. 10
( 20)


properties. ˜˜Judicial protests™™ (the phrase is in American & Foreign
Power™s annual report) notwithstanding, the municipal government stood
¬rm. The company suggested that it sell the property to the municipal
government.42 As in Colombia and Argentina (in the case of the tramway
and Rosario companies), this was one small part of the business, but it
suggested future troubles. In Brazil, American & Foreign Power served
hundreds of communities around the country. Despite its dif¬culties in
Brazil, American & Foreign Power tried to be positive in its outlook. Its 1952
annual report included these comments: ˜˜We are glad to report that the
activity of the Brazilian Government and some of the State Governments in
developing electric power projects has not been directed against the interests
of private electric utility companies; nor does it appear to present any
imminent threat to investments in privately-owned utility enterprises.™™43
Nonetheless, throughout Latin America in the late 1940s and the ¬rst
half of the 1950s, American & Foreign Power was struggling to place its
operations on a sound ¬nancial basis. In its view, its most serious problem
was the control by governmental authorities over rates. American & For-
eign Power found it was impossible to provide ˜˜adequate and dependable
supplies of power while service rates fail by wide margins to provide a
reasonable rate of return on existing investments.™™44 In Chile and Mexico,
as in Argentina and Porto Alegre, Brazil, faced with con¬‚icts with gov-
ernmental authorities, American & Foreign Power became more and more
receptive to the idea of pulling out entirely and letting governments take
over the provision of light and power.45 If the ˜˜threat™™ in Brazil was not
˜˜imminent,™™ as its management said, the threat of grave dif¬culties in the
future resembled the sword of Damocles. Throughout most of Latin
America, problems of a similar nature were emerging.
In short, around the world the trend toward more governmental
involvement “ or at least more national (domestic) involvement “ in gen-
erating and distributing electric power was pronounced and carried with it
major reservations about foreign direct investment. If state-owned com-
panies could do the job, what was the need for foreign multinational
enterprises? Within Latin America, in nearly every country, new public
enterprises took form.46 By 1953, the Chilean government™s electrical
company Endesa provided 48.3 percent of that country™s electric generation
capacity.47 In addition, government-sponsored projects multiplied in Brazil,
Colombia, Costa Rica, and Mexico.48 Much of the new governmental
Global Electri¬cation

activity in electri¬cation, especially in Latin America, was supported by the
World Bank, which in the early 1950s gave credits of $64 million to
the Mexican Federal Electric Commission and Nacional Financiera;
$13.5 million to the Corporacion de Fomento in Chile; and $40 million to
various federal and state agencies in Brazil.49
Even so, in the 1950s businessmen, bankers, and engineers still perceived
(or hoped) that there might be a possible role for foreign direct investors.
Between 1949 and 1951, for example, the World Bank also made sub-
stantial loans to existing foreign direct investors in Latin America “
$26 million to Mexican Light and Power and $90 million to Brazilian
Traction.50 American & Foreign Power got $50 million in credits from the
U.S. Export-Import Bank to equip its many Brazilian subsidiaries and $12
million for its Cuban expansion.51 Despite adversities, the largest multi-
national enterprises in Latin America tried to frame plans for a prosperous
future, where new capacity would ¬ll the obviously growing demand for
electri¬cation. They believed that they were more ef¬cient than government
enterprises and could coexist with them. It was in Latin America where the
greatest foreign direct investment remained in the aftermath of World War II
and where in the early 1950s it appeared to somewhat wary, and ambivalent,
corporate executives that there were new opportunities for private-sector
expansion programs.

the end to overseas empires: new countries and
their new aspirations
India led in the decolonization process. Overnight, in the postwar years,
new countries emerged, with many dreams and plans. For these countries,
private enterprise in the electric utility sector was not part of the agenda. It
was perceived as integral to the colonial heritage. Where there had been
foreign ownership of public utilities, practically everywhere these became
properties of new government companies. In Egypt, for example, ˜˜anti-
colonial™™ rhetoric was the order of the day. The 1947 legislation referred to
above was followed by additional Egyptian supervision of the private
utilities. Still, there were aims by private (foreign) enterprises to take part in
this sector “ but not for long. When in the 1950s Egyptians began to renew
plans for the Aswan Dam project (which had been on the drawing board in
the interwar period and even earlier), a European group came forward that
included the German construction and engineering ¬rm Hoctief, backed,
we are told, by the German manufacturers Siemens and AEG. The prime
mover in this group was said to be English Electric, always eager to sell its
equipment and whose activities in relationship to public utilities we have
earlier documented. Historian Robert Tignor explains that the Egyptian
government had turned to European private enterprise, preferring a ˜˜mix of
European business interests to the overpowering in¬‚uence of a business
Chapter 6: Summary of the Domestication Pattern to 1978 243

group from a single national state [which would use its imperialistic
clout].™™ But the consortium was not prepared to go it alone. English
Electric insisted that the British government provide the project with full
¬nancial guaranties, ˜˜in the event of an Egyptian default;™™ and then English
Electric decided it also wanted World Bank involvement. The ¬nancing did
not come through. In the 1950s, no private group would proceed without
it. The contract was not signed.52 This unrealized investment, which Tignor
has documented, was not atypical. Private construction companies were
often involved in electri¬cation projects; but private enterprise did not
provide the ¬nancing. The Aswan Dam would be a public sector endeavor.53
After the failed British, French, and Israeli invasion of Egypt in 1956“1957,
a nationalization of British and French ¬rms occurred.54 It is not clear
whether any nonresident foreign-owned electric utilities were swept up in this
Egyptianization, although the Suez Canal Company had provided enclave-
form electrical services and there does seem to have been some French
investment in electric utilities (in Lebon & Co., for example).55
More important, a few years later, in a display of outrage over the
presumed Belgian role in the murder of Patrice Lumumba (in the newly
independent Belgian Congo), in a wave of ˜˜anti-colonial fervor™™ in 1961,
Colonel Gamal Abdel Nasser nationalized Empain™s important properties,
Cairo Electric Railways and Heliopolis Oasis Company and its subsidiaries.
The Empain companies were among Egypt™s ¬rms with the largest capital.
Other Belgian-owned utilities, which like Empain™s ventures had been
subject to earlier criticisms, were now nationalized as well.56 The natio-
nalizations ended foreign direct investments in electric utilities in Egypt.

1960s and 1970s
As the 1950s turned into the 1960s and 1970s, the world economy had
successfully revived from the world war. Major currencies became con-
vertible. Foreign exchange controls began to be dismantled. Trade became
more liberalized, and the European community emerged. However, the
world was now divided between the West and the East. The Korean War
had been fought, and the prolonged Vietnam War was over by 1975. By the
end of the 1960s, the decolonization process was virtually complete, with
new nations proliferating. The 1960s world growth rates had been spec-
tacular, far greater than in the 1950s. By contrast, the 1970s were a dis-
appointment, with high oil prices, in¬‚ation, and a general slowdown in the
world economy. Accordingly, the optimism of the 1960s faltered.
Throughout the 1960s and 1970s, electri¬cation around the world spread,
but for the most part it was without the aid of foreign direct investments.
In the 1960s and 1970s, there emerged in many developing nations what
has been called ˜˜mass-expropriating political regimes and expropriation
acts.™™ The vulnerable foreign enterprises were the utilities, mines, oil
Global Electri¬cation

producers, and enclave agriculture.57 This was not the milieu for new
foreign direct investments in public utilities. In Latin America, which, for
the most part, had gone through the decolonization and nation formation
process in the nineteenth century, there continued to be at an accelerated
rate the nationalization of utilities, mines, oil producers, and agricultural
properties “ the ˜˜old™™ foreign investors. At the same time, in many Latin
American countries there was a desire for new direct investments by mul-
tinationals in manufacturing, designed to contribute to industrialization
and import substitution policies. A contrast was seen between the ˜˜old™™
exploitative direct investments and the new ones that carried technology
and might assist economic development.

