The government of Puerto Rico formally requested federal authorities for a waiver from the cabotage law –known as Jones Act- to import natural gas. This is an important step towards the goal of lowering energy costs.
If materialized, the initiative would represent an important stage on the way towards diversification of energy sources and the modernization of the power grid, that are key elements to redirect the economy.
The Jones Act of 1920 -also known as The Merchant Marine Act or Cabotage Rules- establishes that goods shipped between U.S. ports to be transported on vessels that are US-owned, crewed and built, which turn out to be the most expensive ones. Shipping companies and unions have blocked any change intended to ease the restrictions on maritime transportation to the island. These regulations, however, do not apply to US Virgin Island.
There is no consensus over the scope of the impact of this law in Puerto Rico. Those who object to this law indicate that it restricts the capacity to import goods and services at more competitive prices. According to economists, the cost for Puerto Ricans may represent $ 207 million due to the rise in the prices of goods. Other estimates place the impact up to $ 1,3 billion per year, through its multiplier effect in the distribution chain.
Studies commissioned by the American Maritime Partnership, in 2012 and 2018, suggest that the economic impact is minimal and that it could have advantages. Among the advantages, the studies state that it gives certainty and reduces costs by avoiding detours, that it does not impose limits for Puerto Rico to ship or receive cargo from other countries, nor does it show significant differences in the price of some products when compared with the same chain of stores, for example, in Jacksonville. On these grounds, the proposal is to concentrate claims for Puerto Rico to be excluded from air cabotage laws.
Reliable data on the pros and cons of the Jones Act is vital for the efforts to demand fair conditions to develop the Puerto Rican economy. It is also important to maintain a common front between the government, the Oversight Board and the private sector so that federal authorities can hear a single voice. At least regarding the waiver requested for gas transportation, the government anticipates reductions in energy rates. These savings are critical to achieve a favorable climate for industry, investment and citizens.
Official estimates indicate that Puerto Rico may save $ 800 million in fuel transportation in ten years, that is equivalent to one cent per kilowatt hour in energy rates. Meanwhile, conversion to natural gas would lower energy rates by six more cents per kilowatt hour. The conversion would also entail the benefit of reducing the carbon footprint.
In his request to the US Departments of Homeland Security and Defense, Governor Ricardo Rosselló outlined benefits for the US national security. The disaster after hurricane María showed the vulnerability of the island's power grid and, consequently, the real risk of an interruption in the supply of locally produced medicines. We trust that mutual benefit arguments will prevail so that Puerto Rico receives the waiver it requested, with the objective to overcome financial limitations for electricity and move towards renewable and cleaner energy sources, in a sustainable way.
However, this should not be the only bet for the development of Puerto Rico. A series of deep structural reforms that will redirect the economy without waiting for federal determinations –such as the tax reform- is still pending.
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