World Bank and Federal Government have both claimed responsibility for the reported cancellation of the $717m undisbursed power sector loan facility from the financial institution.

Federal Government had, Tuesday, announced the cancellation of the $717.7 million in undisbursed funding under the World Bank-backed Power Sector Recovery Performance-Based Operation (PSRO).

The PSRO was approved in June 2020 to support Nigeria’s Power Sector Recovery Programme geared towards improving electricity reliability, restoring financial viability, and strengthening accountability across the industry.

According to the World Bank restructuring document the programme had a combined total commitments of approximately $1.51 billion from the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).

Of that amount, roughly $796 million has already been disbursed before the cancellation, leaving $717.7 million undrawn.

The loan facility was originally approved on June 23, 2020, by the World Bank, with financing of about $752.5 million equivalent.

Meanwhile, a World Bank restructuring paper released, Tuesday, also disclosed that the cancellation followed a formal request by the Federal Government on March 26, 2026, and forms part of a joint decision by both parties to discontinue financing under the programme and redirect support towards alternative interventions.

The World Bank restructuring document stated that the undisbursed balance of $717.7 million would be cancelled in full, with the programme’s closing date brought forward by more than a year from June 30, 2027, to May 31, 2026.

The World Bank cited sharp deterioration in the sector’s financial position following the naira devaluation and the inability of electricity tariffs to keep pace with rising generation costs for the programme’s collapse.

The lender stated that the absence of a credible financing framework capable of addressing these shortfalls prevented Nigeria from meeting critical performance indicators between 2023 and 2025.

Beyond tariff challenges, the report highlighted persistent structural weaknesses across the sector, including weak distribution performance, transmission bottlenecks, under-utilised generation capacity, high technical and commercial losses, and poor cost recovery.

According the World Bank report, implementation of the programme faltered prompting the lender to pull the plug, as it claimed that none of the programme’s global performance indicators was achieved under the additional financing arrangement.

“Progress was hampered by the inability to establish a fiscally sustainable financing plan, delays in implementing performance improvement plans for sector institutions, and challenges in meeting verification requirements linked to disbursement conditions,” it stated.

The World Bank subsequently downgraded implementation progress from satisfactory to moderately unsatisfactory as reform timelines slipped and disbursement targets remained unmet.

Data contained in the restructuring document showed that the operation had total commitments of approximately $1.51 billion from the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).

Of that amount, roughly $796 million had been disbursed before the cancellation, leaving $717.7 million undrawn.

Meanwhile, commenting on the development, Tuesday, financial analyst, Kalu Aja, writing on his X account, explained that the World Bank actually withdrew the loan facility from Nigeria on the grounds of unsatisfactory performance by the country.

According to Aja, the World Bank’s cancellation of a $717 million loan for Nigeria’s power sector was largely driven by rising tariff shortfalls following the country’s foreign exchange liberalisation.

He explained that the World Bank, in a report made public, identified a persistent mismatch between revenues generated in Nigeria’s power sector and the actual costs required to sustain operations.

According to him, the international lender noted that recurrent financing gaps, particularly tariff shortfalls, meant Nigeria was not generating enough revenue to support the electricity sector.

He recalled that Nigeria had developed a Power Sector Recovery Programme (PSRP), in 2021, with $20 million in support from the World Bank, adding that the programmr achieved substantial results.

Aja said the reforms reduced tariff shortfalls by 71 per cent between 2019 and 2022, dropping from N581 billion to N166 billion, adding that regulatory cost recovery improved from 56 per cent to 94 per cent within the same period, while annual electricity supplied to the national distribution grid increased by 13 percent between 2018 and 2021.

Aja further explained that the successes recorded under the programme led to the approval of a fresh $750 million World Bank facility on June 9, 2023.

However, the situation changed after Nigeria liberalised the foreign exchange market in June 2023, leading to a sharp increase in the naira cost of gas used for power generation because gas payments are denominated in dollars, according to him.

The analyst explained that the development pushed tariff shortfalls from about N140 billion in 2022 to an estimated N1.9 trillion in 2024 and 2025, placing severe pressure on the Federal Government’s finances, as further noted that although the World Bank acknowledged that earlier reform targets had been achieved and verified, broader disbursements under the additional financing arrangement failed to materialise because of the widening tariff gaps.

Aja added that the devaluation of the naira significantly increased Nigeria’s power sector liabilities, while the government only adjusted electricity tariffs for Band A consumers.

“In summary, Nigeria devalued its currency and thus could not cover the cost of gas priced in USD, resulting in soaring power liabilities. Also, only Band A tariffs were raised. As a consequence, the World Bank withdrew the loan, citing that progress remains ‘moderately unsatisfactory,’ he stated.