latin america in the 1950s, 1960s, and 1970s
It is important to note that in the middle and late 1950s there were still
signi¬cant functioning foreign-owned and -controlled electric utilities in
Latin America. For a 1956 master™s thesis at MIT, Charles F. Mallory
documented the role of four holding companies in North America:
the New York“headquartered American & Foreign Power Company, the
Toronto-based Brazilian Traction, Light and Power Company Ltd.,
the Montreal-headquartered International Power Company Ltd., and the
Toronto-domiciled, although ˜˜largely European owned,™™ Mexican Light
and Power Co. Ltd. These four companies together owned operating com-
panies in fourteen Latin American nations and produced and distributed
more than one-third of the electrical energy consumed in Latin America.58 In
addition, throughout Latin America there were foreign-owned (principally
American) oil-producing properties, mining companies, and plantations
involving company towns, all of which were electri¬ed or becoming fully
electri¬ed. The ownership of the electricity production, transmission, and
distribution was by the existing oil, mining, or agricultural enterprises.59 The
U.S. mining companies in Chile and Peru in particular were large producers
and consumers of electricity. These included Anaconda and Kennecott in
Chile and the Cerro de Pasco mine in Peru (along with its re¬nery at La
Oroya).60 Also, CADE in Argentina “ and, to a lesser extent, the Swiss
Motor-Columbus™s Argentine af¬liate CIADE “ represented important
European investments. In Peru, the foreign-owned and -controlled Lima
Light dominated that market (an investment that combined British interests
with those of Motor-Columbus and Brown Boveri). It is probably legitimate
to estimate that in the mid-1950s, despite the wartime and postwar gov-
ernmental activities, roughly two-thirds of the electric energy consumed in
Latin America continued to be provided by foreign owners. (This may have
been a lower share than in 1929“1930, but not by much.) Throughout Latin
America, foreign companies still lorded over the provision of electric light
and power. Just over two decades later, the story line would be entirely
Chapter 6: Summary of the Domestication Pattern to 1978 245

different. At the end of the 1970s, foreign-owned and -controlled electric
utilities in Latin America were few and far between.
The phrase ˜˜creeping expropriation™™ came into the vocabulary of
executives of multinational enterprises. Often it was not clear when an
electric utility became ˜˜domesticated.™™ Was it when the government no
longer allowed the company to set prices? Probably not, for companies still
thought they could negotiate rates. Yet rate control meant lower pro¬ts.
Was it when remittances were blocked? Again, the assumption was that this
would be temporary; but with depreciating currencies, blocked remittances
diminished pro¬ts. Private enterprise cannot survive without pro¬ts. Was it
when the government insisted on 51 percent (or more) ownership? Again,
returns were lowered; sometimes, however, companies thought they could
maintain control despite the lack of ˜˜controlling equity.™™ Yet, all these
conditions, short of formal nationalization, indicated creeping expropria-
tion “ that is, a decrease in foreign control and a reduction in pro¬ts. The
trend had been in evidence since the 1930s, but in the 1960s and 1970s it
took on more cogency.
Indeed, since the 1930s government-developed power facilities in Latin
America had proliferated. Sometimes, government power was sold to the
consumer through the existing foreign-owned power companies and
coexistence seemed feasible.61 In the postwar years, however, problems
facing foreign electric utilities in Latin America mounted. Governments put
pressure on the foreign companies to raise production and enlarge distri-
bution to meet the ever expanding demand. Throughout Latin America,
there were longings for economic growth, and energy “ including, impor-
tantly, the provision of electricity “ was fundamental to achieving that
growth. By the mid-1950s, it had long been established that governments
had a major role in regulating the electric power sector. And as the state
role expanded throughout Latin America, it seemed inevitable that there
should be more attention paid to electri¬cation. Foreign companies with
large investments were prepared to make even larger ones, but they
obviously could not and would not do so unless they would receive ade-
quate returns on their investments. Within Latin America, in¬‚ation and
depreciating currencies led to the corporate desire to hike utility rates to
obtain appropriate returns. Governments, on the other hand, wished to
keep the price of this essential service low, for the public clamored for low
electricity rates. This became a political issue. Because revenues of the
utilities were in local currencies, when the value of the currencies fell what
might seem to be good local pro¬ts were eaten up by the foreign exchange
loss. Moreover, most Latin American utilities imported basic equipment
from abroad. Depreciating currencies raised the price of imports, running
up corporate costs. There came to be a fundamental clash between govern-
mental (and public) expectations of excellent, extended service at low rates
and corporate wishes for an environment that would allow expansion with
Global Electri¬cation

good returns on investment. And in this context, electric utilities increas-
ingly came ˜˜under ¬re.™™62
Despite these dif¬culties for foreign investors, from 1945 to 1954,
according to one estimate, the overall growth in energy generation by the
four big North American“registered holding companies in Latin America
was about 8 percent per year,63 and new hydroelectric plants were still
being built. In the late 1950s, completely convinced of the promising future
of Cuba and that there was no xenophobia there, American & Foreign
Power embarked on a formidable expansion program. When Fidel Castro
came to power in January 1959, it was a chastening experience. The giant
operations of American & Foreign Power in Cuba were expropriated on
August 7, 1960. American & Foreign Power was probably the largest single
loser in the sweep of Castro™s takeovers.64 The naivete of American &
Foreign Power executives seems in retrospect to have been profound. They
were in a state of denial. The actual taking of the properties had been
foreshadowed by a mandatory rate decrease in August 1959. Executives at
American & Foreign Power could not believe that this was happening.
There was political-risk insurance available to them, but the company had
not anticipated any political risk in Cuba, which was only 90 miles off the
Florida coast. It had long been part of the spillover of American capital.
The shock of Castro™s expropriations had profound reverberations.65
Already in 1958, after a long period of frustration and off-and-on
negotiations going back to 1950, American & Foreign Power had arranged
to sell its remaining properties in Argentina to that nation™s government.
The agreement was signed on November 28, 1958 and approved by the
Argentine National Congress on January 16, 1959, having effect as of
November 28, 1958.66 Earlier in 1958, CADE had sold out as well. The
Argentine ˜˜purchase™™ of CADE™s properties was especially nasty. CADE
was accused of bribery and other misbehavior. In that year, the Argentine
government passed a law putting Buenos Aires™s electricity supply system
under national (rather than municipal) control and placing CADE™s assets
in a newly created public company: Servico Publico de la Electricidad del
Gran Buenos Aires (SEGBA). The foreign investors in CADE received a
minority interest in SEGBA by way of compensation, but in 1961 they were
bought out entirely.67 Compan±a Italo-Argentina de Electricidad, CIADE,
Motor-Columbus™s af¬liate, which had far smaller operations in Argentina
than either CADE or American & Foreign Power, actually had its con-
cession renewed in 1961 and apparently it survived until 1979, when it,
too, was acquired by the Argentine government and folded into SEGBA.68
In effect, in 1958 “ with the end to CADE™s and American & Foreign
Power™s interests in Argentina “ it was the end of an era. Argentina was far
from Cuba and so events in Argentina had not been seen as a precedent for
the Cuban takeovers. At the time of the sale of its Argentine properties,
American & Foreign Power valued its Argentine subsidiaries (on its books)
Chapter 6: Summary of the Domestication Pattern to 1978 247

as $117.4 million.69 When Cuban Electric was con¬scated, the ˜˜total stated
value of the outstanding securities™™ was $280 million; American & Foreign
Power owned $168 million of these securities, or about 60 percent of the
total.70 The Cuban investment of American & Foreign Power was greater
than its Argentine investment, so with the Cuban expropriation without
reimbursement the loss was far larger.71
During the 1960s, all the foreign-owned utilities remaining in Latin
America faced higher taxes, governmental controls over rates, remittance
restrictions, and everywhere a nationalist environment in which corporate
pro¬ts seemed to be under ¬re. Often there were employees™ demands for
higher wages, which the foreign-owned utilities saw as raising their costs.
The exit process was uneven, but from 1958 to 1979 it was steady.
Sometimes there was expropriation and sometimes an agreement that
carried with it compensation, which the companies felt was inadequate but
preferable to remaining in operation in what had become hostile business
climates, where pro¬ts were increasingly elusive.
In 1960 in Mexico, Nacional Financiera SA, a Mexican-government
agency, purchased the properties of American & Foreign Power.72 In the
same year, Mexican Light and Power (Mexlight) “ the So¬na af¬liate “ sold
out to the Mexican government.73 These two large foreign enterprises had
accounted for 60 percent of the industry™s capacity in Mexico in 1945. But
by 1960, just before the takeovers occurred, with the expansion of the
government-owned Comision Federal de Electricidad (CFE), Mexico had
control of some 40 percent of the industry™s capacity and the two foreign
companies™ share had been reduced to about 33 percent.74 In 1962, a
subsidiary of Canadian International Power Co., Monterey Railway, Light
and Power Co., sold its physical assets in Mexico to that country™s govern-
ment. (Canadian International Power was the successor company to
International Power Co. It was registered in Canada in December 1956 and
had acquired over 97 percent of the stock in International Power in January
1957.) Monterey Railway, Light and Power had been a subsidiary of the
Montreal-headquartered International Power.75 With this sale, all the key
properties of the giant multinationals in Mexico were no longer in foreign
In 1961, a Colombian government enterprise bought the rest of
American & Foreign Power™s properties in Colombia. (The Cali properties
had already been expropriated in 1947.) The purchase was approved in
1962, retroactive to 1961.77 American & Foreign Power noted that ˜˜since
government-owned utilities are the principal suppliers of electricity in
Colombia, the acquisition of our Colombian subsidiary™s properties is in
line with the Government™s policy of bringing the electric power industry
under the administration of government agencies.™™ Unlike in many other
cases, American & Foreign Power was not required to invest the proceeds
from the sale in Colombia.78
Global Electri¬cation

