The Costa Rican Electricity Institute (ICE): An exceptional public enterprise in an atypical social democracy

11 July 2013

Despite immense pressure by corporations that have sought to undermine it, Costa Rica's public energy and telecommunications company stands out as a model in terms of its coverage, efficiency, social inclusion and environmental sustainability.

Costa Rica is an outstanding example of a country with efficient and egalitarian public service delivery. It has extended electricity services—as well as water, health and education—to all social sectors and every region of the country, with remarkable indicators for equity, quality, affordability, public ethos and environmental sustainability. Since its foundation in 1949, the Instituto Costarricense de Electricidad (ICE, Costa Rican Electricity Institute), a public enterprise active in the fields of energy and telecommunications, has evolved as one of the pillar institutions of a peculiar Latin American welfare state that ranks today among the world’s most advanced in terms of social development.

For many decades, ICE has been one of the most efficiently run companies in all of Latin America, public or private. The specific characteristics and historical evolution of the modelo solidario (solidarity model) that made Costa Ricans so proud until recently is key to understanding the specific meanings, scope and prospects of corporatization in this Central American country.

Our research focused on the creation, expansion and ongoing transformation of public provision of electricity in Costa Rica. This has meant an in-depth analysis of the sector’s political economy foundations and the special place that ICE has historically occupied in the configuration of the national social identity.

The basic assumption is that ICE’s institutional profile, evolution and impacts have been shaped by very specific political, social and economic conditions not commonly found in other countries of the South. Costa Rican citizens are aware of the state’s contributions to national development, and have resisted previous attempts to privatize public enterprises.

ICE, in particular, is perceived as an essential driver of social and economic progress, and has been at the centre of the most important social mobilizations of the past decades. The public character is ICE is by no means guaranteed, however, and therefore we also explored the pressures for neoliberal reform that haunt this entity from within and outside the country.

 

Leader in coverage and inclusion

For over more than six decades, ICE has demonstrated its technical, financial and managerial capabilities to develop one of the world’s most sustainable, efficient and equitable electricity systems. Costa Rica has the highest coverage of electricity services in Latin America. Since its creation, the ICE has expanded access from 14% in 1949 to more than 99% at present. Between 1985 and 1999, the national electricity system tripled its capacity, in line with the growth of the gross domestic product. Despite the political limitations imposed on ICE’s operations in recent years, it has been able to respond to the growing demand for electricity, which doubles every 12 years.

ICE has achieved Latin America’s most inclusive coverage of electricity services, enabling investment in socially advantageous but economically unprofitable projects, such as the extension of services to geographically remote or sparsely populated areas.

As affordability of services is concerned, the price of electricity in Costa Rica remains less expensive than in most Latin American countries. According to ICE’s calculations, using the percentage of monthly minimum salary that must be allocated to pay for a residential consumption of 250 kWh, only three countries in the region—Venezuela, Argentina and Paraguay, where the cost of electricity has been frozen since 2002— have lower prices.

In Costa Rica, 250 kWh would be enough satisfy the monthly needs of low- and middle-income households. The average domestic consumption in 2009 was slightly above 224 kWh, and 75% of ICE’s users consume that amount or less. On average, in other Latin American countries, users had to dedicate 14.6% of the minimum salary, while in Costa Rica only 7% was needed to pay for an equivalent amount of electricity.

 

Majority provider

In 2009, the national consumption of electricity totalled 8,238 GW, of which ICE provided 40%; CNFL—an ICE subsidiary—contributed another 40%, and the cooperatives and municipal companies were in charge of the remaining 20%. In terms of geographic coverage, ICE was responsible for the provision of electricity in 78% of the national territory. As far as installed generating capacity is concerned, the role of ICE is even more significant. At present, total capacity is 2,500 MW, of which ICE controls 81% (including 4% in the hands of CNFL). At the same time, the national grid reaches almost 40,000 kilometres, of which more than half has been built by ICE.

In terms of quality of services, ICE’s investment in the expansion and maintenance of the national grid has resulted in Latin America’s most efficient electricity system. According to the ICE’s engineers’ union, “the Costa Rican population became used to good quality electricity, and therefore people are much more demanding, because our services are perceived as a fundamental right to which every person should have access, regardless of geographic location or the social position or economic capacity of users”.

