State owned enterprises as multinational firms: the case of two power transmission firms in Canada and in India

ABSTRACT

How do state owned enterprises behave when they have to perform as multinational firms? Do they respect their original mission or do they act like private multinational firms? The analysis of Hydro-Québec and Power Grid Corporation of India Limited, two companies transmitting electricity over the border and doing consultancy and investment in distant countries, shows the impact of share ownership and the nature of the top executives, as well as the role of the political environment and of the opportunities, taken or missed, in the process. The application of an analytical model reveals the complexity of such an unusual situation.

KEYWORDS:

• State owned enterprises
• multinational enterprises
• transmission of electricity
• Canada
• India
• United States
• international organizations

Introduction

The history of electricity can be divided according to the territorial coverage of the existing technology. From the individual home to towns, to region, to nation and beyond, the evolution of technology allowed electricity to serve wider areas with time. When electricity reached the national level, it has been often nationalized or State-owned enterprises (SOEs) have been set up to build and manage its networks (Beltran et al., 2016; Hausman et al., 2008; Victor and Heller, 2007). Today, however, electricity is crossing boundaries and it should be the lot of multinational enterprises (MNEs). Transmitting electricity is a sensitive issue for a nation, especially from the economic and security points of view. A government is held responsible for its malfunctioning, like a black-out. So, when transmission becomes international, an extra layer of political complexity is added. There might be good reasons to allow electricity coming from abroad, but it may mean loss of control over its generation and transmission, and consequently increased criticism from concerned citizens. The situation is even more debatable when MNEs happen to be SOEs from foreign countries.

SOEs transmitting electricity have a specific mission: making sure that most of the inhabitants have access to power. By becoming MNEs, will SOEs betray their initial mission, neglect their own population? Or will they provide a useful, not to say advantageous, complement? Will State-owned multi-national enterprises (SOMNEs) be submitted to their initial mission or to their government’s political agenda, or will they be exempted from them?

These questions will be dealt with the study of two companies operating in different continents and within dissimilar geographic, political and demographic contexts. The first one is Hydro-Québec (HQ), a provincial SOE in Canada generating, transmitting and distributing power all over the Province of Québec. The second one is Power Grid Corporation of India Limited (Power Grid or PGCIL), transmitting electricity throughout India. Although some of their activities don’t coincide, they share the management of vast high-voltage networks which encouraged them to act as consultant and even to invest abroad.¹ One may wonder why we chose companies from such dissimilar and distant contexts. We wanted to see whether or not the context impacts on SOMNEs sharing similar activities. This approach would tell more about the specificity of SOMNEs than studying companies operating in the same area. After a rapid description of the analytical model, we will present the two companies and analyze their international activities.²

The FESPET analytical grid

The FESPET grid has been conceived as a way to list SOEs’ behaviour as multinationals in five specific domains: Finance, Environment, Society, Political Economy and Technology, the acronym being formed with the first letter of these words (Clifton and Fuentes 2023).

1. Finance is undoubtedly the most crucial of these domains since it clearly differentiates the private company’s objectives (maximizing profits, market expansion) from SOEs’ mission (fulfilling goals set up by the government, in which financial considerations are not priorities). An SOE gives precedence over financial matters to the missions concerning the other domains.

2. Environment issues are generally included in SOEs’ mission and their annual reports allow many pages to them. A private enterprise would surely respect the various regulations throughout the planet. However, this should not be done at the expense of the financial performance.

3. The social dimension has a wider scope such as intervening in remote areas or in unprofitable but necessary activities for social development. Here again, a private company could adopt similar policies, provided they do not impede the course of business.

4. Political economy implies that the SOE will give precedence to the country’s national and international interests. It includes any request from the government, be it favourable or not to the company’s own interests. A private firm is not bound to such demands.

5. Finally, the technological aspect: an SOE may be intended by the state to develop or acquire a new machine or a manufacturing process. A private company will of course follow the same path, but not if it means investments that would harm its financial health.

To sum up, a SOMNE behaves like an SOE when its financial and market considerations are second to the requests of its public mission as well as to those of the government. Its activities can be assimilated to those of a private enterprise when these considerations prevail over its mission.