The process of private corporate withdrawals in the public utilities sector
continued. During 1959, the electrical properties of the American &
Foreign Power subsidiary serving the city of Porto Alegre in the State of Rio
Grande do Sul in Brazil were expropriated by the state government.79 In
1961, the State of Pernambuco, Brazil noti¬ed the American & Foreign
Power subsidiary there that its concession-contract, due to expire on July
17, 1962, would not be renewed and that the state would take over the
electrical service in the area served by the company.80 A third Brazilian
state, Esp±rito Santo, also expropriated American & Foreign Power™s utility
subsidiary.81 And ¬nally, in 1963 American & Foreign Power arranged to
sell its remaining Brazilian electric utilities (in ten states) to the Brazilian
government. But the government did not make the ¬rst payment, and it
seemed likely that it would not pay up. In 1964, there was a revolution in
Brazil, and Brazil™s new president, Humberto Castelo Branco, wanted to
reverse the bargain made by his predecessor. American & Foreign Power,
however, was determined to get out. It had had enough. It insisted that
Castelo Branco honor the original agreement. New negotiations resulted in
the payment to American & Foreign Power of $135 million over 45 years,
and American & Foreign Power agreed to reinvest in bonds of a Brazilian
government“owned company.82 In 1964, Brazilian Traction, Light and
Power was also prepared to sell out after it experienced huge losses in 1963.
Yet when Joao Goulart was overthrown by Castelo Branco, unlike
American & Foreign Power, Brazilian Traction, Light and Power chose to
stay the course. Under the new administration, it received permission to
make rate changes that would re¬‚ect its costs “ or so it thought. With
American & Foreign Power™s subsidiaries under Brazilian government
control, Brazilian Traction “ with far larger assets in Brazil than American
& Foreign Power “ was the only foreign-owned utility still in Brazil.83
Early in 1964, American & Foreign Power sold its holdings of stock in
its Venezuelan subsidiary, Luz Electrica de Venezuela, to La Electricidad de
Caracas, a privately owned Venezuelan utility. When the transaction
occurred, La Electricidad already had an 18.5 per cent interest in the
common stock of Luz Electrica and supplied practically all the energy
requirements for its operations. Both companies were in Caracas, serving
neighboring communities.84 International Power (and then its successor,
Canadian International Power) had had two electric utilities in Venezuela,
one in Maracaibo and the other in Barquisimeto. Its Barquisimeto fran-
chise, for 50 years, dated from 1913, but on its expiration in 1963 it does
not seem to have been renewed. The Maracaibo franchise ran from 1926 to
1976 and seems to have moved to Venezuelan control at the very time of
the oil nationalizations in 1976.85
There were more withdrawals from Latin America in 1965. In that year,
American & Foreign Power arranged to sell its properties to the Chilean
government and reinvest in Chile.86 By the end of the 1960s, with very few
Chapter 6: Summary of the Domestication Pattern to 1978 249

exceptions, American & Foreign Power had, either through nationalization
or through ˜˜voluntary™™ sales, gotten out of the public utilities business.
Each retreat was different and the terms separately arranged. In 1968, the
name of American & Foreign Power was changed to Ebasco Industries, and
in 1969 Ebasco Industries was merged into Boise Cascade Corporation.
Thus, at the start of the 1970s, American & Foreign Power was out of the
picture, CADE™s large Argentine properties were government“owned, and in
Mexico practically every foreign-owned utility was now under Mexican
control. By 1971 in Chile, the large mines of Anaconda and Kennecott, with
their important power facilities, were in Chilean government hands.87 In Peru
between 1968 and 1975, a wave of takeovers of foreign-owned properties
occurred, amounting to twenty-eight expropriation acts involving forty-seven
foreign companies. Lima Light was prominent among the expropriated
companies, which had included other important, long-standing foreign
investments in oil, mining, and agriculture.88 Lima Light was nationalized by
the Peruvian government in 1972. American & Foreign Power never had any
investments in public utilities in Peru.
In the mid to late 1970s, the only truly sizable foreign-owned property in
public utilities remaining in all of Latin America was in Brazil. (There were
some smaller foreign-owned utilities in Bolivia and Ecuador, for example;
and as noted CIADE in Argentina did not divest until 1979.) In 1969, the
Canadian government had repealed ˜˜4-K™™ tax provisions. This category of
the tax code had historically protected from Canadian taxation the non-
Canadian income of Brazilian Traction (and the many other Canadian-
registered enterprises). By 1969, Brazilian Light (Brazilian Traction, Light
and Power had been renamed Brazilian Light and Power in 1966) was
probably the most important company taking advantage of this tax bene¬t.
In that year, Brazilian Light changed its name to Brascan Ltd. and
restructured its Brazilian operations.89 Brascan™s board of directors at the
start of the 1970s re¬‚ected (1) the retreat of So¬na as an actor, (2) the
continued Canadian dominant role, and (3) the sustained, truly interna-
tional characteristics of this venture. There were twenty-two board mem-
bers, only one of them from Belgium. Canada had ten representatives (six of
whom were from Toronto). Six board members had U.S. addresses, while
Brazil, England, Germany, and Switzerland each had a single individual on
the board.90 The historian of the company documents the dif¬culties that
Brascan had in doing business in Brazil during the 1970s. To ¬nance its
activities, the company had to turn to syndicated bank loans, arranged by
international banks, and bond issues on the Eurobond market. By 1978, the
interest rate on these foreign borrowings exceeded by about 4 per cent the
10 percent return permitted by the Brazilian government on the company™s
rate base. The outlook was not promising. On December 28, 1978,
Brascan™s president, John Moore, announced that the Brazilian government
had given its ¬nal approval to its purchase of Brascan™s Brazilian subsidiary.
Global Electri¬cation

The transaction occurred on January 12, 1979, when, for $380 million,
Brascan sold all its shares in its Brazilian subsidiary to Centrais Electricais
Brasileiras SA (Eletrobra The sale resolved the problems of mounting
friction all during the 1970s between the Brazilian government and the
foreign-owned utility and the inability of the private company to meet
Brazil™s swelling demand for energy.91 This sale was essentially the culmi-
nation of the process of domestication. Brascan was the last giant foreign-
owned utility “ not only in Brazil, but anywhere in the world “ at least the last
in the long history of foreign ownership and control up to this point in time.

In Chapter 5, we noted that in the early and mid-1930s, the ˜˜distinctly and
de¬nitely™™ American-owned companies in Canada supplied about 34 percent
of the nation™s electricity (in terms of kilowatt hours). We also indicated that
during the late 1930s and World War II, that percentage had been reduced “
with divestments and the expansion of provincially owned electrical com-
panies. (Many foreign-owned companies in the public utilities sector were
registered in Canada, but did business outside the country, to take advantage
of the tax laws; these are not the companies that we are discussing here. And,
as noted above, that long-standing advantage came to an end in 1969.)
The Province of Ontario had taken the lead in playing a governmental role
in Canadian electri¬cation. After World War II, the pattern of provincial
provision of electricity grew in other provinces, too. In the process, there
came to be an ever reduced role for U.S.-owned companies. British Columbia,
Quebec, and Saskatchewan had set up provincial power companies between
1944 and 1949. The process of domestication was gradual. By the mid-
1970s, merely 18 percent of Canada™s power was being produced by private
utilities.92 And most of that 18 percent was by Canadian-owned and
-controlled ¬rms, although there did remain a tiny part of that share that was
American-owned and -controlled “ and an even smaller part that was British-
owned. The American-owned Niagara Falls company still generated power in
southern Ontario, grandfathered in for many years. Yet given the extensive
electri¬cation throughout Canada, the role of foreign direct investment in this
sector had become unimportant. In a book published in 1970 titled Silent
Surrender: The Multinational Corporation in Canada, Kari Levitt described
American business as ˜˜recolonizing™™ Canada. Levitt claimed that Canada had
become economically, politically, and culturally dependent on the United
States. But in her account, the only sector that between 1926 and 1963 ˜˜had
experienced a marked reduction in foreign control™™ was that of utilities.
Regrettably, her data include telephones and other public utilities as well as
light and power. Nonetheless, they mirrored the trend. In 1926, foreign con-
trol of all public utilities in Canada was 26 percent, while in 1963 it was only 4
percent. In 1979, the percentage would be still lower. In short, when the
Chapter 6: Summary of the Domestication Pattern to 1978 251

