The new law for the privatization of PREPA sends a "clearer" signal regarding the direction that Puerto Rico will take in energy-related matters, but “there is still much to do," assured Pedro Nieves, co-president of the Energy Committee of the Puerto Rico Manufacturers Association.
According to Nieves, former head of the Environmental Quality Board, the bill recently signed into law provides clarity in the process that must be followed when transferring the power grid to private hands, establishes which entity leads the process - the Puerto Rico Public-Private Partnership Authority (P3) -, but above all, it establishes "clear guidelines" regarding the need to adopt public policy on the subject and transparency measures.
"The law establishes a process, it does not determine in advance any particular solution. In fact, it demands a fair balance of commercial interest and a sense of social responsibility," added Nieves, noting that not all PREPA operations can be transferred through P3.
Last week, Governor Ricardo Rosselló Nevares announced that he had signed into law the bill to sell PREPA generating units and, in turn, identify private operators for other power grid operations, including the transmission and distribution network.
On Sunday, quoting a report from the Institute for Energy Economics and Financial Analysis (IEEFA), El Nuevo Día reported that although the statute allows the privatization of the generation and operation of the island´s energy systems, the document does not state the type of generation that the island needs, neither how energy should be stored, transmitted and offered to households, businesses and industries.
Likewise, the bill grants a broader participation to the Puerto Rico Energy Commission in the privatization process, but only "subordinated" to P3, and appears to get into the jurisdiction of this regulatory body when establishing contract prices at a rate of 18 cents per hour.
"The process is a necessary first firm step which begins to provide clear signals that the market needs to invest capital in the transformation of the energy sector, either through direct investment in its operations or in projects related to PREPA assets", added Nieves.
Broadly, although Puerto Rico will have to determine many technical aspects regarding energy, before identifying a company or entity to build infrastructure, Puerto Rico will also have to make two big decisions.
Concerns in the manufacturing sector
On one hand, Puerto Rico must decide on the sources of energy, currently generated almost entirely with fossil fuels, and the second major decision process will be how that power will be generated, stored and distributed, which covers from the concept of distributed generation and microgrids to systems backup in case of service failures.
These issues have become more critical after Hurricane Maria.
Sources assure that since the disaster caused by the Hurricane in September20, the main concern of the manufacturing sector is the stabilization of the power grid, even more than concerns regarding the risk associated with taxes or the fiscal crisis. According to sources, the issue is so critical that if Puerto Rico does not offer a clear route of what it will do with its power infrastructure, some of the industries on the island could further reduce their operations, a scenario that could mean a blow to the Treasury and the economy, as a result of the weight of the industrial sector in the economy.
For Nieves, although the manufacturing sector prepared "the best they could" for the worst natural disaster seen in recent times, "the impact of the event reaffirmed the need for us to have a more robust and diversified power grid".
"The industry continues to strengthen its contingency plans and move faster to adopt new technologies that help strengthen its contingency plans," said the lawyer.
Regarding questions on how realistic it is to enter a privatization process in the middle of a debt restructuring process, Nieves admitted that Title III process "is probably the most uncertain and important element" at the moment. In that sense, Nieves said, that PREPA bankruptcy process is the main obstacle for private and non-profit entities to decide to invest on the island to enter power generation projects not related to the corporation.
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