Costa Rica’s electric bill on the rise

The ARESEP – Costa Rica’s Public Services Regulating Authority – is reviewing increases of up to 75% in electricity rates. According to the Instituto Costarricense de Electricidad (ICE), this increase is required to pay for the electricity generated this year, payment of outstanding debts acquired in 2007 and necessary investments in new power generation projects. One third of the funds requested by ICE correspond to paying for salaries of employees, reports the Contraloría General de la República.

The final decision is to be taken this week so that the increases can go into effect on the 15th of April. Fernando Herrero, head of the ARESEP, explained that ICE’s expenses rose exponentially due to the high price of fuel used to run power plants and the cost of renting privately-owned power plants to make up for the extra demand.

According to a report by La Nación, six years ago only 2% of the electricity generated in Costa Rica came from burning fossil fuels and today this accounts for 6% of the total. Herrero commented that this situation came about because of ICE power projects that were not completed. One such incomplete project was the proposed damming of the Pacuare river which caused great uproar in the community because it would destroy beautiful natural habitats and affect various communities.

Is This For Real?

Herrero claims the increment will not be applied all at once, but it will be staggered over time to allow users and the market to adapt. ARESEP plans to be cautious with the increases in regards to low-income residential customers but plans to pass on the true costs to the industrial sector. Based on common practice, if rates to the industrial sector increase, these costs will undoubtedly be passed on to the consumer so in the end the private citizen’s pockets will bear the direct impact.

The phased approach will require ICE to obtain external loans to meet their immediate needs. The need for more debt will naturally translate into higher costs to consumers as the interest on the loans will also be passed on to the end user in the long-term.

About ICE

The Instituto Costarricense de Electricidad was created by the Costa Rican government in 1949. ICE was established to develop, execute, produce and sell all types of public services related to electricity, telecommunications and related services. As with most state-run agencies there are pros and cons. On one hand, ICE’s paternalistic policies and vision made its services available to all areas in Costa Rica, no matter how remote or how poor these regions are. Prices were also kept low so that the services were affordable to all citizens. On the other hand, the public institute was not as efficient or competitive as a private corporation would have been.

Opening the country’s telecommunications industry to external, private competition has met strong opposition in the past. In 2000, there were fierce nationwide strikes and protests when privatization of ICE was suggested. Today, the state-run telecommunications market in Costa Rica is again being threatened by CAFTA (TLC). The CAFTA agreement was very careful not to directly or openly attack ICE’s market monopoly although there are provisions that will slowly start to open certain sectors to foreign or private competition. Some of these sectors traditionally controlled by ICE, include mobile communications and internet connectivity. Many protectionists see this as an underhanded way to dismantle one of Costa Rica’s last powerful state-run enterprises. Others, on the other hand, see this as a natural evolution of Costa Rica’s economy and an integral part of belonging to the global economy.

Whether one is for or against greater competition, one thing we can be sure of is that the transition from the traditional protectionist policies to a new market-driven economy will cause great instability in all sectors of Costa Rica’s society. Let us hope the transition is well planned and implemented.

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Filed under: Business on March 31st, 2008