Canadians worried in the 1960s and 1970s about U.S. domination, it was the
U.S. role in manufacturing industries that triggered the apprehension. The
foreign direct investment in electric power still existed, but no longer had
major consequences.93

the rest of the world in the 1950s, 1960s, and 1970s
By 1950, most of the ownership and control of Europe™s electric utilities
had become domestic. In Asia, this was also the case in Japan, where there
had never been foreign ownership and control. In China, the communist
takeover ended any former large investments. But what about the rest of the
world, aside from Latin America and Canada, which we have already
discussed in detail? Everywhere, in the 1950s, 1960s, and 1970s, there was
a retreat from foreign ownership and control of electricity supplies. Part of
this accompanied decolonization, for the new nations did not want any
domination from abroad, and part came with the nationalizations of large
oil, mining, and plantation properties. These had once been electri¬ed by
the dominant company, but after nationalization that was no longer the
case. When there was new electri¬cation, as on the west coast of Africa
with the development of aluminum smelters, virtually all of the power
supplied was separately ¬nanced, usually by the World Bank or other
governmental bodies. Foreign investors “ British as well as American “ saw
no future in private investments in Indian public utilities because former
colonial powers were not appreciated in this newly independent nation. It is
true that state-owned companies such as Electricite de France (EDF)
developed certain international business in the 1950s, 1960s, and beyond,
but these were governmental not private-sector activities. The ever opti-
mistic 82-year-old Heineman of So¬na wrote in 1954:

The ful¬llment of the legitimate aspirations of nationalism in dependent territories
has, I would say, produced a fundamental change in the political, social, and even
economic environment, making undoubtedly for greater stability in the long run,
but for the time being introducing new uncertainties into the international scene.94

By the end of the 1960s, the decolonization process was almost completed.
Societe Generale de Belgique had been expelled from the Congo. Change
´´ ´ ´
was everywhere in the of¬ng. Foreign direct investors in electric utilities
were not welcomed. Heineman was wrong, for greater stability did not
follow “ in most cases.
Internationally, U.S. foreign direct investment grew dramatically in the
1950s and 1960s, and by the 1970s large European multinational enter-
prises (most of them not state-owned) were competing once again with U.S.
international business on a global scale. Contemporaries mistakenly
thought that this multinational enterprise activity was ˜˜new.™™ As the
Global Electri¬cation

readers of this volume are aware, they did not know their history.95 What
was important about the U.S. multinational enterprise™s activity was its
heavy concentration in the manufacturing sector. And when studies were
made of European multinational enterprise, once again it was manufacturing
¬rms that were in the spotlight.
The ˜˜old™™ direct investments in mining, agricultural plantations, and
public utilities seemed to have been eclipsed.96 And then in the 1970s, there
had been a dramatic shift from private-sector multinational enterprises to
host country companies in the production of oil.97 What happened in
electric utilities was more extreme than what occurred in the oil industry,
but it was part of the same pattern. When we write ˜˜more extreme,™™ we
point to the fact that in 1979 the seven major international oil companies
still produced 23.9 percent of the crude oil outside of the United States and
communist countries. On the other hand, in 1979 probably less than
1 percent of the world™s electric power could be said to be supplied by
foreign direct investors.98 Indeed, by the end of the 1970s, in the electric
utilities sector, most economists and other commentators assumed that
these infrastructure activities in advanced countries would be by govern-
ment companies or heavily regulated investor-owned companies. In devel-
oping countries, in the main, it was assumed that the provision of
infrastructure would be by government entities, ¬nanced by the World
Bank and other international agencies. And in communist countries, there
was the belief that these services would best be provided by the state.
When in late 1978 Brascan announced that its subsidiaries in Brazil would
become government-owned, it was, to repeat, the last of the giant foreign
direct investments of times past. Financial intermediaries, banks, holding
companies, investment trusts, investment companies, and so forth would
maintain portfolio stakes in electric utilities, international bank lending to
governments did continue, but the ¬rst round of private-sector foreign direct
investments “ investments that included ownership and control and carried
with them management and technical services “ was over. American &
Foreign Power, once the largest (at least as measured by assets) and most
entrepreneurial of the multinational enterprises in this sector, no longer
existed, having been folded into Boise Cascade in 1969. So¬na survived as
part of a Belgian ¬nancial group “ as an investment company. And Brascan
would become an investment unit of Peter and Edward Bronfman.99

the sequencing
It is worthwhile to summarize the course of domestication that occurred
through the ¬rst round of multinational involvements in global electri¬-
cation and culminated at the end of the 1970s. We have been selective and
do not deal with every country in the world, but rather we attempt to put
into a broad perspective the overall story line.
Chapter 6: Summary of the Domestication Pattern to 1978 253

Table 6.1. The “Domestication Process” of Electric Utilities in Selected

Period Country Comments
From the Japan A brief attempt to establish before World
beginning War I the Anglo-Japanese Water Power
Co. was futile. Otherwise, there is no
evidence of any foreign direct investment
in any Japanese light and power
company. The newly organized Tokyo
Electric Light Co. built the ¬rst power
station in Japan in 1888, using the Edison
system but with no foreign direct
investment. There were substantial
foreign long-term borrowings in the
1920s, but these were not accompanied
by foreign direct investment.
Virtually from United States The Deutsche Bank, Siemens & Halske,
the beginning and AEG had a brief investment in Edison
General Electric in 1889“1891 and
through EGE in utilities. There were
minor foreign direct investments in the
nation™s electric utilities: In the mid-
1890s, Canadian utility entrepreneurs
were investing in power facilities for
street railways in Minneapolis, Detroit,
and Toledo, Ohio. There were other,
more ambiguous foreign direct
investments (for example, Table 1.4 gives
>1 percent in 1913“1915). We have not
included Middle West Corp. (the So¬na
investment). Fundamentally, U.S. light and
power facilities were domestic from origin.
Russia/Soviet Expropriation of the large foreign direct
Union investments in electric utilities came with the
Russian Revolution. While in some cases the
formal process was not completed until
1923, for all practical purposes 1917 is the
appropriate date for the domestication.
Italy There had been substantial foreign direct
investment before the First World War, but
it gradually dissipated. By the early 1920s,
there was still a foreign presence, but nothing
that approximated foreign ownership and
control. There would be substantial
portfolio investments in the 1920s.
Nationalization did not come until 1962.

Global Electri¬cation

Table 6.1 (continued)

Period Country Comments

Great Utilities Power and Light
Britain Corporation (an American holding
company) sold its signi¬cant direct
investment in Great Britain to a
British group. Some small direct
investments in British electric utilities
remained after 1936, but none was
Turkey The Turkish government had completed
the process of assuming control over
French-owned public utilities.
So¬na sold its Turkish utilities to the
government in 1938.
Germany After the end to the brief Edison
impact, practically all electric power
suppliers were German-owned and
controlled; there was large outside
¬nancing (especially in the 1920s) and
nominal “Swiss” control, but not
foreign direct investment if one removes
the corporate veil. The Bewag investment
of So¬na in the early 1930s did not
survive World War II. On
Table 1.4 we have put 5 percent for
Germany 1913“1915 and 1928“1932
and 0™s for the post“World War II years.
Brown, Boveri/Motor™s German
interests were not “nominally” Swiss,
but were actual Swiss foreign direct
investments, the former in
manufacturing and, with the extended
manufacturers™ model, in power
generation facilities.
Czechoslovakia Nationalizations “ as communist regimes
Hungary installed.
France The process of domestication was
gradual, but when France in 1946
nationalized its electrical industry, there
clearly was an end to all foreign direct
investment involvements.
Chapter 6: Summary of the Domestication Pattern to 1978 255

Period Country Comments

Austria Government ownership established
throughout nation.
Australia There had been sizable British direct
investments that diminished over time;
and when in 1947 the South Australian
state government took over the Adelaide
Electric Supply Co. Ltd., this appears to
have been the end of the sequence.
South Africa The state-owned Escom (Electricity
Supply Commission), which had been
formed in 1923, took over Victoria Falls
and Transvaal Power Co., the last
remaining large foreign direct investment
in public utilities.
China The communist takeover in China ended
American & Foreign Power™s ownership
of Shanghai Power, the biggest foreign
investment in light and power in China.
Spain Barcelona Traction and Ebro Irrigation
and Power came to be owned and
controlled by a Spanish group (Jean
March). Earlier, in 1942, Franco had
created INI (Industrial National Agency),
which, in turn, in 1944 set up Endesa and
in 1946 Enher. Both Endesa (in
thermoelectricity generation) and Enher
(in hydroelectric generation) were state-
owned companies.
Argentina American & Foreign Power arranged to
sell all its properties to the Argentine
government. CADE sold to the
government that year as well. The largest
once foreign-owned properties became
Cuba Fidel Castro™s expropriations included the
huge American & Foreign Power™s facilities.
Egypt While the 1947 public utilities law gave
the Egyptian state control over foreign-
owned public utilities, Belgian direct
investments remained in this sector until
1961, when Nasser nationalized Empain™s
important properties. This marked the
end of foreign direct investments in
electric utilities.

