The Federal Government has cancelled $717.7 million in undisbursed World Bank financing meant for Nigeria’s electricity sector, ending the remaining portion of a $1.52 billion power sector recovery programme.

Documents obtained from the World Bank showed the decision followed a formal request by Nigeria and a joint agreement to discontinue financing under the Power Sector Recovery Performance-Based Operation.

According to the World Bank, the cancellation affects the entire undisbursed balance under the programme.

“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7m equivalent, and no further disbursements will be made under the programme following approval of this restructuring,” the bank stated.

The World Bank also moved the programme’s closing date forward from June 30, 2027, to May 31, 2026.

The power sector recovery programme was initially approved in June 2020 with financing of about $752.5 million to improve electricity supply reliability, strengthen financial sustainability and enhance accountability within the power sector.

An additional financing package of approximately $763.5 million was later approved in June 2023 to deepen reforms and support ongoing interventions, bringing total financing to about $1.52 billion.

However, while the original programme recorded progress, the additional financing struggled due to implementation challenges and unmet reform targets.

The World Bank said Nigeria’s power sector continues to face structural issues including weak distribution performance, transmission bottlenecks, inadequate cost recovery and persistent financial imbalances.

“These constraints have created recurrent financing gaps, most notably in the form of tariff shortfalls, which generate liquidity pressures across the value chain and weaken the operational and financial performance of sector institutions,” the report stated.

The bank noted that tariff shortfalls reduced significantly between 2019 and 2022, falling from N581 billion to N166 billion, while regulatory cost recovery improved from 56 per cent to 94 per cent.

However, reforms later slowed following major economic developments.

According to the report, the liberalisation of Nigeria’s foreign exchange market in June 2023 triggered a sharp depreciation of the naira, increasing the cost of natural gas used to generate electricity.

The World Bank said over 70 per cent of electricity supplied into Nigeria’s grid depends on gas-powered generation.

At the same time, electricity tariffs remained largely unchanged for most consumers despite rising costs.

The bank noted that tariff shortfalls increased from N140 billion in 2022 to approximately N1.9 trillion annually in 2024 and 2025.

“Due to the mismatch between electricity generation costs and sector tariff revenues, tariff shortfalls increased sharply,” the report stated.

The World Bank added that financing plans failed to establish a credible path for reducing deficits within the sector.

Implementation delays, including challenges involving the Transmission Company of Nigeria and verification requirements, also affected progress.

Financial records showed only about nine per cent of the additional financing package had been disbursed before cancellation.

The World Bank described overall implementation under the additional financing arrangement as “Moderately Unsatisfactory.”

The development comes as Nigeria remains one of the World Bank’s largest borrowers under the International Development Association, with exposure standing at $18.5 billion as of March 2026.