The two companies

The two Companies to be analysed have different origins and purposes. Hydro-Québec (HQ) is the result of the nationalization of private enterprises which occurred in 1944 and 1962. Its initial mission is to uniformize the Province of Québec’s various networks and more importantly to harness rivers and build powerful hydro-electric stations. Besides generation and transmission of power, HQ has an important R&D branch and a consulting business. Almost 89% of its installed capacity is hydro-electrical, another 9% comes from renewable sources, while only 2% originates from thermic power. HQ generates 37.4 gigawatts and buys 11 GW from other producers, including Churchill Falls (Labrador) Corporation Ltd. Its largest generating stations are located in the northern part of Québec and in the neighbouring province, Newfoundland-Labrador, that is to say hundreds and sometimes thousands of kilometers away from the south, where the overwhelming majority of the population live. Consequently, HQ manages 34,680 km of transmission lines in 2022, making its network the longest in North America, and including some 12,300 km of 765-735-kilovolt (kV) lines and 1,220 km of direct current (DC) 450kV lines. This makes HQ a specialist of long-distance transmission of electricity. (Mousseau, 2008; Nadeau and Barlow, 2019)

Power Grid was incorporated in 1989 under the name of National Power Transmission Corp. Ltd.³ It inherited the management of the transmission networks of other SOEs such as National Thermal Power Corporation (NTPC) (Kapur, 2015), National Hydroelectric Power Corporation, and North Eastern Electric Power Corporation. Afterwards, it took over the transmission lines of other companies, like Tahai Hydro Development Corp. The company also built networks of its own. Above all, it received the mission of coordinating the various networks of the country, both at the local and the interstate levels. Besides network management, the company performs consultancy at home and abroad. In 1998, it launched a telecom branch.⁴ The same year, the company received the mission of setting up a nationally unified grid, which was achieved in 2013, making the slogan “One Nation – One Grid – One Frequency” a reality. Since, it added more lines so that most Indians would have access to electricity. And recently, PGCIL took responsibility of “Green energy corridors” and “Transmission schemes for Ultra Mega Solar Power Parks”. In 2022, the company owns approximately 85% of India’s network, representing 97.3 GW inter-regional capacity and 172,437 km of transmission lines. The Company has one 800kV high-voltage direct current (HVDC) line and almost twenty 400 to 765 kV lines.⁵ Nevertheless, in spite of its technical achievements, PGCIL still has a lot to do to make sure India has an adequate network. India’s per capita electricity consumption in 2019 is only 808 kilowatts per hour (KWh), as opposed to 4,593 for UK and 3,940 for China. And the network is not immune to weaknesses, as shown by recurrent blackouts (The Guardian Weekly, 15 October 2021; The Economist, 7 May; 2022).

We must keep in mind the companies’ respective markets. HQ provides electricity to only 8.5 million inhabitants. Considering the size of its transmission network and its hydraulic capacity, it’s in the best interest of HQ to export its energy to neighbouring provinces and states. PGCIL, on its side, must provide electricity to 1.4 billion people. It would be advantageous to import energy as much as it can.

Already, we can make a preliminary classification of the two companies. HQ must export its energy: it has to behave like a private company. It must win markets abroad and consequently show initiative. It is no coincidence that its successive CEOs come from the private sector. Éric Martel, CEO from 2015 to 2020, was an executive from Bombardier before his nomination, and his successor, Sophie Brochu, came from Énergir, a natural gas distributor (Laurin-Lamothe, 2019). PGCIL must improve and extend the national grid, requiring above all management. Its CEOs are chosen among people having made most of their career within the Company or within another electricity SOE. I.S. Jha, chairman and managing director (CMD) from 2015 to 2018, is with PGCIL since 1991. And K. Sreekant, CMD in 2019 onwards, spent 30 years in NTPC before becoming PGCIL’s director of finance in 2016. PGCIL is typical of a state-owned enterprise.

Yet, the composition of the shareholders tells a different story. While HQ has always been a 100% SOE, PGCIL on its part, stopped being totally owned by the Government of India: in 2007, after a successful public offering of equity share, the Government’s part was reduced to 86.36%. It diminished to 69,42% in 2012 and 57,9% the next year. In 2022, it is 51,34%. The shareholding would then make HQ a genuine SOE and PGCIL close to private business, the reverse of what was previously assumed. However, as far as PGCIL is concerned, the shareholding is illusory: the Indian State owns more than its official 51%. An extra 10% belongs to Life Insurance Corporation of India (better known as LIC), an insurance SOE (Sohay, 2018). And the rest is spread among many foreign investment groups and companies, that is, entities more interested to deal with a portfolio than managing an infrastructure company. Consequently, PGCIL joins HQ as being basically an SOE.

Both HQ and PGCIL follow similar paths abroad: they link their national network to those of the neighbouring countries or provinces, they act as consultants in foreign countries and they invest in networks far from their own.

Connecting the grid to the neighbouring countries

Hydro-Québec gets a portion of its power from Newfoundland-Labrador and has important markets both in the North-Eastern states of the US and in other Canadian provinces such as Ontario and New Brunswick.⁶ PGCIL has similar commercial relations with India’s northern neighbours (Bhutan, Nepal, Bangladesh), and negotiates possible exchanges with Sri Lanka, Myanmar and Pakistan.