Global Electri¬cation

Table 6.1 (continued)

Period Country Comments

Mexico The government takeover was completed
with its acquisition of Monterey Railway,
Light and Power. Two years earlier, the
Mexican government acquired practically
all the key foreign-owned utilities
(American & Foreign Power had sold its
properties to Nacional Financiera SA, a
government agency, and the important
Mexican Light & Power had become fully
Chile American & Foreign Power arranged to
sell its properties to the Chilean
government. (The foreign-owned
electricity suppliers associated with the
mining industry did not become
government-owned until 1971.)
Brazil With the domestication of Brascan (the
renamed Brazilian Light), the last big
Brazilian utility property became
domestically owned.

Source: Based on the text of this book.

Over time, foreign direct investors played a major role in stimulating
electri¬cation. They provided management, technology, knowledge, and
experience, along with capital. They built generating plants, and they
constructed transmission and distribution lines. They created networks of
power. For small, inef¬cient plants, they substituted larger, more ef¬cient
ones. All of these efforts increased productivity. They led in technical
rationalizations. In the end, direct investors contributed in an important
fashion to electri¬cation within the world economy.100 By the time of the
1978 Brazilian decision to purchase the Brascan properties and the actual
consummation of the deal in 1979, however, the ¬rst round of domesti-
cation was over. Foreign direct investors in electric utilities were few and
far between.

a perspective
Are there any generalizations that can be made about the conclusion to the
¬rst round of globalization in electric light and power and the domestication
that occurred from the late 1870s to the end of the 1970s, a process
Chapter 6: Summary of the Domestication Pattern to 1978 257

encompassing developed and less developed countries alike? Why, if these
multinational enterprises contributed to making more electricity more
available around the world, did their participation in this global activity
virtually cease? Why did this sector become ˜˜domestic™™? It seems clear that
the reasons for the domestication were both economic and political, and the
two were in many instances inseparable. Often, but not always, domestica-
tion was linked with nationalism and populism. Sometimes, it was yoked
with socialist and communist movements. Other times, it was connected with
national security. Frequently, it came to involve government (national and
subnational) ownership.
Before we discuss what was behind the move toward domestication, we
need to ask why there was internationalization in the ¬rst place. In many
cases, international investment coincided with the start of electri¬cation “
for example, the Edison companies™ spreading out internationally. In some
instances, there was an aborted internationalization, domestication, and
then a return to greater internationalization. Thus, in China, for example,
the beginnings of electri¬cation in Shanghai may have been foreign-
inspired, by an early free standing company; alternatively, it may have been
started by local capital. In any case, in 1893 the plant and the plans for
electri¬cation were taken over by the Shanghai Municipal Council. The
latter tried to divest in 1899, but it found no buyers, domestic or foreign.
Not until 1929, when American & Foreign Power invested in and took over
the management of the Shanghai power facilities, did foreign direct
investment in this sector in China become signi¬cant. So, too, many of the
municipalities within Latin American countries had their own power
plants, domestically established. Promoters who got early concessions were
at times from the host country and recognized the need to attract outside
investments and entrepreneurial talents. In advanced countries “ for
example, in Great Britain “ the largest inward foreign direct investments in
electric utilities did not occur at the birth of the electri¬cation process, but
rather in the late 1920s, with the U.S. ownership and control of Greater
London and Counties Trust“Edmundson™s. The patterns differed by
Multinational enterprises go where there are opportunities. They carry
with them ownership and control “ and far more. The foreign direct
investors were able to assemble capital and direct it to productive purposes.
Of greater importance, they introduced technology, management, and
experience and raised productivity. They knew the logistics of organizing
purchasing as well as planning distribution. They provided more reliable
service, based on the knowledge that they could transfer from one opera-
tion to another. The initiative in developing foreign direct investments in
this sector had come from various sources, which we spelled out in Chapter 2.
It could come from the host country, which wanted the development to take
place, or from a developed nation, whose companies™ management saw
Global Electri¬cation

good prospects abroad. Obtaining foreign ¬nance (money that came
without the ownership and control that accompanied multinational enter-
prises) was dif¬cult for an aspirant company that was not well placed (in an
international social network, if you like): investors hesitated to take the
risks. Associated with a multinational enterprise, the projects could acquire
the needed ¬nancial resources accompanied by managerial and engineering
know-how. For the recipient country and the investor, foreign direct
investments should have been a ˜˜win-win™™ proposition, with each party
bene¬ting. The domestication process, however, shows that it was not so
perceived. Why, then, did the domestication process occur?
The economic reasons lay squarely in the nature of the business. First,
historically, the light and power company has been a natural monopoly.
There were scale economies. A natural monopoly occurs in sectors where
with decreasing average unit costs as production rises, given the demand, it
makes sense to have a single producer. Competition meant smaller plants,
higher unit costs, and inef¬ciencies. Typically, but not always (at least in
the early concessions), a company that made a commitment to electrify a
part of a city, the whole city, or a region, got a franchise that gave it a
monopoly. And as is the case of any unregulated monopoly, the consumer
faced higher prices and lower volume than under competition. This
encouraged the introduction of government regulation or, alternatively,
government ownership (in the case of government ownership, by de¬nition,
there is domestication). Second (and related), the investments are ˜˜lumpy.™™
The start-up capital/output ratio is very high, but once the construction
phase is over the marginal costs of operations (until a new round of
investments is necessary) tend to be low. Yet the investor desires to recover
the initial ˜˜sunk™™ costs and thus is wary of marginal cost pricing. The host
state or community often disagrees and looks at marginal costs. Con¬‚ict is
inevitable. Third, light and power supplies are a basic good, providing
infrastructure needs. The companies furnish a ˜˜public service.™™ Politically,
it is dif¬cult for a governing authority to let prices rise, and this becomes
particularly untenable when it is a ˜˜foreign™™ company that is seen as
˜˜exploiting™™ the opportunity. This encouraged regulation and often govern-
ment ownership. Fourth, if there are depreciating local currencies, returns
on foreign investments are reduced. Foreign investors desire to raise prices
to compensate for this, and unavoidable con¬‚ict once again looms. Often
host countries perceived an ˜˜obsolescing bargain™™ (a phrase introduced by
Raymond Vernon). Yes it was necessary to bring in foreign direct investors
when the project started; the nation, municipality, or region needed capital
(and perhaps more than capital). As investments were made and operations
begun, the public and the governing authority saw the utility was in place
and believed the bargaining advantage had shifted into the host country™s
hands. Why was a foreign investor necessary now that the power plant had
been built?101 This perception of the altered bargaining conditions often
Chapter 6: Summary of the Domestication Pattern to 1978 259

had counterproductive consequences. Foreign companies, which were no
longer appreciated, became wary of making new and necessary capital
investments lest returns be inadequate, owing to government interventions.
With the generating plant came transmission and distribution systems,
which needed further extensions, which in turn required more investments.
Without new investments, facilities became run-down. Needs were not
ful¬lled, because as demand rose there was not enough capacity. Service
deteriorated. Growing populations, with rising expectations, put additional
demands on the foreign public utilities for extended services, often service
to distant areas where the costs of building power lines might mean little in
the way of pro¬ts. Governments called for more investment and more
comprehensive electrical services, while at the same time expecting (even
requiring) low rates. In many countries, foreign companies feared the
˜˜political™™ risks and found themselves in a business environment not
conducive to big business activities, much less the activities of foreign
companies. As a result, they hesitated to make the necessary extra invest-
ments. And in a chicken-and-egg fashion, this induced more hostility
toward the foreign-owned utility. Sixth, and part of the same story line,
consumers of electricity wanted a secure supply, without power interrup-
tions. Because companies hesitated to make new investments, aging power
plants and distribution facilities became unreliable. Companies found
making repairs costly and postponed doing so. Service “ once appreciated
as the only electricity supply available “ became inadequate and resentment
mounted. As the role of governments expanded everywhere, more and more
of them felt that there were political requirements that mandated the
extension of and the steadiness of electrical services, and they objected to
foreign companies making the decisions. Thus, in time foreign companies
appeared to be no longer needed for capital, engineering, or management
skills, which came to be perceived as available at home or through other
channels. Or, alternatively, they were taken for granted “ as being readily
accessible. Seventh, domestication occurred in both developed and devel-
oping countries. While in industrial countries domestication frequently
involved government companies™ substituting for the private foreign
investors, in less developed countries it nearly always did. Domestication in
industrial countries took place when foreign ¬rms no longer had an
advantage, when capital, engineering, and management skills were present
locally or through international ¬nancial channels. In less developed
countries, governments believed that they could just as effectively (or even
more effectively) operate the electric utility business as the alien companies.
Particularly in the post“World War II years, international ¬nancial options
(from sources such as the World Bank and other multilateral lending
agencies) provided the possibilities of capital and engineering skills. In
many less developed countries, the provision of management by private
enterprise was seen as irrelevant, because it was presumed that government
Global Electri¬cation

