Rodrigo Chaves imposes strong reform on ICE

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In his first hours as President of the Republic, President Rodrigo Chaves Robles signed decrees and issued guidelines that imply a strong reform in the financial management of the Costa Rican Institute of Electricity (ICE), with which he will try to increase data transparency and reduce the cost of electricity tariffs.

But, in addition, it ordered that in a maximum period of six months the fifth generation (5G) mobile frequencies that ICE has withheld, and that it refused to return to the previous government, return to the hands of the State to define if they go to auction.

There are three measures that seek to reduce electricity rates. The first, imposes on ICE the immediate application of International Financial Reporting Standards (IFRS) in all its accounting. The second is to reclassify operating leases as financial leases, and the third is to “remove costs associated with non-strategic assets that affect rates from the rate base.”

IFRS are international rules that standardize the accounting and financial results of companies. Its use prevents alternative interpretations of the data, which guarantees the transparency of the finances of the institutions.

The reclassification of operating leases as financial leases “will lower the electricity rate after the processes before the Public Services Regulatory Authority,” Chaves said after announcing the order to the new executive president of ICE, Marco Acuña Mora.

The Institute has classified as operating leases the trusts created to develop three electrical projects: the thermal plants of Garabito, in Puntarenas; the Las Pailas geothermal plant, in Guanacaste; and the Toro III hydroelectric plant, in San Carlos. How much do they cost ICE for those “rentals” that users end up paying? They exceed ¢60,000 million per year, according to the Chamber of Industries.

By having these assets as an operating lease, all expenses of the plants, precisely, are transferred to the rate paid by electricity users. Instead, as a financial lease, only the trust interest rates can be charged to the rates. These faults have been widely denounced by the Comptroller General of the Republic (CGR) and the Chamber of Industries itself.

Chaves declared this Sunday that ICE will have to make the adjustments and, based on its financial situation, which supposedly should be better for less costs, request a reduction in electricity before the Public Services Regulatory Authority (Aresep).

“Look, those things don’t happen overnight. ICE has to reclassify, really, it has to tell the truth with its financial statements, saying that what is a financial lease is a financial lease. It has to make the accounting adjustments, it has to adopt the international financial reporting standards, which involves a process, and then it goes to Aresep to request a reduction in the rate. When has ICE gone to ask for a drop in the fee?”, he stated.

The Chaves decree brings down one from the Ministry of Finance, from May 2021, which freed the Institute from complying with IFRS standards in its contracts signed before 2009, which included, in fact, the trusts for the Garabito, Las Pailas and Toro III.

Chaves also ordered this Sunday the executive president of ICE “to analyze the portfolio to remove from the rate base costs associated with non-strategic assets that affect rates.”

The actions of the new ICE chief to comply with the presidential order are still awaited, since Marco Acuña told the Semanario Universidad on April 29, after his appointment, that the reductions in electricity rates “is not something that I can promise.”

“This issue is something that I have to review with the outgoing administration, which has done work along these lines. The goal is to do it, but how will depend on the current state of all the variables that make up the electricity rate, which are not just costs, but other elements such as the exchange rate,” said the official, who has a career in ICE as manager of Electricity.

Chaves has been critical of ICE since before his presidential campaign. In September 2020, when the entity was doing its best not to apply IFRS standards, the then former Minister of Finance posted on his Twitter: “ICE insists on harming homes and businesses. Doing the right thing ‘affects’ them. They make up accounts to do nothing and pass the problem. ICE will refuse until they are forced to” and he closed with one word: “Outrageous”.

Precisely, in those days, Carlos Montenegro, executive director of the Chamber of Industries, declared in La Nación that “today the amount in operating rents is close to ¢60,000 million. If these leases are reclassified to financial trusts, as they really are, that benefits the rates because, instead of a high rental fee, it would become a depreciation expense which is related to the useful life of the plants”.

5G network development

Another mess that the new president ordered to resolve, within a period not exceeding six months, is the return to the hands of the State of the frequencies required to develop a fifth generation mobile network (5G); measure that the outgoing government failed to implement.

The frequencies are owned by the State and their administration is in charge of the Ministry of Science, Innovation, Technology and Telecommunications (Micitt). Despite this, the Institute keeps them withheld and is reluctant to return them voluntarily.

The rescue was a priority of the previous government since its first day, in 2018. Its purpose was to auction these frequencies for the development of the 5G network. This was the case, for example, in 2011, with the sale of frequencies to Movistar and Claro for $195 million, and, in 2017, with another part of the spectrum for an additional $43 million.

The amount to be charged for the frequencies is not yet defined by the State. The 5G network is tens of times faster than 4G, since it provides speeds of up to 10 Gigabits per second, which would imply benefits for technology businesses and a jump in the country’s competitiveness.

The amount to be charged for them is not defined, but it is a millionaire because it will imply a revolution in digital business and a leap in the country’s competitiveness.

When consulted in this regard, after his appointment, the new head of the Institute highlighted the interest of the Chaves administration in moving forward with this project, but declined to say whether the idea is to entrust the work to ICE or if, finally, they will return the frequencies so that can be reassigned through a tender.

Chaves’ order does not clarify that scenario either. The directive literally says: “ICE and Micitt were ordered that, no later than six months, the frequencies to develop 5G are in the hands of the State or are available for the country to have 5G,” Chaves said.

The truth is that Marco Acuña enters ICE with 1.2 million electricity subscribers shared by the Institute and its subsidiary Compañía Nacional de Fuerza y ​​Luz (CNFL) and with losses of the ICE Group for ¢115,000 million, according to the end of 2020.