Tinubu Govt Cancels $717.7 Million World Bank Loan

The Federal Government has cancelled $717.7 million in undisbursed World Bank intervention financing meant to support the recovery of Nigeria’s troubled electricity sector.

The cancellation followed a formal request by the Federal Government and a joint decision by both parties to discontinue financing under the Power Sector Recovery Performance-Based Operation.

According to documents obtained from the World Bank, the development has effectively terminated the remaining portion of a $1.52 billion power sector recovery programme designed to improve electricity supply, strengthen sector finances and reduce the fiscal burden on public funds.

The cancelled $717.7 million represents the entire undisbursed balance left under the programme.

The World Bank stated, “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 Program following approval of this restructuring.”

The Federal Government developed the Power Sector Recovery Programme as a framework to restore financial stability in the electricity sector and improve the performance of key institutions in the power value chain.

The programme was expected to progressively eliminate tariff shortfalls, improve operational performance, strengthen regulatory oversight and promote accountability in the sector.

The original loan was approved on June 23, 2020, with financing of about $752.5m equivalent.

It was structured to improve electricity supply reliability, strengthen the financial and fiscal sustainability of the power sector and enhance accountability among major institutions in the electricity market.

Following initial progress under the programme, the World Bank approved an additional financing package of about $763.5m equivalent on June 9, 2023, to deepen reforms and consolidate earlier gains.

The additional financing became effective on June 19, 2024, and extended the project’s closing date to June 30, 2027.

Together, the original financing and the additional facility amounted to about $1.52 billion.

The World Bank said the original operation achieved substantial results and largely disbursed its resources.

According to the bank, tariff shortfalls fell by 71 per cent between 2019 and 2022, declining from ₦581bn to ₦166bn.

During the same period, regulatory cost recovery improved from 56 per cent to 94 per cent, while annual electricity supplied to the distribution grid increased by 13 per cent between 2018 and 2021.

The bank said all standard disbursement-linked indicators and global indicators attached to the original programme were fully achieved.

It stated, “Implementation of the parent operation was satisfactory, brought substantial results, and fully disbursed the PforR component as all DLRs were achieved.”

The additional financing was later approved to tackle remaining weaknesses in the sector, including poor operational performance, weak governance arrangements and unresolved financial gaps.

However, the World Bank said the additional financing package failed to meet critical reform conditions.

The bank attributed the setback to major macroeconomic developments, especially the liberalisation of Nigeria’s foreign exchange market in June 2023, which led to a sharp depreciation of the naira.

According to the report, the depreciation significantly increased the cost of natural gas used for electricity generation.

The bank noted that more than 70 per cent of electricity supplied to Nigeria’s national grid is generated from natural gas, whose pricing is denominated in United States dollars.

The report stated, “The liberalisation of the foreign exchange market in June 2023 led to a significant depreciation of the local currency Naira, which resulted in a big increase in prices of natural gas used to produce above 70 per cent of electricity injected in the national power system.”

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

The World Bank said electricity tariffs had effectively been frozen since early 2023, except for Band A customers, whose tariffs were adjusted to cost-reflective levels in April 2024.