 

Renewable energy pioneer

ICE has greatly contributed to Costa Rica’s current position as one of the world’s most advanced countries in the utilization of environmentally sustainable sources of energy. The national installed generating capacity still relies heavily on renewable sources, with hydropower, geothermal, wind and biomass composing over 80% of the national electricity matrix. In terms of consumption, an impressive 93% of the power consumed in the year 2010 was based on renewable sources, while non-renewable thermal electricity represented the remaining 7%.

Previous research has argued that ICE’s “ability and willingness to plan in the long term and pursue renewable sources of energy is a product of ICE’s relationship with Costa Rican society”, noting that “ICE’s embeddedness among civil society organizations, labor unions, intellectuals, and mass public opinion has allowed it to acknowledge society’s interest in a clean, sustainable, and domestic supply of electricity” and that “ICE’s technical expertise, its public nature, and its financial independence provide the autonomy and internal coherence” required to pursue a far-sighted vision (Wilde-Ramsing and Potter 2006, 73).

Since 1963, ICE has also being responsible for the provision of telecommunication services, which until then had been entirely controlled by foreign private corporations. Although telecommunications for a long time appeared as the smaller sister of ICE’s electricity services, here, too, the company greatly contributed to the nationwide extension of the network, following the same pattern of geographical and social inclusion.

 

Modernised telecommunications

ICE modernized the telecommunications system, producing a comprehensive and affordable telephone network. Even though the two sectors—telecommunications and electricity—are quite different from a technical perspective, they complemented each other from a financial point of view. The telecommunications sector was more profitable, required less investment and its costs could be recovered within a shorter period, in comparison with the electricity sector, and therefore for many years the international telephone calls financed part of the expansion of the national electricity sector and rural telephony programmes.

 

Public support for public services

After more than six decades, public support for state ownership and management of electricity (and telecoms) services remains strong in the country, as an annual public opinion survey conducted by the University of Costa Rica reveals. In the year 2000, at the height of nation-wide social mobilizations, 72% of the population was against the privatisation of ICE; in 2011, after years of media campaigns against public enterprise funded by big business, 64% of the respondents still expressed the same view (Poltronieri 2011).

Much of the ICE’s positive image has to do with the existence of a robust internal technocracy, committed to ICE’s institutional mission and social responsibilities and very active in defending and publicising its achievements as a public enterprise. This group is composed of professional staff who operate with relative managerial and technical autonomy from the political leadership.

The legal entity responsible for the regulation of services is the Autoridad Reguladora de los Servicios Públicos (ARESEP, Public Services Regulatory Authority), established in 1996 as the agency that took over the responsibilities previously in the hands of the National Electricity Service (SNE). ARESEP is in charge of supervising and overseeing the services delivered by both public and private providers. This includes the fixation of prices and tariffs, and the control of the quality, quantity, reliance and continuous delivery of electricity services; as well as granting new concessions for generation, transmission or distribution of power. ICE is the country’s single buyer and the owner of the transmission lines.

Since the mid-1980s, a series of neoliberal governments have promoted radical reforms in the solidarity model that had shaped the evolution of public services in Costa Rica. The first government of Oscar Arias (1986-1990) privatised public enterprises that were part of the CODESA holding and enabled the liberalisation of the financial sector.

 

Neoliberal pressure have weakened ICE

Costa Rica experienced more gradual reforms than most Latin American countries, which has meant ending state monopolies in several sectors and passing new legislation aimed at reducing social benefits. Despite strong social opposition, neoliberal reforms have already weakened the roots of the electricity system and challenged the role and capacities of ICE in particular, as outlined below.

The most visible mechanisms used to reform the electricity sector have been the following:

  • Pressure on ICE to generate a financial surplus to assist with the fiscal deficit
  • Limiting ICE’s capabilities to invest in further development of the electricity sector
  • Stricter political control over ICE’s planning and management and eliminating its authority to set tariffs for the electricity sector
  • Radical legislative proposals such as the combo eléctrico, aimed at further liberalisation and eventual privatisation of electricity services.
  • Aggressive and systematic media campaigns (financed by business interests) aimed at weakening ICE’s positive image.