Hydro-Québec

The American and the Canadian markets for electricity are under the supervision of the North American Electric Reliability Council (NERC), which divides the continent according to regional coordinating councils like the Northeast Power Coordinating Council (NPCC) (Rodriquez-Sarasty et al., 2021).⁷ These councils examine the networks and make improvement recommendations. Moreover, the wholesale electricity regulation in America is under the Federal Energy Regulatory Commission (FERC). In 1992, the Americans allowed competition in the wholesale market of electricity and in 1996 they opened all networks of existing companies to unreserved access. The following year, HQ’s subsidiary, Hydro-Québec Energy Services (USA) obtained from the FERC a wholesale broker permit, allowing it to buy and sell electricity to wholesalers over the entire American market. Its hydraulic reserve gave HQ the capacity to export 3,080 MW to the USA. HQ restructured itself by transferring its transmission operations to a new division, Transénergie, whose management was autonomous from the other divisions of HQ, and which opened its network to unrestricted access; and Hydro-Québec Energy Service was renamed Transénergie US.⁸

From 2016 to 2021, exporting electricity represented 16.3% of HQ’s consolidated net sales and 24.5% of its net profits. The sales to New England and to New York totalled some 73% of the 2016–2018 exports. Such results invigorated the selling of power in the US. In 2015, Éric Martel promoted electricity sales in North-Eastern USA as a way to compensate the slowing down of consumption in Québec. Moreover, since COP21, HQ gained a strong advantage within the American market with its renewable energy. Consequently, HQ planned to push forward its sales in New England and in the state of New York. In 2020, Sophie Brochu, who replaced Éric Martel as CEO, went ahead with the New England and New York projects her predecessor initiated. She intended to make HQ “the battery of the North-Eastern part of North America.”

Increasing the means for exporting electricity represents a serious challenge. The sales outside Québec are limited by the small amount of high voltage lines connecting the neighbouring states to the HQ network. The firm must build hundreds of kilometers of new lines inside Québec, while the neighbouring states have to prolong these lines with new ones to reach the big cities. This engendered unexpected difficulties.

Hydro-Québec made many attempts to carry its energy south of the border. In 2016, it intended to participate to the Northern Pass Transmission, a 300-km line carrying electricity from Quebec to New Hampshire. However, the opposition by competitors and ecologists was strong (Desjardins, 2016a). Meanwhile, HQ was also planning to sell 1,100 MW to Massachusetts, Connecticut and Rhode Island. But this project didn’t materialize, the three States chose instead to generate 460 megawatts (MW) from wind and sun (Baril, 2016; Théroux, 2016). In 2017, HQ answered two calls for proposals from the state of Massachusetts and New York Power Authority. In 2018, HQ won the 9.45 terawatts per hour (TWh) proposal for Massachusetts. However, the energy could not be transmitted through the Northern Pass Transmission line, since New Hampshire denied the American promoter to build the line. In the northern part of New Hampshire, where forests and lakes have a strong tourism value, the opposition to the Northern Pass Transmission has been persistent (Therrien, 2015; Thibodeau, 2013).

To get around the problem, HQ negotiated with Central Maine Power for the transmission of electricity through a future entity, the New England Clean Energy Connect. The energy was supposed to be transmitted by 2022. It was a 20-year contract providing the equivalent of 17% of Massachusetts’ electricity. In 2019, FERC and the Public Service Commission of Maine authorized the transmission of electricity to Massachusetts. HQ was ready to set up a 100-km line between its Thetford Mines station (in Québec) and the border in order to transmit electricity towards Maine. HQ has also signed agreements with the province of New Brunswick for future energy sale to this province and for the possibility of building a line through its territory reaching New England. The Maine-Massachusetts project received the support of the Bureau d’audiences publiques sur l’environnement (BAPE), which is the environment bureau of Quebec. In Maine, however, local opposition organized a referendum. In 2021, in spite of having been agreed by all the concerned public institutions (the Governor of Maine, the Secretary of Energy in Washington), the referendum results rejected the creation of the New England Clean Energy Connect. It became a court case. Sophie Brochu accused gas companies of financing local citizens in their crusade against electricity coming from Québec. HQ found itself in a critical position since it had already invested some 400 to 500 M$ in the project and the construction of the network on both sides of the border has begun (Messier, 2021). In February 2023, in order to reinforce its presence in New England, HQ bought Great River Hydro LLC which owns 13 hydroelectric plants in Vermont, New Hampshire and Massachusetts (CTV News, 12 October 2022).

