By Kehinde Ibrahim, Lagos
Nigeria’s long-running power sector reform has suffered another major setback as the Federal Government moves to redirect a $730 million World Bank loan after failing to meet the conditions attached to the original Power Sector Recovery Programme ,PSRP.
Rather than financing the reforms for which the facility was initially secured, the loan is now being repurposed to support electricity distribution infrastructure and metering, a development that highlights the government’s inability to deliver on key commitments made under the World Bank-backed programme.
The restructuring follows Nigeria’s failure to qualify for an additional $750 million financing tranche, which was tied to the successful implementation of reforms aimed at restoring financial sustainability to the electricity sector.
Although government officials insist the loan has not been cancelled, the decision to redirect it raises fresh concerns about the effectiveness of Nigeria’s power sector reform agenda and its capacity to implement difficult but necessary policy measures.
Officials familiar with the matter confirmed that the Federal Government requested the restructuring after concluding that the original objectives of the PSRP had become unattainable under prevailing economic conditions.
According to sources, the revised programme will focus on expanding electricity metering and strengthening distribution infrastructure, including substations and transformers. While the interventions could improve operational efficiency, industry stakeholders argued that they represent a retreat from the broader structural reforms the original programme was designed to achieve.
The PSRP was conceived as a comprehensive reform package intended to eliminate the electricity sector’s mounting financial deficits, improve market liquidity, strengthen governance and establish a commercially viable electricity market capable of attracting sustained private investment. Several of its core targets, however, were never realised.
One of the programme’s biggest shortcomings was the government’s inability to eliminate electricity tariff subsidies, a key condition required by the World Bank. Despite repeated commitments over successive administrations, political considerations and concerns over the social consequences of higher tariffs prevented full implementation of cost-reflective pricing.
Although the sector’s tariff shortfall reportedly declined from about ₦580 billion in 2019 to approximately ₦143 billion in 2022, the gains were effectively reversed following the foreign exchange reforms introduced in June 2023.
The sharp depreciation of the naira dramatically increased the cost of electricity generation because gas supply contracts and several operational expenses are either denominated or indexed to the US dollar. Industry estimates indicate that the tariff shortfall has since surged to nearly ₦2 trillion, erasing earlier progress and leaving the sector in a far weaker financial position than envisaged under the recovery programme.
The government’s continued inability to fully remove electricity subsidies further widened the liquidity gap across the value chain, making compliance with the original PSRP conditions increasingly unrealistic.
Industry analysts said that the redirection of the loan reflected not only changing economic realities but also years of inconsistent policy implementation and delayed reforms that have repeatedly undermined efforts to stabilise the electricity market.
While expanding metering and upgrading distribution infrastructure remain critical priorities, experts cautioned that the measures alone will not resolve the structural weaknesses that continued to plague the sector, including poor cost recovery, mounting debts owed to generation companies and gas suppliers, weak market liquidity and regulatory uncertainty.
The World Bank’s decision to support a restructuring of the facility, rather than proceed with the original programme, underscores the widening gap between Nigeria’s reform commitments and actual implementation.
Sources also disclosed that approximately $20 million earmarked for technical assistance to institutions including the Nigerian Electricity Regulatory Commission, NERC, Nigeria Bulk Electricity Trading Plc, NBET, and the Federal Ministry of Power remained largely undisbursed when the original programme objectives were abandoned, raising further concerns over the pace of institutional reforms.
For many industry observers, the restructuring represents another missed opportunity in Nigeria’s decades-long effort to fix its troubled electricity sector. Despite successive reform programmes and billions of dollars committed by development partners, electricity supply remains unreliable, distribution losses remain high, and businesses as well as households continue to depend heavily on self-generated power.
Although the redirected loan may help improve metering and strengthen distribution infrastructure, analysts argued that it does little to address the deeper governance, regulatory and financial challenges that have repeatedly frustrated Nigeria’s power sector reforms. Without sustained political will and consistent policy execution, they warned that the latest intervention risks becoming another temporary fix to a long-standing structural problem.
