Nigeria’s Federal Government and the World Bank have agreed to redirect a $730 million financing facility toward reviving the country’s electricity distribution network after the original Power Sector Recovery Programme (PSRP) was discontinued, according to industry sources familiar with the arrangement.
The funding, which had initially been allocated under the PSRP to support broad-based reforms in Nigeria’s electricity market, will now be used primarily to strengthen the distribution segment of the power sector through expanded customer metering and critical network upgrades.
The restructuring follows Nigeria’s inability to meet key reform conditions tied to the original programme, including eliminating electricity tariff subsidies and reducing the sector’s mounting revenue shortfall. Those unmet conditions also prevented the country from accessing an additional $750 million financing tranche linked to the programme.
Industry sources clarified that the World Bank has not cancelled the $730 million facility, contrary to earlier reports. Instead, both parties agreed to redesign the programme to address more immediate operational challenges in the distribution network.
“Nigeria remains the beneficiary of the loan. It has not been withdrawn but re-focused on another priority area within the power sector,” one source familiar with the discussions said.
Focus on Metering and Grid Infrastructure
Under the revised framework, the financing will support the expansion of electricity metering, enabling distribution companies (DisCos) to connect more customers to accurate billing systems and improve revenue collection.
The programme will also finance upgrades to key distribution infrastructure, including substations, transformers and other network assets, to improve electricity reliability and reduce technical losses across the grid.
Government officials believe strengthening the distribution network is critical to improving the financial sustainability of Nigeria’s power market, where privately owned distribution companies have struggled with weak revenue collection, aging infrastructure and persistent liquidity constraints.
Because most electricity distribution companies are privately operated, beneficiaries of the programme will be required to comply with performance benchmarks and financing conditions attached to the World Bank facility.
Why the Original Programme Was Abandoned
According to sources, two major developments undermined the objectives of the original Power Sector Recovery Programme.
The first was the sharp deterioration in the sector’s financial position following Nigeria’s foreign exchange reforms.
Under the previous administration, the electricity tariff shortfall had declined significantly—from approximately ₦580 billion in 2019 to about ₦143 billion by 2022. Authorities had planned to reduce the deficit further to roughly ₦100 billion in 2023, before eliminating it entirely.
However, the policy changed dramatically after the current administration unified Nigeria’s foreign exchange market in June 2023. The resulting depreciation of the naira—from around ₦350 per U.S. dollar to more than ₦1,500—substantially increased electricity generation costs because natural gas contracts and several industry inputs are priced in or indexed to the U.S. dollar.
Instead of narrowing, the sector’s tariff shortfall expanded sharply, reaching an estimated ₦2 trillion by 2025, making the financial targets underpinning the original World Bank programme unattainable.
The second challenge was the government’s inability to fully remove electricity subsidies, another core requirement of the PSRP. Continued government support for electricity tariffs left the sector with a persistent liquidity gap that prevented full implementation of the programme’s reform agenda.
Together, the foreign exchange shock and the continuation of tariff subsidies prompted the Federal Government and the World Bank to redesign the programme rather than terminate the financing.
Technical Assistance Funding Remains Available
Sources also disclosed that approximately $20 million allocated for technical assistance under the original programme remains largely undisbursed.
The funding was intended to strengthen key institutions overseeing Nigeria’s electricity market, including the Nigerian Electricity Regulatory Commission (NERC), the Nigeria Bulk Electricity Trading Plc (NBET) and the Federal Ministry of Power.
That component is expected to remain available under the revised distribution sector recovery programme.
Implications for Investors
The restructuring reflects a pragmatic shift in Nigeria’s power sector reform strategy, prioritising operational improvements that can generate measurable gains in revenue collection and electricity supply over broader structural reforms that have proven politically and economically difficult to implement.
For investors and development finance institutions, the redesigned programme underscores the importance of strengthening the distribution segment—the weakest link in Nigeria’s electricity value chain—as the country seeks to improve energy access, reduce market inefficiencies and attract additional private capital into the power sector.