HQ also plans to transmit annually 10.4 TWh of electricity for 25 years to New York City. Part of the line in the US will be underground and underwater. In November 2021, the project has made progress with the signature of contracts with Transmission Developers and the New York State Energy Research and Development Authority.

Being an infrastructure company, HQ’s specific activity is highly public, that is, subject to various levels of political interventions, going from relation with political authorities to citizens coalitions (environmentalists, “not-in-my-backyard” militants, etc.). HQ has to obey the regulation of the province or the state its lines have to cross over or to connect. It has to be careful with public opinion. If the opposition is too strong, HQ looks for solutions in the neighbouring states. This reality is perfectly understood and supported by the Government of Québec. If the state intervenes, it does so to reinforce the SOMNE’s strategy abroad. And if HQ fails to progress, because of referendums or state opposition, the Government will nevertheless leave the initiative to HQ and its legal team to defend the contract signed with the concerned authorities in the US. What matters for HQ is to enlarge its market for profit maximization. So, as long as the Government of Québec gives its support, HQ behaves like a private-oriented SOMNE in its North American expansion.

Power Grid

Power Grid evolves in a very different environment from Hydro-Québec’s. India’s international relations with some of its neighbours are tense, to say the least. Consequently, its venture outside the country will be eminently political and the Government of India will intervene more strongly than the Québec’s Government in the company’s activities across the border. Already during the 1990s, the Indian company has written that it was “in line with the policy of the Government of India to strengthen friendly relations with neighbouring countries.” PGCIL has been a constant actor in energy exchange with the SAARC countries.⁹ Many of these countries have abundant hydraulic resources. Moreover, trading electricity with Pakistan and Bangladesh would reinforce regional integration. In its annual reports, PGCIL expressed regularly its wish for a South Asian grid. We can read such statements in the 2008, 2013 as well as 2021 reports. However, difficult relations with Pakistan, from the Kargil War in 1999 to terrorist attacks in Mumbai in 2008 and in Uri in 2016 seriously handicapped SAARC.

Nevertheless, in November 2014, an Agreement for Energy Cooperation was signed among the SAARC members. The Indian Government, first in September 2016 and again in December 2018, made public two versions of a memorandum entitled Guidelines on Cross Border Trade of electricity in order to define the legal and political procedures about importing and exporting electricity. The first version mentioned explicitly the SAARC agreement. The second one didn’t. But both documents ensured that any cross-border trade of energy must be examined and approved by a Designate Authority under the direct responsibility of the Government of India. The Guidelines made also sure that companies and joint-ventures could proceed with the setting up and the exploitation of the lines crossing borders.¹⁰ The Government of India was (and still is) developing high expectations about importing electricity from Northern Countries. According to the National Electricity Plan of January 2019, 4,482 MW were imported. The same report expected that in 2026–2027, imported electricity would reach 24,482 MW, coming mainly from Nepal and Bhutan.¹¹ PGCIL would be directly concerned by such a development. In December 2022, representatives of the Ministry of Power and of the Ministry of External Affairs made an explicit approval of PGCIL’s undertakings throughout South Asia (IST Livemint, 16 December 2022).

PGCIL had already shown interest in the hydraulic potential in Bhutan by the mid-1990s. One particular project became reality, the Chukha hydro-electric plant. PGCIL set up a high voltage transmission line to buy the energy from this plant. At the end of the decade, India negotiated with Bhutan the purchase of 1,000 MW generated by Tala Hydro-Electric Power (HEP). In association with Tata Power, and with the support of International Finance Corporation (IFC), Asian Development Bank (ADB) and Indian banks, Power Grid launched a joint venture to build a 1,200 km HV network connecting the generating station to India. After 2000, other lines were set up linking Bhutan to parts of India. For instance, a 132 kV line joining Kurichhu HEP (Bhutan) to Salakati (Assam); and more recently Punatsangchhu I and II HEP to Alipurduar (India), a 400 kV line completed in 2019 by Bhutan Power Corporation with the consultancy of PGCIL. The building of the generating station is still under progress. These projects are first submitted to an agreement between the Government of India and the Royal Government of Bhutan. The Bhutan Power Corporation is responsible for building the transmission network and may ask PGCIL to act as a consultant. On its part, Power Grid will build the line linking the Indian network to the Bhutanese.¹²

