Nigeria’s troubled electricity sector has suffered another setback as the federal government and the World Bank have agreed to cancel about $717.7 million in undisbursed financing under the power sector recovery operation (PSRO) programme.
This cancellation of the loan follows persistent challenges within the Nigeria electricity sector.
Worsening tariff shortfalls, implementation delays, and changing realities in Nigeria’s electricity sector have led to an agreement between the Federal Government and the World Bank to cancel about $717.7 million in undisbursed financing under the Power Sector Recovery Operation (PSRO) programme.
According to a World Bank document, the request for cancellation was made by the Federal Government on March 26. This was after a denial by the Office of the Accountant-General regarding a threat to cancel World Bank loans due to more than six months of delayed approval.
Restructuring terms for the World Bank loan
The Level Two restructuring alters the operational timeline and funding allocations originally committed to the federal infrastructure initiative.
The World Bank document details the framework of the financing withdrawal:
“The proposed Level Two restructuring is undertaken in response to a formal request from the Federal Government of Nigeria (FGN), received on March 26, 2026,” the document reads.
“The restructuring will result in the cancellation of the entire undisbursed balance for US$717.7 million equivalent, and no further disbursements will be made under the Program following approval of this restructuring.
“The restructuring includes an advancement of the Program closing date from June 30, 2027, to May 31, 2026, to reflect the cancellation and completion of disbursement activities, after which the operation will proceed toward closure in accordance with World Bank procedures.”
Performance of the Power Sector Recovery Operation
The cancellation concludes an intervention that initially recorded measurable progress in fiscal stabilization.
According to the World Bank, substantial results were already evident when the programme was approved in 2020, including a 71 per cent reduction in tariff shortfalls between 2019 and 2022.
The Power Sector Recovery Operation was designed to address structural deficits, reduce liquidity gaps, and improve service delivery across the national grid.
Impact of naira depreciation on fiscal targets
The initial financial progress under the program was reversed by broader macroeconomic adjustments outside the utility grid framework. It said a depreciation of the naira was noticed when gains recorded under the initial phase were reversed after the liberalisation of the foreign exchange (FX) market in June 2023.
The naira depreciation altered the financial assumptions of the programme by increasing operational costs and widening the fiscal deficit within the power market. Following the closure of the activities on May 31, 2026, the operation will formally enter its final winding-down phase.
