By Blake Schmidt and Katherine Stanley
Tico Times Staff

The naming of a new executive president for the Costa Rican Electricity Institute (ICE) this week drew fire from labor unions and rekindled controversy surrounding the administration’s highly anticipated proposal to break up the state-run monopoly and open up parts of the telecommunications market to competition.

The proposals are part of a massive restructuring of Costa Rica’s service markets required under the Central American Free-Trade Agreement with the United States (CAFTA), under consideration in the Legislative Assembly, and are already being compared to legislation that set off weeks of violent protests that brought the nation to a state of near paralysis six years ago (TT, March 24, 2000).

The two proposals – one of which would strengthen and modernize ICE and the other which would gradually lift the state monopoly on telecommunications – are now being reviewed by members of the ICE Board of Directors, who will then provide the Executive Branch with recommendations before the bills are sent to the Legislative Assembly for debate. Some legislators are criticizing the administration of President Oscar Arias for taking so long to send the bills, though Environment and Energy Minister Roberto Dobles, who oversees ICE, told The Tico Times the drafting and revision process has been completed “in record time.”

In 2000, the Legislative Assembly’s approval in first debate of ICE modernization plans known as the “Combo ICE” brought thousands of Costa Ricans to the street for 19 days in protests that resulted in violence and blockades that eventually forced the government to withdraw the bill. This week’s developments, which came as CAFTA opponents planned protests to coincide with today’s Independence Day celebrations, prompted union leaders to accuse the administration of seeking to privatize ICE, and have jolted one of the country’s largest government-run agencies.

In With the New

On Monday, Jorge Gutiérrez announced he was resigning from his post as head of ICE. His resignation letter to Arias, which was distributed to the press Tuesday along with copies of a note from Gutiérrez’s doctor, cited health reasons as the cause of his decision.

The ICE leader, who, like Arias, took office in May, and whose last day of work is today, denied that his resignation has anything to do with differences of opinion with the administration over telecommunications reform and modernization plans for the institute.

“I made the decision Sunday with my family, after I had a hypertension crisis,” said Gutiérrez, 60, who said his high-stress 18-hour days as ICE president, along with his struggle with diabetes, were taking a toll on his health.

President Arias expressed his sadness about Gutiérrez’s departure and announced his choice of Pablo Quirós, 68, as the new president of ICE at a press conference Tuesday at Casa Presidencial.

“He believes in what we said during the campaign: ICE has to be modernized,” Arias said of Quirós, reiterating his stance that the institute has no reason to fear competition. He added that “it’d be difficult, I think, for anyone to know as much about telecommunications” as Quirós.

The President’s Cabinet must still approve Quirós’ nomination before he takes office – they were expected to do so at last night’s special Cabinet meeting in Cartago, east of San José – but he has already faced clashes with union leaders who criticized the nominee for his “attitude of privatization” and promised to fight his appointment, not ruling out the possibility of strikes.

“We don’t trust you,” ICE union leader Fabio Chaves told Quirós at a press conference Wednesday that became heated when Chávez took the microphone. Chaves – who, as the head of the Association of Costa Rican Electricity and Telecom Institute Employees (ASDEICE), represents the institute’s 12,000 permanent employees – said Quirós’ background, which includes work with multinational companies and the World Bank, shows he supports a policy of privatization.

Quirós also founded ICE’s National Operation System for Telecommunications in the 1960s, according to a copy of his resume provided by Casa Presidencial.

“Pablo Quirós is privatization incarnate… he’s an economic mercenary,” the union leader told The Tico Times.

A Battle of Semantics?

Fueling the debate over privatization is a difference of opinion about the meaning of the word itself. Both Arias and union leaders say they are against privatizing ICE, but administration leaders appear to define privatization as selling ICE, while unions define it as privatizing the industry by allowing other companies to compete.

In a recent interview, Rodrigo Arias, the President’s brother and spokesman, told The Tico Times “we don’t want to privatize ICE… We want ICE to be strengthened so it can play in a competitive market.”