Power Grid developed connections with Nepal and Bangladesh during the 1990s as well. The 1996 Mahakali Treaty (article 2b) between India and Nepal, authorized India to develop hydro-electric power stations on the Mahakali river, which separates India from Nepal. As a compensation, India agreed to provide 70 million KWh of energy per year to Nepal. PGCIL was supposed to build a 132kV transmission line from its Tanakpur power station up to Mahendra Nagar, on the border with Nepal. Unfortunately, a civil war paralyzed Nepal from 1996 to 2006, and any serious project had to be postponed. After these events, India and Nepal resumed their exchanges. Nepal has a rich hydraulic potential to harness; but at that time, it needed to import energy for its growth. India would provide it until Nepal is able to export electricity. As in Bhutan, PGCIL acted as a consultant and let the initial negotiation in the hands of the respective Governments. In 2005, it won consultancy assignment for the 220 kV transmission line from Khimti to Dhalkebar for Nepal Electricity Authority. The project, funded by the World Bank, went in operation in 2017.¹³ However, the first sizeable project was initiated in 2009 through a Memorandum of Understanding between India and Nepal. It involved the setting up of a 400 kV line between Dhalkebar and Muzaffarpur (India). In 2012, along with three others organizations, including Nepal Electricity Authority, PGCIL launched two joint ventures, Cross border power transmission Co Ltd, responsible for the Indian part of the line, and Power Transmission Company Nepal Ltd, for operating the Nepalese section. The line has been operating since February 2016. While this line was under construction, India and Nepal signed, in 2014, a Power Trade Agreement authorizing cross border exchange of electricity and future collaboration for the exploitation of Nepal’s hydraulic capacity (Pradhan, 2014). This means new opportunities for PGCIL, who inaugurated in Nepal a permanent consultancy office in 2019. The following years, PGCIL has been involved in new projects such as two 400 kV lines from Gorakhpur (India) to Butwal (Nepal) and Dhalkebar (Nepal) to Sitamarhi (India).

Bangladesh has a geographical interest for PGCIL: being located between India and its Eastern states, it would be advantageous for Indian transmission lines to cross over Bangladesh to reach them. Already in 1996–7, negotiations were undertaken for supplying power, with a 220 kV line, from Eastern India to Western Bangladesh, and receiving power from Eastern Bangladesh to North-Eastern India. However, political instability in this country in the following years slowed down the economic relations. It is not before 2009 that an interconnection project united the two countries and PGCIL acted as consultant to Power Grid Company of Bangladesh. In 2013, a 400 kV line linked Bheramara (Bangladesh) and Baharampur (India). A second line between these two cities has been commissioned in 2020. Another 400 kV line between Surajyamaninagar (India) and Comilla (Bangladesh) has been set up after 2015. And a 765 kV line uniting Katihar (India), Parbotipur (Bangladesh) and Bornagar (India) has been planned, connecting the states of Bihar and Assam through Bangladesh. It has received the approval of the two Governments in 2021.

In Myanmar, PGCIL, at the request of the Government of India, built up a 230 kV line for the Thahtay Chaung Hydro Power, managed by Myanmar Electric Power Enterprise in 2013–14. More recently, India opened negotiation for establishing interconnection. Negotiations are also under way with Sri Lanka for under-sea interconnection, for which PGCIL has done studies. And with Pakistan, India negotiated many times. There was a possibility of a line between Lahore (Pakistan) and Amritsar (India). But the political situation postponed the exchange indefinitely.

In 2021, the cross-border transfer capacity of India with its neighbours is equal to 4,230 MW; an extra 4,190 MW is under construction and 750 MW is planned. Power Grid’s mission consists above all of connecting the maximum of Indians to electricity. In a way, its interventions in the neighbouring countries are meant to increase the amount of energy to be consumed in India. However, in order to achieve this mission, PGCIL must help these countries produce and transmit electricity. For many of them, political instability delayed the infrastructural development. And the Indo-Pakistani relations are too conflictual to allow cross border exchange. With the other SAARC countries, any agreement must initially be signed by the Governments. Consequently, any venture of PGCIL in the neighbouring countries are first and foremost political. The company must receive the authorization of the Government before creating links beyond the borders. So, according to the FESPET grid, PGCIL’s approach is definitely to be ranked among those of state-owned enterprises.

Hydro-Québec and Power Grid are strongly defined by their activities with the immediate neighbours. Can we postulate the same thing about their interventions in countries Canada and India don’t share borders with?

Becoming global

Throughout their evolution, HQ and PGCIL acted as consultants in countries they couldn’t reach with their network. They even invested in these countries.

