Naira Depreciation Blamed As Nigeria Cancels $717.7m World Bank Power Funding

The World Bank has cancelled a $717.7 million tranche of financing for Nigeria’s power sector, citing a deteriorating operating environment driven by a sharp Naira depreciation and frozen electricity tariffs that widened tariff shortfalls and made the programme’s financing targets unattainable. In a Level Two restructuring request submitted by the Federal Government of Nigeria (FGN) and reflected in World Bank documents, “Power Sector Recovery Performance Based Operation: Project Status and Rationale for Restructuring”, seen by LEADERSHIP, the lender said it would close the undisbursed portion of the Power Sector Recovery Performance-Based Operation (P164001) and bring forward the programme’s closing date from June 30, 2027, to May 31, 2026. The cancelled amount, which formed part of an ‘Additional Financing’ package of roughly $763.5 million approved in June 2023, represents the balance of funds that had not been disbursed under the programme, the World Bank said. The cancellation marks a setback for one of the World Bank’s largest recent bets on Nigeria’s power reform, but both partners said they remained committed to advancing the underlying reform agenda through approaches that better reflect Nigeria’s current macroeconomic and sector realities. The World Bank launched the Power Sector Recovery Programme (PSRP) to help stabilise Nigeria’s electricity sector, improve service reliability, and restore its financial sustainability after years of weak distribution performance, underutilised generation capacity, transmission bottlenecks, and high technical and commercial losses. The Bank said a parent operation approved in 2020 delivered important results, including reducing tariff shortfalls by 71 per cent between 2019 and 2022, increasing regulatory cost recovery from 56 to 94 per cent, and increasing electricity supplied to the grid by 13 per cent between 2018 and 2021. Those gains underpinned an Additional Financing (AF) package which combined International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) financing, intended to consolidate reforms, support Performance Improvement Plans (PIPs) for key entities, including the Transmission Company of Nigeria (TCN), and help the government design a credible, fiscally sustainable financing plan to manage remaining tariff shortfalls. According to the World Bank, the AF’s global Disbursement-Linked Indicators (DLIs) were not achieved because the operating context changed materially after the liberalisation of Nigeria’s foreign exchange market in June 2023. That liberalisation precipitated a significant devaluation of the Naira and pushed up dollar-priced inputs, notably natural gas used to produce more than 70 per cent of the power fed into the national grid. Because generation costs are largely dollar-denominated while retail tariffs are set in Naira, the currency shock produced a sharp mismatch between sector revenues and costs. Electricity tariffs have also largely remained frozen since early 2023, with the exception of Band A customers whose tariffs were raised to cost-reflective levels in April 2024. The combined effect was a dramatic rise in annual tariff shortfalls, from a low of N140 billion in 2022 to around N1.9 trillion in 2024 and 2025, exerting severe pressure on limited federal fiscal space and making it impossible to meet financing-plan DLIs tied to reducing those shortfalls. Implementation delays and institutional factors also contributed. The World Bank noted slower-than-expected progress in aligning PIPs, particularly for the Transmission Company of Nigeria (TCN), with eligible expenditures and meeting verification requirements tied to sector entities. Recent financing plans, the Bank said, failed to identify sufficient sources to cover tariff shortfalls or provide a credible trajectory for reducing them, preventing the triggering of the broader Programme-for-Results (PforR) disbursements linked to prior results. Scale of Disbursement and Remaining Funds The parent operation, totalling about $752.5 million, had largely been disbursed. The Programme-for-Results (PforR) component was 95 per cent disbursed, and only $23.5 million remained for technical assistance under the IPF component. By contrast, of the AF’s combined $763.5 million, only about nine per cent tied to prior results had been disbursed before the programme stalled. The World Bank rated overall implementation progress as moderately unsatisfactory, while achievement of the programme development objective declined from satisfactory to moderately unsatisfactory between 2023 and 2025. The cancellation is described by the World Bank as a pragmatic reorientation: rather than continuing to hold undisbursed funds under an operation misaligned with current realities, the Bank and the federal government agreed to discontinue disbursements and redeploy resources towards more targeted investments that can be implemented within defined timeframes and deliver measurable improvements in operational efficiency, revenue recovery, and reduction of sector imbalances. The federal government said it would continue to pursue priority sector interventions through alternative instruments and operations. The cancelled funds will be actioned through amendments to the financing agreements, and the programme will proceed towards formal closure under World Bank procedures. Analysts said the cancellation highlights the fragility of attempts to reform a power sector where costs are increasingly dollar-exposed while revenues remain Naira-denominated. An energy policy analyst, Solomon Kalu, noted that without a credible financing plan to cover tariff shortfalls, or a political decision to allow tariff adjustments or targeted subsidies, the sector would continue to experience liquidity pressures that hurt generators, transmission and distribution companies, and ultimately consumers through unreliable supply. The World Bank and the federal government have been in discussions to reassess the modalities of support. The Bank’s note said there is a shared recognition that targeted, time-bound investments may offer a more direct pathway to improved reliability and sector performance than system-wide, interdependent Disbursement-Linked Indicators (DLIs) under the original AF design. Stakeholders in the sector, including regulators, utilities, and some reform-minded policy analysts, are expected to press for a combination of measures: clearer tariff cost-reflectivity for all bands, well-targeted subsidies or social safety nets to protect poor households, and short-term financing to keep distribution companies and generators afloat while technical fixes are implemented.