companies could manage resources as well as private foreign ones. More-
over, there was a widespread belief that utilities were not ˜˜management
intensive™™ or ˜˜knowledge intensive™™ and anyone could run them. And, so,
gradually, for some or all of these reasons, foreign ownership and control
receded and domestic companies and governments came to supply light and
power the world over.
As governments came to play a larger role in national economies, they
watched their balance of payments. They put restrictions on the movements
of money. Foreign investors in electric utilities needed ˜˜hard currency™™ for
imports of generating equipment, supplies, and sometimes fuel. They also
required hard currency to pay dividends to stockholders and interest on
corporate debt. Many of the direct investors had borrowed from outsiders
to add to the ¬nancing of their projects. But governments did not want their
monetary and industrial policies to be determined by outside direct inves-
tors. With the notion of the obsolescing bargain in the forefront, the
thought was that foreign direct investors, with their foreign exchange
needs, could be easily dispensed with. It was better to have a domestic
activity, with no need to pay dividends and interest to foreigners and one
that could be encouraged to buy domestically.
Other reasons for the domestication were nationalistic and populist in
nature. It was believed that outsiders should not be involved in vital sectors
of the economy. Electricity and waterpower resources were too funda-
mental to be left to nonresident owners. ˜˜Foreigners™™ were perceived as
suspect. They made ˜˜excessive™™ pro¬ts. They cheated. They corrupted
public of¬cials. They were ˜˜bad news.™™ Because multinational enterprises
were ˜˜sophisticated™™ and ˜˜experienced,™™ it was often assumed that they
had more opportunities to be deceitful “ to get around national laws, to use
transfer prices to the disadvantage of the host state, or to evade taxes.
Hence, there was an inherent distrust between the host nations and the
foreign companies. In certain countries, this distrust was fueled by labor
unions, who felt that employees did not share enough of the ˜˜rents.™™ Very
often such feelings were visceral, not founded on realities and based on
faulty assumptions. Such negative views toward multinational enterprises
had their cycles, which surfaced periodically in both developed and less
developed countries over the course of the twentieth century. In various
con¬gurations, they were present in advanced countries and in the many
new nations that obtained sovereignty during the century. It did not matter
whether the beliefs were true or untrue; they had a life of their own.
In some countries, foreign direct investors were seen not as private-sector
actors but as representatives of colonial powers (or in certain renditions as
representatives of U.S. government policies). Popular sentiment often saw
them as imposing imperialist norms. In many countries, private investors
had attracted (assembled) local capital, for multinational enterprises found
capital where it was available and put it to productive uses. Yet the
Chapter 6: Summary of the Domestication Pattern to 1978 261

collection of local capital was often believed to be either exploitation
(instead of adding capital, multinational enterprises were mopping up
limited domestic resources), or coalition building with despised local elites.
In less developed countries, individuals often became wealthy by working
for or with foreign multinational enterprises, which bene¬ted local busi-
nesses. To most economists, the mobilization of local capital for productive
purposes and the enrichment of nationals within a host country were
viewed as a favorable attribute of foreign direct investments “ the ability to
have positive linkage effects. For many ˜˜antibusiness™™ observers, the local
alliances were perceived negatively, as local and foreign capitalists joined
together to the disadvantage of the developing nation. This view was often
fostered by sociologists and an articulate group of development economists,
who described foreign direct investors “ and particularly those in the ˜˜old™™
activities of utilities, oil, mining, and agriculture “ as adding nothing and
creating dependent development. Foreign direct investment in manufactur-
ing, where there was new technology to be transferred, might be approved
because it was necessary, but electric utilities were not seen in that light for
they were viewed as one of the ˜˜old™™ industries. On the other side of the
coin, multinational enterprises had other opportunities that appeared more
promising. For one reason or another “ or more often, a combination of
reasons “ by the end of the 1970s private foreign direct investment in electric
utilities in advanced and in less developed countries seemed to be part of
the past.

Coming Full Circle, 1978“2007, and
a Global Perspective

After the long process of domestication, which included numerous
nationalizations of electric utilities and during which foreign ownership had
all but disappeared, the political landscape shifted rather dramatically in
the late 1970s and early 1980s. In many countries, government-owned
electric utilities now were being criticized for their poor performance, high
costs, and unreliable supply, problems (especially in less developed and
developing countries) deemed to have been caused by inadequate mainte-
nance and expansion due to the inability or unwillingness of the state to
invest needed capital.1 By the end of the 1980s and throughout the 1990s,
new government policies of liberalization, privatization, and utility restruc-
turing were being implemented in many countries.2 These policy changes,
along with loosened restrictions on capital out¬‚ows and in¬‚ows, opened up
the prospects for renewed foreign direct investments, and once again com-
panies began investing in foreign electric utilities. As the International Energy
Agency (IEA) “ a unit of the Organization for Economic Cooperation and
Development (OECD) “ stated in one of its ˜˜Messages for Governments™™ in
1994, ˜˜Investment by international electric companies in other markets plays
an important role in transferring technology and capability/knowledge, as
well as improving technical and economic ef¬ciency, capital availability,
energy security, and the environment.™™3 Such statements viewed foreign
direct investment as desirable. Today, cross-national ownership patterns of
electric utilities again have become quite common. The situation around the
world, however, remains in a state of constant ¬‚ux, with a substantial
amount of reform and counter-reform, merger activity (especially in Europe)
and divestiture, buying and selling of light and power ¬rms, and international
investment and disinvestment in the sector.
The initial structural reforms in the industry were stimulated in part by the
oil crises of the 1970s, during which the relative price of raw energy as well as

Authors: William J. Hausman and Mira Wilkins. Signi¬cant advice from H.V. Nelles.

Chapter 7: Coming Full Circle, 1978“2007 263

electricity increased dramatically, contributing to a widespread feeling of
general economic malaise.4 The adoption of reforms that forced ¬rms to rely
much more heavily on the market to guide decision making became part of the
international agenda, endorsed enthusiastically by multilateral aid organiza-
tions such as the International Bank for Reconstruction and Development
(World Bank) and the Asian Development Bank, and commended by the
International Monetary Fund.5 State enterprises and heavily regulated utilities
now were deemed in many countries to be inef¬cient and an actual deterrent
to economic growth.6 Whereas most electric utilities from the very earliest
days of the industry were vertically integrated, monopolist ¬rms providing
generation, transmission, and distribution services in a single package, many
reformers believed that this structure had become obsolete and ineffective by
the 1980s. Reformers argued especially that the generation function, because
of changes in technology, had become naturally competitive and could be split
off from the other two major functions, creating major gains in ef¬ciency. As
one World Bank document stated, ˜˜Since the 1950s, the power sector had
been dominated by government-owned monopolies over the full range of
sector activities from production to distribution. This was in accordance with
the prevailing notion that large-scale technologies and their high ¬xed costs
favored state ¬nancing, and that monopoly stewardship by the state enhanced
consumer welfare. The sector was also considered critical to national security
and a tool with which governments might pursue social equity objectives in
their development efforts. These views prevented competition and discour-
aged foreign investment. From the 1980s, however, the promise of greater
ef¬ciency through market-based competition and technological advances
encouraged the vertical unbundling of power generation and an increase in
private investment.™™7
Eventually, policies implemented in many nations (with differing parti-
culars and varying degrees of success) resulted in the ˜˜unbundling™™ of the
industry “ that is, the separation of each of the three major functions (as
well as marketing and billing in some cases), with the possibility of different
¬rms performing the functions in the different segments of the industry.8
One of the ¬rst pieces of national legislation passed in response to the
energy crises of the 1970s was the Public Utility Regulatory Policies Act of
1978 (PURPA) in the United States. This act focused on the generation
sector and sought to open up the transmission network to small power
producers and co-generators (such as industrial establishments) by requir-
ing integrated utilities to purchase power from these producers at their
own, relatively high, marginal cost. This ˜˜opened the door to greatly
expanded participation by nonutility generators in electricity markets, and
it demonstrated that electricity from nonutility generators could success-
fully be integrated with a utility™s own system supply.™™9
Chile was one of the ¬rst countries to substantially reorganize its electric
utility sector, and it became a model to other South American countries.
Global Electri¬cation