Hydro-québec international

HQ did consulting abroad. This experience incited the company to create a multinational firm in 1978, Hydro-Québec International (HQI), in order to export its technical experience. Up to the 1990s, HQI was mainly an engineering consultant. By 1996–97, it participated in projects involving some 75 countries, especially in Africa. Then, HQI changed its strategy. With the technical help of another subsidiary of HQ, Société de développement de la Baie James, HQI began investing abroad either directly or through joint ventures. The idea was to support projects that needed improvement or development and sell at a profit when the project reached maturity. From 1996 to 2006, HQI got involved in electricity generation and transmission in more than 15 countries in Latin America, Asia and Africa (Lanthier, 2007; Nadeau and Barlow, 2019). The most important investments were in Meiya Power Co Ltd (China), Consorcio Transmantaro S.A. (Peru), Murraylink HQI Australia Pty Ltd, and especially HQI Transelec Chile S.A. In July 2004, HQI sold its 20% interest in Meiya for US$ 84.6 million to Darby Asia Investors Ltd. The sale granted HQI a profit of US$ 12.9 million.¹⁴ The most serious project remains the acquisition, from Endesa, of Transelec in Chile in 2000. This company exploited the longest transmission network in this country. In 2003, Transelec bought the northern electricity network of Chile, with the help of IFC. The total investment was worth CAN$ 1.6 billion and the company’s network reached 98% of Chileans through 8,234 km of lines. However, in 2006, the Government of Quebec asked HQI to sell most of its investments abroad. The selling of HQI’s foreign assets generated a profit of CAN$ 917 million, of which 813 came from Transelec Chile. Of this amount, the Government allocated CAN$ 500 million to a newly created Generations Fund, set up in July 2006 (Lanthier, 2007; International Finance Corporation, 2023; Transelec 2007 annual report; Alvarez et al., 2011; Nadeau, 2016). Commentators, years after, deplored the sale, considering HQI had acquired a solid international reputation it would never be able to get back.¹⁵

After 2006, the international ventures of HQI have been put on ice for ten years or so. It is only with the nomination of Éric Martel in 2015 as CEO of HQ that HQI was given a second chance. It was deemed, then, that electricity consumption in Québec was bound to diminish during the next decade and that it would be important to increase HQ’s activities abroad to compensate. Consequently, with the full support of the Government, he asked HQI to look for profitable projects around the world. To that extent, HQI searched for good opportunities abroad, giving priority to countries in Latin America and in Europe. Elsewhere, the competition was too strong, the Chinese one in particular (Desjardins, 2016b; Nadeau, 2016; Arsenault, 2016; Théroux, 2016).

International competition was indeed strong, especially from portfolio and insurance companies as well as from emerging countries’ SOMNEs. The French Réseau de transport d’électricité was selling a significant part of its transmission network. HQI was a serious contender; however, the French Government preferred selling the assets to CNP Assurances (a joint venture of Banque Postale and of Caisse des Dépôts et Consignations, two French SOEs) (Nadeau and Barlow, 2019). Mexico, in 2017, needed to upgrade 60 hydroelectric power plants so that its installed capacity would double from 13,000 to 26,000 MW. Although the Mexican President Lopez Obrador was enthusiastic about the collaboration with HQ, the latter, who still had to compete with the Chinese, the Spanish and the Russians, acted very carefully before giving its agreement, a bit too carefully according to critics (Nadeau and Barlow, 2019; Benessaieh, 2019; Bentein, 2023).

In February 2020, HQ made a strategic alliance with Innergex énergie renouvelable, a Québec private company operating 37 hydroelectric plants, 26 wind farms and 5 solar parks in Canada, United States, France and Chile. HQ became the biggest shareholder with 19.9%, worth CAN$ 661 million. The partnership would privilege solar and wind energy. Thanks to this association, HQ acquired a 50% participation in Innergex HQI USA LLC, who bought two hydroelectric plants in the state of New York (Saint-Arnaud, 2020).¹⁶

In 2020, HQI’s activities abroad were still minimal. And when she replaced Martel as CEO, Sophie Brochu put an end to those outside North America. It seems that COVID-19 harmed HQ’s international ambitions. But a more serious cause explains the move: Ms. Brochu, in a interview at Radio-Canada on 12 October 2022, mentioned that the international investments from HQ must be done in synergy with HQ’s assets at home (Ici Radio-Canada, 12 October 2022). Efficiency at home, especially with the prospect of the energy transition, prevails over investment far away. The only investment HQI has kept is the one in Innergex.

To sum up, HQI initially behave like a private company. However, it lacked support from the parent company and at one occasion it had to give up its international activities at the request of the Government. When a new attempt was done to re-activate HQI, the competition was too powerful. Moreover, the international strategy of HQ focussed on energy export. Consequently, on its own initiative, the company decided to pull the plug once again. However autonomous its strategies were, HQI had ultimately lost its capacity to compete efficiently on the international level.

