As the prodigals returned, they inevitably left a gap in the international market. The former president of Coastal Power Company, Robert Hart, moved to plug it. He had left the Texas-based company in 1999 and set up Hart Energy with a simple business plan. ‘We wanted to take advantage of a new kind of emerging markets power company, which would aggregate shares in various companies into a single vehicle which would go forth and prosper.’ Backing was found in the form of UK-based private equity investor CDC, which specialised in emerging markets and had stakes in many power concerns. In August 2001, Globeleq – an acronym for ‘Global electrical equity’ – was born.

As it turns out, the timing could hardly have been worse. On 11 September, the terrorist attacks on New York and Washington poleaxed the American economy. On 24 November, energy giant Enron filed for bankruptcy. A month later, Argentina defaulted on its sovereign loan and brought the whole notion of liberal economic reform into question. Investors for a new energy company targeting the emerging markets power sector were going to be thin on the ground. CDC and Globeleq have had to rethink their strategy.

The subsequent relaunch was a forceful affair. CDC, turning a challenge into an opportunity, drew up a new strategy which would see Globeleq not only taking majority positions in foreign power generation assets, but running them as well. Rather than be a passive equity investor in the market, it would be an operating power company with its own engineers, asset managers and plant builders. The fraught atmosphere in the US power sector also meant that there was a pool of trained staff to draw on. ‘In 1992-93, Coastal had a difficult time drawing talent from the international power business because it didn’t really exist,’ says Hart. ‘We were trying to do exactly the same thing as we later did with Globeleq, but the environment wasn’t right.’

Due to its company structure (see box), Globeleq is ultimately answerable to the UK’s Department for International Development (DFID), but the company retains a high degree of autonomy, says Hart: ‘We see them in the field from time to time. DFID is acutely aware of the challenge of achieving development objectives through a commercially viable vehicle. But it does have an influence on our activity. If we were solely commercial, we probably wouldn’t have invested in the distribution company in Uganda [which employs 1,200 of Globeleq’s 2,000 employees]. It is a tough challenge and we probably wouldn’t have done it had we had the choice.’

The decision to target emerging markets, so unpopular in 2002, has also proved commercially viable. ‘Our rate of return (RoR) is at least as good as merchant power companies in the US – steady state RoR for a utility is about 12-13 per cent after all overheads and taxes. Power companies today in the US would love to get back to a steady 12 per cent – Enron was looking at 30-40 per cent, but now such companies are struggling to reach 7-9 per cent in the US and Western Europe.’

Emerging markets

Not only are power and utility sectors growing faster in the developing world – at about 4-8 per cent on average, compared with 1-2 per cent for the OECD – but most emerging markets have embraced the principle of private power since t