In 1982, Chile™s government, then under the military dictatorship of Gen-
eral Augusto Pinochet and with the advice of ˜˜free market™™ economists
associated with the University of Chicago, enacted a law that allowed some
choice of electricity providers for large consumers.10 This was followed by
reforms that introduced more extensive competition and used explicit
market mechanisms to determine prices. The industry eventually was
completely restructured. By 1996, Chilean companies were the only ones in
Latin America to control electric utilities in other Latin American nations.
Chilectra, Chilgener, Chilquinta International, Endesa (Chile), Enersis, and
National Electric of Chile all owned generation or distribution assets in
Argentina and/or Peru.11
In England and Wales, the large-scale privatization and unbundling of
the electricity supply system was carried out under the Electricity Act 1989.
Under the provisions of the act, generation and marketing were to be
treated as competitive industries, while transmission and distribution “ still
viewed as natural monopolies “ remained subject to regulation. A wholesale
electricity pool, where electricity could be traded competitively, was created
in 1990. As William W. Hogan has stated, ˜˜The initial reforms in England
and Wales in 1990 were highly in¬‚uential in subsequent developments in
electricity restructuring around the world.™™12 Power pools, often formed in
conjunction with privatization, were established in other countries around
the globe in the 1990s: Norway in 1991 (extended in 1996 to include
Sweden); Finland and Denmark in 1996; Victoria, Australia in 1994
(merged with the New South Wales pool in 1997); and New Zealand in
1996. Competitive power exchanges began operating in Spain in 1998, and
in regions within the United States (California, Pennsylvania-New Jersey-
Maryland, New York, and New England) around the same time. The
Amsterdam Power Exchange began operating in 1999.13

the resurgence of foreign ownership at the end
of the twentieth century
As the privatization, liberalization, and restructuring movement gathered
momentum in the 1990s and multilateral aid institutions became very
supportive of power sector reform, the entry of foreign companies into this
sector, as noted previously, was welcomed more frequently. Unlike in the
earliest days of the industry, when foreign ¬rms often inaugurated electric
power service, this recent phase more closely resembles that of the late
1920s and very early 1930s, in that it has occurred largely through mergers
and acquisitions. Given the ever-present need for expansion, many of these
mergers and acquisitions were accompanied by new infrastructure invest-
ments, as was the case in the late 1920s and 1930. In addition, however,
some of these ¬rms entered the industry by creating brand new, indepen-
dent power producers.14 A wide variety of companies acquired or created
Chapter 7: Coming Full Circle, 1978“2007 265

electric utility assets in various regions of the world in the 1990s.15
Companies invested individually or, in the case of ˜˜project management™™ in
developing nations, in clusters with networks of both private and govern-
ment participants.
Some of those involved in foreign electric utility investments at the end of
the twentieth century were large multinational ¬rms with familiar names.
A major investor worldwide was ABB Energy Ventures, a subsidiary of ABB
Ltd., created in 1988 by the merger of two long-standing electrical manu-
facturers: the Swedish ASEA and the Swiss Brown, Boveri et Cie. In 1989,
ABB acquired the transmission and distribution assets of the Westinghouse
Electric Corp., another of the venerable names among electrical equipment
manufacturers. By 1999, ABB owned generating plants in Colombia,
China, and the United Kingdom, transmission lines in Argentina, Brazil,
France, Greece, Italy, Kenya, Saudi Arabia, and the United Kingdom and
distribution systems in Georgia (the country) and Kazakhstan. ABB, how-
ever, subsequently divested its nuclear power and power generation busi-
nesses, choosing rather to focus on other business sectors.16 General
Electric Power Systems, a subsidiary of General Electric, made investments
in hydroelectric projects in Australia, Brazil, Canada, Finland, Norway,
and Sweden, but by 2006 did not appear to own and control any foreign
electric utilities or generating assets. GE remains a major provider of power
equipment and services to the industry, as does Siemens, which also in 2006
did not appear to own foreign electric utilities. Notably absent from any
participation was AEG, which became in the 1980s a relatively minor
subsidiary of the then DaimlerBenz.17
Among the more active investors in foreign electric utilities were operating
utilities already in the industry, something that was rare in the ¬rst round of
global electri¬cation. Twenty-seven U.S. electric utilities or their subsidiaries
had made direct investments in utilities around the world by the end of the
century. These included many traditional utilities, such as Duke Energy,
Entergy, and Central and South West. There were several U.S. ¬rms that
would come to specialize in ownership of foreign utility assets, including AES
Corp. and Edison Mission Energy, a subsidiary of Edison International
(formerly Southern California Edison). AES™s very rapid rise and recent
setbacks re¬‚ect many of the bene¬ts and perils of foreign ownership of
electric utilities. Founded in 1981, shortly after passage of the Public Utility
Regulatory Policies Act (1978), the company began with the purchase and
construction of domestic generating assets, but it moved aggressively into
foreign countries in the 1990s. The New York Times described AES in 1998
as ˜˜the largest United States-based power plant developer.™™18 In 2000, AES
was operating in twenty-four countries and by 2002 had operations in thirty-
two countries, sometimes under joint agreements, including those with such
traditional U.S. utilities as the Southern Company and Public Service
Enterprise Group (PSEG) in Brazil and sometimes with other foreign utilities,
Global Electri¬cation

including Tractebel in Northern Ireland and Electricite de France (EDF) in
Brazil. AES got into deep ¬nancial trouble shortly after the turn of the mil-
lennium and had to scale back substantially and restructure. Its Latin
American (especially Brazilian) utilities were particularly problematic, but it
also ran into serious dif¬culties in Georgia (where it owned the electricity
system in Tbilisi, its capital), Kazakhstan (where it was forced to agree to
barter arrangements for some cash-strapped large customers), Uganda
(where ˜˜traditional spirits™™ are said to have blocked a $500 million dam
project), and England (where in 2003 it walked away from its Drax power
station in North Yorkshire, having purchased it for US$3 billion in 1999).19
A variety of other U.S. ¬rms entered the foreign electricity market. These
included the oil giant ExxonMobil (with generating assets in Italy and
China20 and plans to enter other countries), Bechtel (Chile and India),
Foster Wheeler (China), Sithe Energies (Australia, Canada, China, Mexico,
the Philippines, South Korea, and Thailand), Coastal Corp. (Dominican
Republic), Tenneco (Ecuador), Goldman Sachs (Dominican Republic), and
Enron (with generating assets in Brazil, Ecuador, Guatemala, India, Israel,
Italy, Nigeria, Panama, the Philippines, Spain, and the United Kingdom and
distributing systems in Brazil and Venezuela). Before its ignominious
bankruptcy in late 2001, Enron had encountered major obstacles in its
investment in the Dabhol power project in India. In May 2006, the inter-
national assets of the bankrupt Enron were sold to a consortium of hedge
funds, with 60 percent British and 40 percent U.S. participation, for $2.1
Two Canadian utilities had foreign utility investments at the end of the
twentieth century. Hydro One (formerly part of the state-owned Ontario
Hydro) owned a distribution utility in Peru, and TransAlta Corp. owned
independent power producers in Australia, Mexico, and New Zealand.22
Since then, a number of Canadian companies have acquired foreign utility
assets. Fortis, Inc. controls the major utility in Belize, has holdings in the
Cayman Islands, and owns four hydroelectric facilities in New York State.23
By 2004, the venerable Canadian corporation Brascan, formerly Brazilian
Traction, Light and Power and as of 2006 a subsidiary of Brook¬eld Asset
Management, had returned to its roots and owned generating properties in
Brazil, as well as in the United States.24
Several European and British electric utilities also actively entered for-
eign markets in the 1990s. EDF, a state-owned enterprise, was particularly
active, with generating plants in China, Italy, Mexico, Portugal, and Spain,
electricity distribution systems in Hungary, Lebanon, Morocco, South
Africa, Sweden, Switzerland, and the United Kingdom, and both generating
and distribution assets in Argentina, Austria, Brazil, and Ivory Coast. EDF
remains very active in foreign electric utility markets. In spring 2006, EDF
and AEM, Milan™s municipal electricity utility, combined to purchase the
Edison Company, Italy™s second-largest electric utility.25 As of March
Chapter 7: Coming Full Circle, 1978“2007 267

2006, EDF also held a 25 percent stake in Atel, a ¬rm created by a con-
solidation of the Swiss operating company, Atel, and the holding company
Motor-Columbus (which thereby ended its long corporate existence).26
Britain™s National Power (now International Power) and PowerGen
(now owned by the German ¬rm E.ON) had generation or independent
power investments in Australia, China, the Czech Republic, Hungary,
India, Indonesia, Kazakhstan, Malaysia, Pakistan, and Thailand.27 For the
¬rst time ever, some major U.S. electric utilities became foreign-owned.28
One large foreign investment was made and then withdrawn. Scottish
Power purchased Paci¬Corp in 1999 and then sold that company in early
2006 to MidAmerican Energy, a unit of Warren Buffet™s Berkshire Hath-
away.29 Scottish Power in November 2006 agreed to be acquired by the
Spanish utility Iberdrola, a transaction completed in April 2007.30 A strong
presence in the United States was created by National Grid Plc, which owns
the high-voltage transmission system in England and Wales and which
purchased the New England Electric System (comprised of four relatively
small utilities in the Northeast) in 2000 and then in 2002 acquired the much
larger Niagara Mohawk Power Corp., a New York utility. In early 2006,
National Grid announced the planned acquisition of KeySpan, a major U.S.
gas distributor that operates an electric utility on Long Island, New York.
The transaction was completed in August 2007.31
E.ON has become a major player in the ¬eld of international electric
utility investments. The company was created in 2000 with the merger of
two German energy ¬rms, Viag and Veba, and in 2006 it was the largest
electric utility in Europe by market capitalization. It purchased the British
PowerGen in 2002 and through that acquisition obtained the U.S. utility
Louisville Gas and Electric (now E.ON-USA). In February 2006, E.ON, in
the biggest takeover bid in the history of the electric utility industry, offered
to purchase the Spanish ¬rm Endesa, the ¬fth-largest European electric
utility, for around $35 billion, which was later raised to $52 billion. The
Spanish government threw numerous roadblocks in the way of the merger,
some of which were ruled illegal by the European Union.32 In early 2007,
Italy™s Enel (Ente Nazionale per l™Energia Elettrica), privatized in 1999 and
the second-largest European electric utility by market capitalization, and
Spain™s Acciona teamed up and made a competing offer. In April 2007,
E.ON yielded and dropped its bid, accepting Endesa™s assets outside Spain
and some of Enel™s Spanish assets as consolation. Acciona™s participation
meant that Endesa remained in Spanish control, with signi¬cant Italian
Other European participants included British Gas Group International
(the Philippines), Royal Dutch Shell (with generating assets in Brazil,
Brunei, China, Colombia, Malaysia, Mexico, Oman, and the United Arab
Emirates), the German Ruhrkohle AG, parent of RAG Coal International
(generation assets in Colombia), the Finnish Fortum Oil and Gas Oy
Global Electri¬cation