Powergrid

The international business of PGCIL beyond India’s immediate borders began in Afghanistan by 2005. An agreement between Afghanistan and Uzbekistan was signed to deliver electricity from Uzbekistan to Kabul. As part of an assistance policy to the Afghan Government, the Government of India appointed PGCIL to build the last part of the 220 kV transmission line as well as the receiving sub-station in Chimtalah, near Kabul. The portion built by PGCIL represented 202 km crossing the Hindukush mountain range at 3,800 m of altitude and under temperature reaching −30c. The construction have begun in 2006 and ended in 2009. This was considered as an achievement.¹⁷ At the same time, PGCIL made a field survey for a Turkmenistan-Sheberghan line, as well as further studies about Afghanistan importing energy from Uzbekistan, Turkmenistan and Tajikistan.

These projects were accompanied by a growing amount of participations to international competitive biddings. For that matter, PGCIL created, in 2008, an international business division “to strategically exploit promising potential & opportunities abroad.” Moreover, the company associated itself with organizations such as IFC and ADB, along with other energy consultants like KEMA (Netherlands), Korea Electric Power Corporation, and Norwegian Centre of Expertise. In 2020, PGCIL has done consultancy, project management and asset management services in 20 countries in Africa, Asia, Asia-Pacific, Middle East and CIS.

In 2021, PGCIL went further, with the support of the Government of India. The company signed a cooperation agreement with Africa50¹⁸ for the setting up of a PPP joint venture in Kenya. PGCIL will build two transmission lines: a 400 kV line from Lessos to Loosuk, and a 220 kV from Kisumu to Musaga, both totalizing 240 km. It will provide the first independent power transmission network in Kenya. PGCIL hopes this project will the first of a long list in Africa (Mint, 12 January 2022).

PGCIL is developing an international business agenda, as we can see. Moreover, the company went on participating to ventures initiated by the Government of India. In 2016, for instance, under the Indian Technology and Economic Co-operation, headed by the Ministry of External Affairs, PGCIL received the mission of training 60 international participants, mostly from Africa, for future cooperation and business contracts.

More recently, in 2021, Power Grid has been doing, at the request of the Government of India, technical and economic studies related to the project put forward by Prime Minister Narendra Modi, “One Sun, one World, one Grid” (OSOWOG), consisting of interconnecting renewable power networks from South-East Asia, South Asia, Middle East, Africa and Europe. A first step in that direction would be the setting up of transmission interconnection between India and Maldives.¹⁹

PGCIL has begun its international venture as a representative of the Government of India, in other words, as a typical SOE. However, its technical success gave the company enough autonomy to compete in international bidding and even, more recently, to participate in a PPP joint venture in Africa. Did this evolution gave PGCIL a behaviour closer to private enterprise practices? No: as demonstrated by its participation in the OSOWOG project, the company still placed its technical expertise at the service of the Government.

Conclusion

We have presented two SOMNEs evolving in very different contexts. We will now apply the FESPET model to compare their behaviour and see whether they have points in common or not.

The first element of the model is the financial motivation. Does increasing profit constitute the prime mover for going abroad? Hydro-Québec, with the initial support of the Government, clearly had financial considerations in mind when it extended its market south of the border and invested outside North America. Its strategies were definitely similar to those of a private company. Powergrid didn’t share, at least openly, this attitude. Other elements were involved.

Among them, the economic dimension is fundamental. India’s constant need for more electricity is the major incitement for Powergrid to link its network with those of countries which can provide energy. India signed agreements with Nepal and Bhutan for the setting up of shared energy infrastructure, and Powergrid acted as consultant. The company’s intervention in neighbouring countries stands as the continuation of its domestic activities and consequently belongs to its initial mission. By contrast, the growth of domestic consumption of electricity in Québec was limited before 2020 and pushed Hydro-Québec to go abroad in order to increase its business, hence its private-oriented approach.

The political background is also a source of difference. Since Canada and the US have a long history of political and economic collaboration, Hydro-Québec simply has to comply to the continental rules designed by the two countries concerning electricity transmission. The main issue for the company consists of meeting the competition. The political situation matters a lot more for PGCIL. The diplomatic relations of India with its neighbours are crucial. Consequently, the company doesn’t have the opportunity to behave like a private multinational firm.

It would be easy to draw some conclusions from these elements of the FESPET model. However, the other elements of the model show interesting similarities between the two SOMNEs. Both companies share the same respect for the environmental rules of the host countries, but this didn’t stop social opposition over the building up of transmission lines. Local protest interrupted for a while the construction of a line in Nepal for which Powergrid acted as a consultant. In New England, Hydro-Québec had to find a different route for transmitting electricity to Massachusetts. The two companies were persistent in front of adversity.

