World Bank Cancels $717.7 Million Nigeria Power Sector Loan as Naira Crisis Bites
By Aboki Forex —
The World Bank has cancelled a $717.7 million tranche of financing for Nigeria’s power sector. The lender cited a deteriorating operating environment driven by sharp Naira depreciation and frozen electricity tariffs.
In a Level Two restructuring request submitted by the Federal Government of Nigeria, the Bank said it will close the undisbursed portion of the Power Sector Recovery Performance Based Operation. The closing date has been moved from June 30, 2027 to May 31, 2026.
The cancelled amount was part of an Additional Financing package of roughly $763.5 million approved in June 2023. It represents the balance of funds not yet disbursed under the programme.
Why the Loan Was Cancelled
The World Bank said the operating context changed materially after Nigeria liberalised its foreign exchange market in June 2023. That triggered a significant devaluation of the Naira and pushed up dollar priced inputs, especially natural gas. Gas generates more than 70 per cent of the power fed into the national grid.
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 remained frozen since early 2023, except for Band A customers who got cost reflective rates in April 2024.
Annual tariff shortfalls exploded from N140 billion in 2022 to around N1.9 trillion in 2024 and 2025. The Bank said this made it impossible to meet financing plan targets tied to reducing those shortfalls.
Disbursement and Remaining Funds
The parent operation totalling about $752.5 million had been largely disbursed. The Programme for Results component was 95 per cent disbursed. Only $23.5 million remained for technical assistance.
Of the Additional Financing’s $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. Achievement of the programme development objective declined from satisfactory to moderately unsatisfactory between 2023 and 2025.
What Happens Next
The Bank described the cancellation as a pragmatic reorientation. Instead of holding undisbursed funds under a misaligned operation, the Bank and the federal government agreed to redeploy resources towards more targeted investments. These will focus on operational efficiency, revenue recovery, and reduction of sector imbalances.
The federal government said it will continue to pursue priority sector interventions through alternative instruments and operations. The cancelled funds will be actioned through amendments to the financing agreements. The programme will proceed towards formal closure.
Analysts React
Energy policy analyst Solomon Kalu said the cancellation highlights the fragility of power sector reforms when costs are dollar exposed but revenues remain Naira denominated. He noted that without a credible financing plan to cover tariff shortfalls or a political decision to allow tariff adjustments, the sector will continue to face liquidity pressures. This hurts generators, transmission and distribution companies, and consumers through unreliable supply.
Stakeholders including regulators and utilities are expected to push for clearer tariff cost reflectivity for all bands, well targeted subsidies to protect poor households, and short term financing to keep distribution companies and generators afloat while technical fixes are implemented.