Arias, the Presidency Minister, said there is a difference between what Costa Rica is doing and the “privatization” policies other Latin American countries have carried out, in which they sold publicly owned public service agencies to private companies.

The two-part project would open up the most lucrative parts of the telecommunications market to private competition – ICE’s monopoly on cellular phones, Internet and business telecommunications services would be lifted, as CAFTA demands, though the institute would retain control of the less profitable land-line market – while at the same time streamlining and “strengthening” ICE to prepare it for competition.

Earlier versions of the bills were considered during the administration of President Abel Pacheco (2002-2006), but without success; Arias announced his administration would revise the legislation after he took office. The new versions of the Law to Strengthen and Modernize ICE and the General Telecommunications Law have been in the works for four months, according to ICE General Manager Teófilo de la Torre, and have passed through the hands of as many as 100 administrators, executives, lawyers, engineers and politicians.

De la Torre told The Tico Times the General Telecommunications Law would restructure ICE, the Public Services Regulatory Authority (ARESEP) and the Ministry of Environment and Energy (MINAE), while giving private companies equal opportunities to offer Internet and telephone services to consumers. Dobles said MINAE would become the Ministry of Environment, Energy and Telecommunications. This change wouldn’t sideline the government’s environmental protections, he said, because the law establishes “new funds” for the ministry’s expanded responsibilities.

Now, ICE has a grip on Costa Rica ’s $1.5 billion telecommunications market, providing cellular services to 1.5 million Costa Ricans, land phone lines to 900,000 and Internet services to 45,000, in addition to the services provided by Radiográfica Costarricense S.A., the state-owned Internet provider and an ICE subsidiary. RACSA provides 105,000 individual and 7,000 corporate accounts in addition to other services, according to spokesman Mario Zaragoza.

The latest draft of the proposal puts ARESEP in charge of television and radio frequency concessions – now handed out by the National Radio Control Office – as well as cellular frequency concessions, which don’t exist under today’s system. ICE, along with private companies, would have to go through ARESEP for these concessions.

ARESEP would also charge consumers a 6% tax on services that ICE would use to set up phone and Internet services in Costa Rica ’s most rural, marginalized communities.

The other bill would strengthen ICE, streamlining bureaucratic processes that the state monopoly must go through to contract labor and equipment and obtain credit, according to de la Torre, who helped revise the proposals. ICE would have to create a marketing department and learn how to commercialize its products, he added.

The Politics of Reform

Dobles said he expects the bills to reach the assembly within a week or two, and that the process has taken months because it involved the participation of so many people. However, legislators from the opposition Citizen Action Party (PAC), Libertarian Movement and Social Christian Unity Party (PUSC) say this isn’t fast enough.

Leda Zamora of Citizen Action told the daily La Nación the government might have a “fantasy that this bill will move quickly,” but that its discussion and approval will take time.

Chaves said at Wednesday’s press conference that strikes to protest Quirós’ appointment are possible, though he told The Tico Times in a later phone interview that any protests will likely focus on CAFTA. Union-led anti-CAFTA protests are planned for today (see separate story).

PAC legislators hearkened back to the 2000 “Combo ICE” conflict in a statement released Wednesday, calling the new bills the “Mega Combo II.” Anti-CAFTA activists often refer to the Combo protests as an example of what public opposition can accomplish.

The public opposition to the ICE Combo, controversial in part because it would have allowed companies to develop hydroelectric and geothermal projects in national parks, caused former President Miguel Angel Rodríguez (1998-2002) to suspend the controversial bill, later taken out of consideration completely when the Constitutional Chamber of the Supreme Court (Sala IV) ruled that the assembly had violated its own procedures in its handling of the project.

CAFTA, however, revived the issue because it requires Costa Rica to lift state monopolies on telecommunications and insurance.

Rodrigo Arias said the government is anticipating protests as the telecom reform and CAFTA bills are discussed in the assembly.

“It’s the government’s responsibility to respect the assembly’s decision, to see to it that there is order and no violence in the streets,” he said. “But we can’t let threats from unions make us decide not to move forward with (the CAFTA agenda).”

