Power Reform In Reverse: Why Nigeria Walked Away From A $717 Million World Bank Loan
How a Power Reform Programme Unravelled
A Loan Designed to Fix a Broken Power Sector
NIGERIA has formally cancelled $717.7 million in undisbursed World Bank funding meant to stabilise its struggling electricity sector. The funds formed part of the Power Sector Recovery Performance-Based Operation, a $1.52 billion programme designed to fix liquidity gaps, improve distribution efficiency, and restore financial discipline in the power industry.
The cancellation was mutual—triggered by the Federal Government and accepted by the World Bank after key reform targets became increasingly unachievable.
Early Gains That Masked Structural Weakness
At inception, the programme recorded measurable progress. Between 2019 and 2022, tariff shortfalls reportedly dropped by 71%, while regulatory cost recovery improved from 56% to 94%. Electricity supply to the grid also rose modestly.
These early gains encouraged approval of additional financing in 2023, intended to deepen reforms and consolidate progress.
But beneath the surface, systemic weaknesses in the electricity value chain remained unresolved.
When Reform Met Economic Reality
The turning point came with macroeconomic shocks, particularly the June 2023 foreign exchange liberalisation, which triggered a sharp naira depreciation.
Because over 70% of Nigeria’s electricity is gas-powered and priced in dollars, generation costs surged. Yet tariffs remained largely frozen for most consumers.
This created a widening gap between costs and revenue, pushing annual tariff shortfalls to nearly ₦1.9 trillion by 2024–2025, according to World Bank estimates.
A Reform Framework That Could Not Keep Up
The World Bank noted that Nigeria failed to implement a credible financing framework to bridge the growing deficits. Performance improvement plans lagged, verification benchmarks were missed, and institutional bottlenecks—especially in transmission—persisted.
As a result, only about 9% of the additional financing package was disbursed, compared to near-complete disbursement of the original programme.
A Sector Still Trapped in Old Problems
Despite years of reform attempts, Nigeria’s power sector continues to face:
- Weak distribution efficiency
- Transmission bottlenecks
- Chronic under-recovery of costs
- Liquidity shortages across the value chain
The World Bank ultimately concluded that the programme had become misaligned with Nigeria’s evolving economic realities.
What the Cancellation Really Means
The termination signals more than just a funding withdrawal—it reflects a deeper question: whether Nigeria’s electricity reforms can succeed under current fiscal and structural conditions.
