“I want to invest in the future of Puerto Rico.”
That’s not a common refrain these days. Debt defaults and the broader economic crisis facing the people of Puerto Rico have made investors think twice about committing money to help achieve the island’s potential. In some ways, that is understandable – investors are wary of taking forced haircuts on their investments.
During nearly 40 years of helping develop the energy sectors of countries around the world, I’ve seen this before. To reverse this trend, it is imperative the Commonwealth government take steps to quickly restore faith in the system. That means fulfilling its commitments, producing credible financial statements, and working with the federal oversight board to bolster the economy.
Above all else, the Legislative Assembly needs to avoid doing anything that will further scare away investors. Consider it a twist on the Hippocratic Oath: first, do nothing to harm investor confidence.
Unfortunately, that’s exactly what would be accomplished by a bill being considered in the Commonwealth’s Senate. The measure would greatly politicize the board of directors for Puerto Rico’s electric utility, packing it with government appointees with little familiarity with its business. The utility already ranks well below its mainland counterparts in efficiency because of a history of politically-motivated management changes. Passage of this measure would have real, immediate costs: it would likely jeopardize the restructuring agreement between the utility and its creditors, exacerbating the debt crisis and making it more difficult for the Commonwealth to embark on fiscal reforms.
Importantly, this measure would be another data point for concerned investors illustrating that Puerto Rico is not a safe place to do business. That would be especially damaging at this moment, when Puerto Rico’s energy sector is so badly in need of outside investment to fund a long-delayed and very much needed overhaul. PREPA’s current facilities experience forced outages at a clip that far outpaces the industry average, while the median age of its energy plants is an astounding 44 years – nearly two-and-a-half times the industry average.
Improving PREPA can only come if outside investors have the confidence to make commitments. Over the next 20 years, Puerto Rico will need to invest more than $4.5 billion to fulfill basic environmental requirements at its facilities. This includes helping Puerto Rico take a major step away from fuel oil via the Aguirre Gasport facility, as well as improving the reliability of PREPA’s transmission and distribution systems.
These investments will pay enormous dividends for the island, if they’re made. Currently just two percent of Puerto Rico’s power is generated by renewable sources -- much lower than its island nation counterparts – due in part to the inability of developers like me to attract financing because of lender uncertainty about PREPA’s long term financial stability. Puerto Rico risks falling further behind unless it can act quickly to catch up with its neighbors and recapture its competitive edge.
With that in mind, the Legislative Assembly needs to think hard about the message they send to the investing community. Do they want to encourage reforms that will bolster the economy via smart, sound investments in infrastructure, or do they want to scare away investors? Do they prefer a politicized board, or one made up of knowledgeable industry professionals? These are challenging times for PREPA, and the answers to those questions will define its future.
I want to invest in the future of Puerto Rico. The Commonwealth needs partners to help invest and develop a modern energy system that creates new jobs and saves taxpayers money. I want to be one of those partners, but projects like those needed to modernize the island’s energy grid are not cheap. Companies like mine rely on financing to make our projects a reality, but if the Senate approves the proposed bill and PREPA is politicized, my company and others like it – along with the investors we rely on – will have to rethink whether it is feasible.