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Debate Rages Over Fanal Bill
The Tico Times / October 27, 1995

By Larry Luxner

Costa Rican lawmakers have submitted a bill to the National Congress which would abolish the country's venerable Fabrica Nacional de Licores (FANAL), a state-owned liquor monopoly established more than 150 years ago.

The controversial divestment of FANAL is only the beginning of a reform process that also includes splitting the state-owned Instituto Costarricense de Electricidad into energy production and telecommunications sectors, demonopolizing the insurance industry and opening up the banking sector to private investment.

"This is one of a series of hare-brained proposals floating around to lower the budget deficit," said a U.S. Embassy official in San JosÚ. "The liquor factory and several other state institutions yield a profit, so I'm entirely not sure the government would want to sell off cash cows. They'd rather sell stuff that's losing money."

How much money FANAL makes no one seems to know, though Fredrick Holtermann, president and general manager of Holtermann & Cia. S.A., says FANAL's 1994 sales came to around $21.5 million. About 90% of that consists of Guaro Cacique, a cheap local aguardiente that sells in Costa Rican supermarkets for around 460 colones. Last year, FANAL produced 1.1 million nine-liter cases of Cacique, all of it for domestic consumption.

"Both major parties agree that the proejct should go ahead as a concept. Sooner or later, I expect it to pass," said Holtermann, whose company produces local vodkas and is jointly owned by the Holtermann family, United Distillers Group and BacardÝ. "Yet we've seen three different projects, and in our opinion, none of them are acceptable. The major drawback from our perspective is that they impose heavy taxes on liquor. The idea is to supplement the monies that the government receives from FANAL, yet we believe that no privatization project should impose new duties. Secondly, the duties they are putting on far exceed what FANAL actually produces for the government."

FANAL, whose 280 employees are strongly opposed to privatization, was established in the 1830s, and is one of Costa Rica's oldest state-owned companies. The brand name Cacique and its factory in Grecia, on the outskirts of San JosÚ, are its main assets. The company, whose officials couldn't be reached for comment, claims to contribute 1.5 billion colones in revenues for the central government through liquor duties. Currently, no other company may distill alcohol in Costa Rica, and no one else can produce Guaro Cacique.

"We have encouraged the demonopolization of state-owned companies which are tremendous money-losers and a drain on the country as a whole," said Linda Solar, executive director of the American Chamber of Commerce in San JosÚ. "This has been needed for so very long, and we need to catch up quickly. While the liquor plant isn't losing money, there's no more point in having a monopoly. It doesn't really make sense."

Under one of three draft proposals sitting in Congress, the government would have three months to place a dollar value on FANAL once the law authorizing its liquidation is passed. According to Holtermann, the Costa Rican Chamber of Commerce favors the liquidation of FANAL "as long as it does not impose new duties, because liquors are very heavily taxed already." The current proposal, he said, would increase duties "anywhere from 20% to 82%, on top of what we pay now on both imported and local production."

Holtermann's son, Jan, pointed out that alcohol distillation has always been a monopoly in Costa Rica. "FANAL distills all the alcohol and commercializes the brands," he said. "It is somewhat unclear how those two branches would be divided in a new arrangement. Obviously, FANAL has a value as a monopoly. But it's going to be hard for the government to sell, because once you privatize it the monopoly is broken, and if other people can come in and distill at lower prices, FANAL will be in big trouble."

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