San José, Costa Rica, since 1956

Officials Study Plans To Lift Fuel Monopoly

President Oscar Arias, already set to take on two of the government’s highest-profile monopolies – as well as the very vocal unions of the workers employed by the corresponding institutions – added another to the mix last week when he said he hopes to lift the monopoly on fuel held by the Costa Rican Oil Refinery (RECOPE).

The idea is already generating controversy, with the RECOPE workers’ union and administration officials at odds over how the change would affect the refinery and gas prices in a nation that imports 100% of its petroleum.

Roberto Dobles, Environment and Energy Minister and Vice-President of RECOPE, says the change would result in lower prices and cleaner fuel, thanks to increased competition, and that any change will be preceded by careful planning.

“The opening process, as established in (Arias’ campaign) platform, will be gradual, selective – we’ll analyze what areas to open, and how – and regulated,” Dobles told The Tico Times Tuesday. “What we’re seeking is to make the sector more dynamic so competition acts (to reduce) prices.”

But Costa Rica’s market is too small for competition, according to Gilbert Brown, secretary general of the RECOPE Union of Petroleum and Chemical Workers (SITRAPEQUIA).

He maintains lifting the monopoly could drive the state-owned refinery and fuel importer out of business and force consumers to foot the bill for multinational corporations’ success.

“It doesn’t (just) affect RECOPE employees; it affects the country,” he said. “The size of the market doesn’t allow for competition. It’s what we call a natural monopoly – either the state administers the monopoly, or a transnational monopoly could establish itself.”

A statement from the union went still further, affirming that a state monopoly is “a thousand times better than a foreign oligopoly.”

Brown told The Tico Times the union, which represents 1,500 of the refinery’s 1,670 employees, is “preparing for battle to defend the monopoly… we won’t discard absolutely any (action).”

Gas stations and fuel transport are already in private hands; the Arias administration is considering lifting the monopoly on importing, refining, storing and distributing fuel, Dobles said. It is not clear whether such a change would give private companies permission to use the pipeline.

RECOPE is now building between San José and its refinery in the Caribbean province of Limón. Construction began in February using a $90 million loan from the Central American Bank of Economic Integration (CABEI), according to RECOPE spokesman Basilio Quesada.


A Free-Market Approach

Arias’ desire to eliminate state monopolies is no secret. His campaign platform states that the government has not defended consumers’ constitutional right to a market where providers of goods and services engage in free competition, and that his administration would promote the gradual opening of all existing public monopolies.

He reiterated this stance during his recent two-week tour of Europe, making comments in Italy about plans to lift the RECOPE monopoly (TT, June 16), and returned to it once more upon his return when asked about a recent Sala IV decision to revoke part of the state monopoly on guaro, a 60-proof liquor (see separate story). “As a general rule, it’s good to break monopolies,” he said.

Arias is also committed to opening monopolies as a supporter of the controversial Central American Free-Trade Agreement with the United States, which requires that Costa Rica gradually open its monopolies on telecommunications and insurance, held by the Costa Rican Electricity Institute (ICE) and National Insurance Institute (INS), respectively. These institutes’ employee unions have been a major force at the many protests held against the agreement, which Costa Rica signed in 2004 but whose ratification is still under consideration in the Legislative Assembly.

The Executive Branch is set to submit legislation to open the ICE and INS monopolies, as well as to strengthen ICE for competition, within the month; the 2002-2006 Legislative Assembly made little progress on its ICE reforms, and Arias announced before taking office that his administration would draft new versions of the bills.

Arias said he would not submit legislation on RECOPE until after the ICE and INS bills are in legislators’ hands. According to Environment Minister Dobles, the Executive Branch will establish a timeframe for changes to the refinery’s monopoly within the next two to three weeks.

Apparently that’s not soon enough for the Libertarian Movement Party. Its legislators submitted their own RECOPE bill Wednesday, inspired by Arias’ comments, according to Libertarian legislator Luis Antonio Barrantes.

Libertarian legislators have presented bills to open the oil monopoly during each of the past two legislative terms, Barrantes told The Tico Times. Neither proposal met with success. Asked whether he is working with the Executive Branch or legislators from the leading National Liberation Party (PLN), which brought Arias to power, Barrantes said no – but he’s open to suggestions.

“Coordinating? Not really. We’re hoping they support us,” he said, adding his party will listen to “any improvement the Executive Branch wants to make.”

According to Barrantes, the bill they’ve presented doesn’t address the issue of whether the Public Services Regulatory Authority (ARESEP), which now determines the price of fuels in Costa Rica, would still have that power if the monopoly is lifted, or what would happen to the gas tax designed to generate revenue for infrastructure improvements. The Libertarians are still studying the issue, he said.

So is the Executive Branch. Dobles said it’s possible the RECOPE legislation will allow ARESEP to maintain the authority “to intervene if prices aren’t adequate.”

Fabricio Pereira, transport manager for Shell Costa Rica, told The Tico Times that because the government is still making decisions about ARESEP and other aspects of the RECOPE proposals, his company can’t yet determine how the changes will affect it.

“Shell always supports free competition,” he said, but “we have to analyze, focusing on what’s good for the country and the company.”


Environmental Friend or Foe?

Dobles maintains that competition, along with the bigger refineries that could be built if other businesses invest in the Costa Rican market – RECOPE’s single refinery, in the Caribbean province of Limón, has severe limitations, he said – would result in cleaner fuels. According to the minister, increased competition would force companies to raise their standards for better-quality fuel that causes less environmental damage.

Mauricio Espinoza, spokesman for the environmental group Oilwatch, said that wouldn’t necessarily be the case.

“It depends on the conditions that are generated,” Espinoza told The Tico Times. “If you look at the system of the United States or Canada or Mexico, where everything is open to competition… that doesn’t necessarily mean there’s an improvement in fuel quality.”

He added that the social consequences of Arias’ plan – that is, the unemployment that could result if RECOPE, faced with competition, fires employees or goes out of business – could increase laid-off workers’ susceptibility to the promises of foreign companies interested in oil exploration.

According to Alvarez, the U.S. oil company Harken Energy, while seeking a concession for oil exploration off the Caribbean coast in the 1990s, swayed local residents with promises of employment.

(Harken’s Costa Rican subsidiary received a 20-year concession for oil exploration, but the government rescinded the concession in 2002, citing breach of contract for problems with the company’s environmental-impact report; Harken, now owned by MKJ Xplorations, Inc., is now suing the Costa Rican government for rescinding the concession (TT, Dec. 23, 2005).)

“The oil company offered jobs that didn’t exist in the region,” Alvarez said. The already economically depressed Caribbean province of Limón, where RECOPE has facilities, would “lend itself more to multinationals” should unemployment rise.

Lifting RECOPE’s monopoly is likely to result in protests by former employees or other citizens, especially in Limón, where “people have always been very marginalized, very defensive,” Alvarez said.

A moratorium on oil exploration by former President Abel Pacheco (2002-2006) apparently will not be upheld by Arias, who took office May 8.Arias, who has made it clear he’s open to the idea of exploration, met May 30 with investors from Petróleo Brasilerio S.A. (Petrobras), a Brazilian oil company interested in finding petroleum off Costa Rica’s Caribbean coast (TT, June 2). RECOPE announced earlier this month that Petrobras will advise the refinery on emergency procedures for handling oil (TT, June 9).


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