When is a private company not a private company? Answer: when it's wholly owned by the UK government and forms part of our overseas aid programme. No one may have heard of the power company Globeleq, but it's doing its best to keep alive the dream of electricity privatisation in a world that is increasingly turning away from the private sector.
Globeleq was set up in 2002 by the Department for International Development (DFID) as part of the government's strategy of 'promoting the private sector in the developing world'. The company remains wholly owned by DFID through its private sector promotion arm CDC, formerly known as the Commonwealth Development Corporation.
Globeleq now has operations in the energy sectors of 16 countries in Africa, Asia and Latin America, and is actively pursuing further acquisitions in its bid to be 'the fastest growing power company in the emerging markets'.
Globeleq has indeed grown fast. The company's rapid expansion has been made possible because other multinational power companies have been keen to exit developing country markets as a result of the problems associated with energy privatisation.
However, this means that vast amounts of aid money supposedly earmarked for development purposes have been given instead to US power companies wishing to pull out of the developing world. Two such companies - AES and El Paso - have benefited to the tune of over US$1 billion between them in this way.
In this way Globeleq is keeping alive a private sector presence in situations where other companies have abandoned the market. This is in line with DFID's broader aim to sustain the private sector in cases of market failure, but it raises serious questions in light of DFID's overall mandate of poverty reduction. The involvement of multinational power companies in the energy sectors of developing countries has been deeply problematic, as the poor have often found themselves excluded from access to privatised electricity. Far from solving the problems of poverty, electricity privatisation has often exacerbated them.
There are currently 1.6 billion people around the world without access to electricity, roughly a quarter of the world's population. Two thirds of these are in Asia, with most of the rest in sub-Saharan Africa. The International Energy Agency estimates that it will be necessary to roll out electricity services to a further 600 million people by 2015 if the world is to meet the top line UN millennium development goal of halving the proportion of people living on less than a dollar a day.
Yet privatisation of the electricity sector has not been successful in expanding coverage to poor communities. In fact, privatisation has led to sharp increases in the tariffs charged to consumers, and these increases have often raised prices beyond the reach of the poor. The arrival of multinational companies such as AES, Enron and EDF in developing countries during the 1990s saw dramatic price increases in electricity. When the Indian state of Maharashtra opened its power sector to Enron, for example, the state electricity board soon found itself forced to raise tariffs to farmers by a crippling 400 per cent to meet the added costs.
Electricity privatisation has proved hugely unpopular in many of the countries in which Globeleq operates. In Arequipa, southern Peru, mass protests erupted when the government attempted to privatise two electricity companies in 2002, with two people killed and 150 injured. Months of demonstrations against electricity privatisation in the Indian state of Andhra Pradesh left three people dead and thousands arrested.
Yet DFID continues to promote the privatisation of public services through Globeleq and other such initiatives. This not only conflicts with DFID's own poverty reduction mandate, but it also undermines the ongoing work to build alternative models of energy provision, such as public sector and community- based services that are affordable and accessible to all.
The government has acknowledged the problems caused when developing countries are required to hand over public services to multinational companies.
Why, then, does it own a private power company that aims to take over energy services in the developing world?John Hilary is director of campaigns at War on Want. A full report on Globeleq is available at www.waronwant.org/globeleq
John Hilary is executive director of War on Want.