(Estonia, Hungary, and Thailand), and the Belgian (now French-controlled)
utility Tractebel (Canada, Chile, China, Hungary, India, Italy, Kazakhstan,
Luxembourg, Peru, Portugal, Qatar, Singapore, Thailand, and the United
Kingdom). Tractebel, which had been formed in 1986 with a merger of
Tractionel (formerly Traction et Electricite) and Electrobel, merged with
Societe Generale de Belgique in 2003 to become Suez-Tractebel, a subsid-
´´ ´ ´
iary of the French water and electric utility Suez.34 In early 2006, the Italian
electric utility Enel offered to purchase Suez, the third largest European
electric utility. The French government, not wanting to lose a ˜˜national
champion™™ to Italian control, intervened and arranged a merger (still
pending in early 2007) between the state-owned Gaz de France and Suez.35
The Swedish power company Vattenfall, which traces its origins to
1909, expanded into other nations nearly a century later. It acquired several
German electricity suppliers as well as utilities in Poland and Denmark.36
Some European ¬rms are on the cutting edge of technology, investing in
solar and wind farm generators in various nations. EHN (Corporacion ´
Energia Hidroelectrica de Navarra, S.A., acquired in 2005 by the Spanish
¬rm Acciona) owns wind farms in Germany, France, and the United States
(including one in New York State as a joint venture with AES).37
Finally, a number of Asian multinationals recently have become active in
the electricity sector. An international subsidiary of Hongkong Electric
Holdings Ltd., part of the Cheung Kong group, owns several distributing
companies in Australia and a generating plant in Thailand.38 CLP Holdings
(formerly China Light & Power), another Hong Kong ¬rm, jointly owns a
coal-¬red power plant in mainland China with EDF and has generating
plants in Australia, India, and Thailand. J-Power, formerly the Japanese
Electric Power Development Corporation, owns generating plants in China,
the Philippines, Taiwan, and Thailand and in 2006 purchased a wind
power facility in Spain and an independent power producer in Texas, its
¬rst investment in the United States.39 Meiya Power Company (MPC)
began in the early 1990s as a joint venture between the U.S. utility PSEG,
the Asia Infrastructure Fund, and Hydro Quebec. The Canadian and U.S.
¬rms have been replaced by a consortium of investors, with major partic-
ipation by the BTU Power Company, part of a Middle Eastern group.40 The
¬rm has independent power plants in China, South Korea, and Taiwan.41
Singapore Power owns a transmission and distribution network in Victoria,
Australia and a power plant in Taiwan.42 YTL, a Malaysian ¬rm, owns and
operates the transmission grid in South Australia and owns an independent
power plant in Indonesia.43 Japan™s Tomen Corp. and Sumitomo own
generating stations in Hungary and the United States (Oregon), respec-
tively. Sumitomo also owns generating plants in Turkey and, in a consor-
tium with Tokyo Electric Power and EDF, in Vietnam.44 Tokyo Electric
Power and Marubeni in late 2006 purchased the power assets in the
Philippines of Mirant, a U.S. company.45 South Korea™s Korea Electric
Chapter 7: Coming Full Circle, 1978“2007 269

Power Corp. owns generating assets in China, North Korea, and the
Philippines. The activities of the Asian multinationals have been extensive.46
The number, magnitude, and complexity of these new investments across
borders attest to the resurgence of the multinational ¬rm in global electri-
¬cation. If we could add a column for 2006 to Chapter 1™s Table 1.4, there
would be nontrivial entries for most of the nations listed in the table. We
have not attempted to catalog every foreign direct investment of the past
decade, partly because there are so many, but also because the landscape
continues to change. While the resurgence is manifest, there are many lin-
gering uncertainties about where the process is heading, and there have
been retreats.
The privatization/restructuring/deregulation movement may have
peaked very early in the new millennium.47 The dramatic electricity crisis in
California in the fall of 2000 “ during which markets were manipulated by
¬rms such as the now-infamous Enron, wholesale prices increased for a
time by up to 500 percent, and several venerable electric utilities became
insolvent or declared bankruptcy “ shocked the world and ˜˜halted the
momentum of electricity reform in many locales.™™48 There is evidence that
privatization efforts in Latin America and Europe have been losing support
among the public. While the stabilization and liberalization policies of the
1980s, which curbed hyperin¬‚ation and attracted foreign capital, received
strong support from public opinion in Latin America, ˜˜the decision to sell
public ¬rms, to deregulate utilities and to allow the entry of foreign capital
proved divisive very soon. By the late 1990s almost half of the public
thought of privatizations as not bene¬cial. By 2003 the proportion of
respondents unsatis¬ed with them had roughly doubled to 75 percent.™™49
Even in a mature nation like Britain, a recent poll indicated a growing
skepticism about foreign ownership in general: 68 percent of respondents in
one survey thought it was ˜˜too easy™™ for foreign companies to take over
British businesses.50 Attitudes such as these signal potential dif¬culties for
foreign utility investors in Britain, Latin America, and elsewhere.

This book describes in detail the history of multinational enterprise and
international ¬nance in global electri¬cation. In times past, foreign direct
investment played a major role in the process of global electri¬cation,
supplying modernizing infrastructure more widely, sooner, and more ef¬-
ciently than would otherwise have been the case. The enterprises that
pioneered in foreign direct investment in this sector were the electrical
manufacturers and banks, but eventually complex holding companies and
clusters of ¬rms specializing in the ¬nancing, construction, and operation of
electric utilities emerged and came to dominate international investment in
electric utilities. These ¬rms frequently had international cross-equity
Global Electri¬cation

ownership networks, had directors and of¬cers in common, shared infor-
mation, and often were con¬gured and recon¬gured to enhance the ability
to raise capital. As time passed, electricity grew to become such a vital
service and key driver in economic development that its effective provision
came to be viewed as a necessity, and governments at all levels vigorously
intervened in the industry, through price and other regulations or through
direct ownership. Foreign capital often was welcomed at ¬rst; but as the
industry matured, dissatisfaction tended to grow and focus on long-distant
owners. As technology became increasingly standardized and local techni-
cal and managerial skills improved, governments gained con¬dence that the
utility could be run without the foreign owners. As we have seen, these
forces, among others, led to the almost complete disappearance of foreign
ownership of electric utilities by the mid-1970s.
Is the scenario evident in round one of globalization “ engagement and
then withdrawal “ likely to be repeated? We cannot say for sure. There have
been major structural and technological changes in the industry. It may be
that there is no longer an economic necessity for the (always politically
vulnerable) natural monopoly, which may mean that foreign investors in
this sector will ¬nd themselves to be less under attack. On the other hand,
basic reactions to foreign investments over the years have ¬‚uctuated. There
is no reason to assume that the friendliness to foreign investments in public
utilities will continue. In fact, it is quite possible that this industry once
again could become a scapegoat, thus putting the foreign owner particu-
larly at risk.
What lessons, then, can we learn in the midst of a second round of global
electri¬cation? Fundamentally, there has been both continuity and change:

1. For most of the world, what used to be new, unusual, and exciting “
access to electricity “ now is a necessity. When the power goes off and
daily patterns are disrupted, it gets noticed. In the contemporary
world, there is a real and profound dependence on electricity, which
affects people™s attitudes toward the industry.
2. The electric utility industry has been and remains extraordinarily
capital intensive, particularly in the transmission and distribution
functions. Though a single generating plant can now be relatively
small, many still comprise very large projects. The sheer amount of
capital required by this industry has had implications for its history
and will continue to in the future. Projected growth rates for
developing countries today are similar to growth rates attained by
many developed countries in the past, during the early phases of


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