In May 2026, the Federal Government of Nigeria and the World Bank decisively restructured—and cancelled—the undisbursed portion of a key power sector support program.
This marks another chapter in Nigeria’s unyielding struggle to fix its electricity sector.
What began as a firm success story is now a vivid reminder of how swiftly strong intentions can be unraveled by policy shocks.
In 2021, Nigeria launched the Power Sector Recovery Program (PSRP) with robust backing from the World Bank.
The World Bank funded the PSRP through the Power Sector Recovery Performance-Based Operation (P164001), approved on June 23, 2020, as a Program-for-Results (PforR), with a modest Investment Project Financing (IPF) component of US$20 million via Loan no. IDA-66990.
The initial $20 million technical assistance facility delivered credible results. Between 2019 and 2022, according to the World Bank, tariff shortfalls — the gap between what the sector should have earned and what it collected — fell by 71%, from N581 billion to N166 billion.
Regulatory cost recovery improved sharply from 56% to 94%. Electricity supplied to the distribution grid also rose by 13% between 2018 and 2021. Implementation was rated “satisfactory.” The sector was beginning to breathe.
Encouraged by this progress, the World Bank approved an additional Financing (AF) of US$750 million equivalent (Credit No. IBRD-94740 and Loan No. IDA-72680),approved on June 9, 2023 and effective on June 19, 2024, to consolidate gains and support the next phase of the PSRP by addressing remaining structural constraints in sector financing and performance.
Then came the June 2023 foreign exchange market liberalization. The naira’s sharp devaluation dramatically raised the cost of gas (priced in dollars) for power generation. Distribution companies, already struggling, could not pass on the full cost to consumers.
Only Band A customers saw meaningful tariff increases, while the majority remained at subsidized rates. The result was catastrophic: tariff shortfalls ballooned from a low of around N140 billion in 2022 to an estimated N1.9 trillion in both 2024 and 2025, according to the World Bank.
The World Bank, in its restructuring note, was blunt. While acknowledging that “prior results have been achieved and verified,” it noted that broader disbursements under the Additional Financing “have not materialized as expected” due to the explosion in tariff shortfalls.
The programmer’s overall performance was downgraded to “Moderately Unsatisfactory.” Consequently, there was a restructuring of the and subsequent cancellation of the remaining $717.7 million undisbursed balance.
What went wrong?
Fundamentally, the power sector is crippled by a deep rift between revenue and cost. Gas suppliers demand dollar-linked payment; generators must cover expenses; DisCos scramble to collect enough naira.
When the naira plunges and tariffs stagnate, the chain snaps—producing vast financing gaps that land on the government’s already battered fiscal space.
2023 FX unification was essential for the broader economy. For the power sector, it proved recovery was fragile. Partial tariff reforms targeting only Band A did not absorb the shock. The PSRP Financing Plan’s ambitious targets became unattainable almost immediately.
This episode highlights a painful truth: reforming Nigeria’s power sector is not just about signing loan agreements or designing technical programs. It is about sequencing reforms correctly and having the political will to see them through, even when they are unpopular.
The early success of the PSRP showed that progress is possible when tariffs move closer to cost reflectivity and when payment discipline improves.
But one major macroeconomic shock — the FX liberalization — was enough to unravel much of that momentum. As of mid-2026, Nigeria’s power sector remains in a difficult place: chronic underfunding, low generation, high losses, and massive accumulated liabilities.
The cancellation of the World Bank facility may reduce future debt obligations, but it also removes critical external pressure and financing that could have supported deeper reforms.
The road to reliable electricity in Nigeria will require more than loans. It demands honest, cost-reflective tariffs, aggressive loss reduction, better governance of DisCos, and a financing plan that withstands currency volatility.
Unless these reforms are enacted, the sector will continue consuming huge fiscal resources while yielding disappointing results for businesses and households. The World Bank loan program may be ending, but Nigeria’s power sector crisis persists.
