The fiscal plans of public corporation that received the approval by the Oversight Board are seen as an essential requirement to restructure those entities, with a view toward the need of activating Tittle III of PROMESA, the best mechanism available to face the the debt in an organized manner.
The recommendations by the Board to the main government corporations came yesterday, during its seventh public meeting, held in New York, at just three days from the date on which the stay against litigations with creditors is set to expire.
The Government had extended until the weekend its talks with bondholders in an effort to seek voluntary debt restructuring agreements, while the Board had said it could meet at any time before Monday.
Under Tittle III, PROMESA includes judicial protection mechanisms that could be invoked to postpone complaints from creditors while the Court works on the restructuring terms of the obligations.
We also hope that the design of those revenues and spending plans foster the transformation of the entities into truly public corporations. That entails freeing them from their administrative decline, opening them to novel and productive alliances with the private sector and turning them into enablers of development.
The success of these plans depends, also, on a transparent execution, an essential factor to sow trust and foster cooperation between the actors.
There is no doubt that the main public corporations, which play a major role in the supply of essential services, will have to improve their competitiveness and actively contribute to the Island’s economic development. Free competition attracts new investment and, consequently, it translates positively for the consumer.
The Puerto Rico Electric Power Authority, for instance, should move gradually toward the complete privatization of the electric power generation system. For the time being, PREPA should cooperate with the Energy Commission to establish a mechanism for the review of rates that would take customers to pay a maximum of 21 cents per kilowatt-hour by 2023. The current base rate is 21 cents, but the entity’s preliminary debt-restructuring agreement proposes a transition charge of about five cents.
The Board demanded that the Aqueduct and Sewer Authority submit a five-year plan in 30 days with revised rates to become effective in January 2018. Banker José Ramón González, member of the federal entity, proposed that the periodic revisions will prevent sharp increases from further hurting the consumer.
The recommendations by the Highways and Transportation Authority, which debt hastened the irreversible deterioration of the Government Development Bank, also promote new Public-Private Alliances for the administration of roads as a financial recovery mechanism.
The Oversight Board approved what was anticipated as inevitable: a plan leading to the liquidation of the GDB in two or three year’s times given its insolvency. The liquidation of the entity which for 60 yeas was the Government’s fiscal agent is a sign that Puerto Rico is willing to get rid of entities that have stopped fulfilling the mission for which they were created.
It is worth noting that, even though the Board examined and approved the fiscal plans, it is up to the corporations to meet the goals that stem from a public policy geared toward achieving the results as foreseen. Each one is responsible for improving its competitiveness and contributing toward the development of the economy, without being a burden to the taxpayer. They will have to generate sufficient income to invest and improve their infrastructure.
The restructuring of the deb, as well as the injection of private capital into the economy in areas such as roads, water, and electricity, will make it possible for citizens to receive quality services at competitive prices to which they are entitled.
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