Why World Bank pulled $717m Nigeria power funding

Nigeria’s electricity sector has suffered a major setback following the joint decision by the Federal Government and the World Bank to cancel $717.7 million in undisbursed financing intended to stabilise the national grid.

The cancellation of the remaining portion of the $1.52 billion Power Sector Recovery Programme comes amid worsening blackouts, with industry experts warning that weak policy direction and implementation challenges continue to hinder progress in the sector.

The World Bank, in its restructuring paper for the ‘Power Sector Recovery Performance-Based Operation’, said that since its approval in 2023, Nigeria’s power sector (operating environment) has evolved significantly, with macroeconomic developments contributing to a sharp increase in tariff shortfalls and the scale of financing required to support sector recovery.

This, according to the bank, has widened the gap between sector revenues and required funding levels, thereby affecting the pace and sequencing of reforms envisaged under the program. Accordingly, the program, originally scheduled to run until June 2027, has been abruptly shortened to terminate this month.

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According to the Bank, the cancellation of the undisbursed balance of the operation is proposed as a pragmatic step to enable a reorientation of support toward instruments that are better aligned with current sector priorities and implementation realities.

“The restructuring is carried out to enable the cancellation of the remaining undisbursed balance under the operation in its entirety, reflecting a joint decision by the World Bank and the FGN to discontinue financing under the Program in light of evolving sector conditions and implementation realities.

“This includes facilitating the redeployment of resources toward operations that can be implemented within a defined timeframe and generate tangible improvements in operational efficiency, revenue recovery, and reduction of sector imbalances over time, while maintaining continued engagement on the reform agenda,” the Bank stated.

Speaking on the development, energy expert Yakubu Usman said the program failed to deliver the expected results because Nigeria’s power sector lacks clear policy coordination and practical implementation strategies.

According to him, the country has continued to struggle with electricity reforms because laws are often designed without sufficient understanding of the realities of the power industry.

“That particular programme was not yielding the desired results,” he said. “The question is, what progress are we making in the power sector when there is no policy direction?”

Yakubu criticised the approach to electricity sector reforms, arguing that policymakers focused heavily on legal frameworks without properly addressing operational and economic realities within the industry.

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“We are struggling because we draft laws without taking cognisance of the realities of the power system and the economic implications,” he said.

He further argued that implementation has remained a major problem because those involved in designing the laws often lack technical understanding of the electricity sector.

Yakubu said the recurring issues affecting Nigeria’s electricity industry, including generation constraints, gas supply challenges, transmission bottlenecks, distribution inefficiencies, and liquidity problems, have remained unresolved for years.

“We have problems implementing the Electricity Act because those who designed it do not understand it. That is why the sector is struggling; we have the same issues we talked about five years ago that are still what we are discussing today,” he said.

Also speaking to BusinessDay, Vahyala Kwaga, deputy director, BudgIT, warned that the withdrawal of such financing could further worsen Nigeria’s energy challenges by limiting investments needed to expand electricity infrastructure.

According to him, inadequate investment in the sector will continue to affect electricity availability and sustain high energy costs for consumers and businesses.

“The implication is that potential power will not be available. Nigeria is already struggling to meet energy demand, and such an investment would likely have created more energy.

“This means Nigerians will keep struggling with energy availability. It also means that energy prices will remain high,” he said.

Kwaga noted that electricity costs could be reduced if the country achieves larger-scale distribution efficiency through stronger electricity distribution companies (Discos).

“The more power available, especially if there are strong Discos that utilise economies of scale, the lower the price,” he explained.

He stressed that the sector requires long-term and patient capital investments targeted at transmission infrastructure, distribution networks, and metering systems to achieve sustainable improvements.