Nigeria has cancelled $717.7 million in undisbursed financing under the World Bank-backed Power Sector Recovery Performance-Based Operation (PSRO), dealing a fresh setback to efforts aimed at stabilising the country’s troubled electricity sector.

According to a World Bank restructuring document released on Tuesday, the Federal Government formally requested the cancellation on March 26, 2026, with both parties agreeing to discontinue the programme and redirect support to alternative power sector interventions.

The World Bank confirmed that the entire undisbursed balance would be cancelled, while the programme’s closing date was brought forward from June 30, 2027, to May 31, 2026.

“The restructuring will result in the cancellation of the entire undisbursed balance in the amount of $717.7 million equivalent, and no further disbursements will be made under the programme,” the World Bank stated.

The lender attributed the programme’s collapse largely to worsening financial pressures in Nigeria’s electricity market, driven by foreign exchange reforms and the failure of tariffs to keep pace with rising operational costs.

According to the report, the liberalisation of the foreign exchange market significantly increased the cost of natural gas used by power generation companies, as gas prices are denominated in US dollars.

While generation costs surged, electricity tariffs for most consumers remained largely unchanged, except for Band A customers who were subjected to cost-reflective tariff adjustments in April 2024.

The mismatch widened the sector’s revenue gap, with annual tariff shortfalls rising sharply from N140 billion in 2022 to about N1.9 trillion in both 2024 and 2025.

The World Bank also highlighted persistent structural problems within the power sector, including weak distribution performance, transmission constraints, underutilised generation capacity, high technical and commercial losses, and poor revenue collection.

The PSRO was approved in June 2020 to support Nigeria’s Power Sector Recovery Programme aimed at improving financial sustainability, governance, and electricity supply.

Initial gains recorded between 2019 and 2022 included a 71 per cent reduction in tariff shortfalls from N581 billion to N166 billion, while electricity supply to distribution companies increased by 13 per cent.

Encouraged by the progress, the World Bank approved an additional $750 million financing package in June 2023 to deepen reforms and address lingering challenges.

However, the lender disclosed that none of the programme’s key performance indicators under the additional financing arrangement were achieved due to policy slippages, implementation delays, and the absence of a sustainable financing framework.

Out of the total $1.51 billion committed under the PSRO by the International Bank for Reconstruction and Development and the International Development Association, only about $796 million had been disbursed before the programme was discontinued.

The development comes amid growing concerns over Nigeria’s ability to sustain major sector reforms under worsening macroeconomic conditions.

Earlier, the Accountant-General of the Federation, Dr Shamseldeen Babatunde Ogunjimi, warned that Nigeria could reconsider future World Bank loan arrangements if disbursement delays continue to affect critical projects.

Analysts say attention may now shift to alternative measures including tariff reforms, targeted subsidies, and operational improvements across the electricity value chain to address Nigeria’s longstanding power crisis.