By Blake Schmidt, Tico Times Staff

Business leaders who have been waiting for months to hear more about the Arias administration’s fiscal reform plan have finally received a plate full.

Finance Minister Guillermo Zúñiga spoke to members of the Costa Rican-American Chamber of Commerce (AMCHAM) last week at the Costa Rica Marriott Hotel in Belén, northwest of San José, to inform business leaders on parts of the nine-part fiscal reform plan as it begins to trickle in to Congress for debate.

“The clock is ticking … We hoped to see the plan come through already, but a lot of things are going through (the assembly) at the same time,” said Lynda Solar, general manager of AMCHAM. AMCHAM is a group of some 400 national and multinational affiliated businesses that promotes development and investment in Costa Rica ’s productive sector.

For months, the business community has been critical of the new administration’s tight lips as it put together the first pieces of its fiscal reform plan.

As the plan begins to come to light – with three parts of the project already sent to the assembly and the Finance Ministry and the Executive Branch hustling to streamline the income tax project – business leaders are decrying parts of the plan that would tax companies’ offshore holdings and all financial transactions, and are calling for fiscal reform that would bring transparency to taxation and formalize the economy.

The administration is trying to revive a tax plan that failed in the last administration after the Sala IV ruled the way the assembly approved the legislation was unconstitutional (TT, March 24). It is now trying to push through fiscal reform as the Legislative Assembly is already debating the polemic Central American Free-Trade Agreement with the United States (CAFTA) and its accompanying legislation.

Explaining the Tax Plan: Finance Minister Guillermo Zúñiga. Mónica Quesada | Tico Times

Zúñiga told members of AMCHAM that the fiscal reform plan could generate as much as $675 million for a budget-starved government trying to fund massive education, infrastructure and security projects.

So far, a 13% value-added tax, an annual $200 tax on licensed businesses and a tax on luxury homes that would be used to eradicate shantytowns are the projects that have been sent to the legislature. Zúñiga admitted that parts of the tax plan face “strong opposition” in the assembly and in the financial community. He said the three projects that have been presented have the least opposition of all the projects. Also, the administration has taken back an income tax proposal it sent to the assembly to restructure and “simplify” it, according to Zúñiga.

Facing a room full of Costa Rican business leaders Sept. 7, Zúñiga admitted that the income tax and a tax on financial transactions, which has not yet been sent to the assembly, are the “most polemic” of the tax plans.

The financial community “would like to look for alternatives to a tax on financial transactions,” he said, “and we’ve been conversing with them to do that.”

AMCHAM president Hernán Pacheco called a tax on financial transactions a “step back.”

“I like that project the least … that idea has been tried in other countries and resulted in a poor outcome in terms of collection,” he said.

Furthermore, Pacheco said, a tax on financial transactions would encourage informal transactions in an economy that is already largely informal.

He added that part of the income tax, which would globalize taxation to include taxes on companies’ offshore holdings, would be difficult for tax authorities to enforce.

“Not even the most Draconian of tax collectors has been able to control that,” he said.

Solar said AMCHAM supports a tax plan that would bring simplicity and transparency to Costa Rica ’s tax system.

“Here in Costa Rica, taxes aren’t used for what they were created for, for example, the gas tax isn’t used for roads,” she said.

Zúñiga said he has been advocating transparency in fiscal reform. He said part the tax plan would attempt to “close the holes” in the country’s tax laws by giving incentives to those who pay taxes and implementing a census that would attempt to expand the scope of tax collection. He said he supports a proposal that would eliminate taxes without a clear destination.

Zúñiga said the nine-part tax plan also includes a reform of the Code of Norms and Procedures, reform of free zones, and redefinition of the rights and duties of the taxpayer.

The telephone company says it has begun the job of transforming the nation’s 8,000 pay phones into uniform devices that accept money, phone card with an embedded chip and two other types of phone cards. The initial work has begun in Tres Rios, said the Instituto Costarricense de Electricidad.

Phone users have been frequently frustrated by telephones that would not accept phone cards with chips or those that would not accept coins.

The work will mean that some phones will be out of service, the state monopoly said. The company said that vancalism was taking it toll, too.