 

Since the mid-1990s, ICE has also been experiencing a process of internal corporatisation, changing both the institutional and managerial frameworks of the organisation in an effort to have it engage with private competitors in a more liberalized market. From 1996 ICE began to apply internal reforms that included: the definition of a business-oriented strategic plan, the establishment of a new administrative structure, new employment descriptions and new requirements for categorising personnel and selecting candidates for managerial positions following the model that prevails in the private sector.

One of the first and most important reforms was the administrative and financial separation of the energy and telecommunication components. Presented as a means to maximise the potentials for development of each sector, and increase ICE’s overall efficiency, it in fact resulted in higher costs and the loss of internal synergies. The separation was left incomplete in 1998, due to a change of government, but “the resulting hybrid made internal coordination more difficult and, far from strengthening the Institute, facilitated its disintegration” (Fumero Paniagua 2006a, 85).

 

ICE still remains model of alternatives to privatisation

As the title of this paper suggests, ICE is an exceptional electricity company in an atypical social democratic country. As such, the significance and prospects of corporatisation are highly conditioned by national factors unlikely to be found in other places. Despite the lingering neoliberal wave, Costa Rica entered the 21st century preserving a state-friendly national identity still evident in current debates about the future of ICE and other public enterprises. The prevailing values are based on a strong presence of the state as decision-maker, supervisor, regulator and provider of public services, combined with equity and social justice principles embedded in the functioning of government agencies and in ideals defended by broad sectors of society. There is strong social trust in, and support for, state-run institutions.

Over the past 60 years, the evolution of electricity services in Costa Rica has to a large extent developed in opposition to private business interests, unlike what has been observed in most countries of the South. Our research confirms the findings of other studies, which have argued that “ICE was created to oppose big business and drive private capital out of the electricity industry”, and that, “as a public, not-for-profit entity, ICE has resisted privatization and has had a largely adversarial relationship with the private sector” (Wilde-Ramsing and Potter 2006, 74). Further research is needed about the specific conditions that gave rise to the very peculiar ‘social embeddedness’ of ICE and other Costa Rican state-owned enterprises.

 

This paper is based on fieldwork conducted in Costa Rica in 2011 and 2012, in the framework of a comparative research programme conducted in several countries of Latin America, Africa and Asia by the Municipal Services Project (MSP, an IDRC-funded international initiative on alternatives to the commercialisation of services in the health, water and electricity sectors. It is an abridged version of a paper presented at the XII Milan European Economy Workshop, jointly organized by University of Milan and CIRIEC.

 

 Image by Richie Diesterheft

About the authors

Daniel Chavez

Daniel Chavez, a TNI fellow, specialises in left politics, state companies and public services. He is an active contributor of the Municipal Services Project (MSP) research network, has contributed to Alternatives to Privatization: Public Options for Essential Services in the Global South (Routledge, 2012) and has co-edited The Reinvention of the State: Public Enterprises and Development in Latin America and the world (to be published in 2014).

Follow Daniel on twitter: @ChavezDaniel

Recent publications from Public Services & Democracy

Here to stay: Water remunicipalisation as a global trend

In the last 15 years there have been at least 180 cases of water remunicipalisation in 35 countries, both in the global North and South, including high profile cases in Europe, the Americas, Asia and Africa

Reorienting Development: State-owned Enterprises in Latin America and the World

Reorienting Development analyses what the nature, advantages, limitations and challenges of public companies are. It also offers new theoretical and conceptual insights on the nature and roles of the state and the controversial meanings of development.

The Tragedy of The Private, The Potential of The Public

From South Africa to Brazil, from Italy to the US, in Uruguay, Greece, Norway, the UK and in many other countries, municipal councils are taking services back under public control. Public Service workers and their fellow community members are not only defending public services but are also struggling to make them democratic and responsive to the people's needs and desires.

Susan George Classics

The Transnational Institute brings together Susan George’s oeuvre in this beautiful handmade boxed set of her six classic books.