fully implemented and disbursed. However, the remaining $717.7 million intervention has been officially cancelled. The revised closing date of May 31, 2026, marks the final phase of the programme’s wind down.
As Nigeria continues to grapple with longstanding electricity challenges, the end of this intervention underscores both the complexity of reforming the power sector and the difficulties involved in aligning international funding mechanisms with domestic implementation realities.
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