Finally, Hydro-Québec and Powergrid put forward their technical know-how in order to win contracts or invest in distant countries. The technological dimension is essential for both of them, but for different reasons. Hydro-Québec exploited them for financial purposes. Powergrid used them for profit, to be sure, but also as a promotion of India’s technical capacity and of international projects (such as OSOWOG).

To sum up, Hydro-Québec has a more private-oriented approach as a SOMNE than Powergrid. The FESPET model makes clear that political environment and the size of domestic demand are the main elements explaining the difference. Ultimately, however, the dissimilarities are not cast in stone. Hydro-Québec had to give up its international investments in 2007 at the request of the Québec government. And more recently, the energy transition forced Hydro-Québec to give priority to domestic demand. Consequently, both companies remain submitted to their respective governments and to the requirements of the national energy consumption. These SOMNEs, in spite of the differences mentioned above, must fulfill their mission as SOEs, that is, they must obey to specific economic goals, quite different from those of the private sector. Could we generalize this to all the SOMNEs? Certainly not. The nature of the activity matters. An SOE closely connected to national development cannot make abstraction of its initial mission indefinitely.²⁰

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. This article focuses on the transmission activities of the two companies only. Hydro-Québec’s R&D and Power Grid’s telecoms branch will not be discussed here.

2. Unless mentioned otherwise, the data come from the companies’ annual reports and other documents such as Hydro-Québec five-year strategic plans.

3. In 1991, the company changed its name for Power Grid Corporation of India Ltd. (PGCIL).

4. Its telecommunication network reaches 74,109 km in 2021.

5. India has become the third largest consumer of electricity in the world (IEA, World Energy Outlook, IEA 2022, 283).

6. The purchases and sales of HQ from and to the provinces will not be discussed here. We will look only at the international aspect of HQ’s activities.

7. The Québec’s regulatory organism, the Régie de l’énergie, have regular meetings with the NERC and the NPCC to make sure the networks from both sides of the border function normally and that the various cases of non-conformity be closely monitored (Régie de l’énergie, 2021–22 annual report, p. 31–32).

8. In 2021, however, Transénergie disappeared in a major re-structuration of HQ: the Production, Transmission and Distribution divisions set up twenty years earlier were replaced by a transversal structure. The change didn’t mean the end of selling energy abroad. It meant improving coordination and efficiency in issues such as decarbonation, bidirectional transmission of electricity, market modelling, etc.

9. SAARC (South Asian Association for Regional Cooperation) was created in 1985 to promote economic integration of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Afghanistan joined the Association in 2005.

10. These Guidelines are available at https://powermin.gov.in/en/content/interconnection-neighbouring-countries, consulted on 22 February 2023.

11. Central Electricity Authority, National Electricity Plan, vol. II, in The Gazette of India, part III, section 4, 7 February 2019, p. 240–242.

12. A good description of the procedures can be found in Power Technology, 6 March 2020.

13. The setting up of this line raised such an opposition from indigenous population in Eastern Nepal that it retarded its completion. The opposition was addressed mainly to the Nepal Electricity Authority and the World Bank. For more information see Accountability Counsel (2023).

14. Rapport du Vérificateur général du Québec à l’Assemblée nationale pour l’année 2007–2008, Tome I, Annexe B, “Rapport spécial du Vérificateur général du Québec à l’assemblée nationale concernant la vérification particulière sur la vente du placement d’Hydro-Québec dans Meiya Power Company Limited”, p. 208–228.

15. For instance, Nadeau & Barlow, p. 198. Normand Hamel describes this decision as a « serious historical mistake » in an interview made in 2022, available online at MtlUrb, 12 October (2022).

16. For a complete list of Innergex facilities, see Innergex, 2021 annual report, p.14–16.

17. PGCIL annual reports. See also : Raina, 2007; News Nine, 6 June (2022) .

18. Africa 50 is an investment platform for the growth of Africa’s infrastructure. In 2020 it was animated by 28 African countries, two Central banks and African Development Bank. (Africa50, 2020–21 annual review, p.38). Two years later, the number of countries has been risen to 29.

19. It would be too long to analyze the OSOWOG project in this article. For more information, see: Jain and Dhar, 2022; Mohan, 2021; Jhawar, 2020;Bhave, 2020; Jeevannigi and Harikrishna , 2022.

20. It is interesting to notice that while, by mid-2000, HQ was successful as an international investor, PGCIL remained an SOE, close to its Government. And afterwards, by 2020, while HQ shows restraint in foreign investment, PGCIL became more active abroad. One could wonder whether these two companies are representative of a more general evolution favouring MNEs from emerging countries over those from the OECD.