The debate and balance of the recent hearing to solve PREPA's lack of immediate operational liquidity exposed the weaknesses that Puerto Rico has in handling its urgent fiscal issues.
Especially in terms of its credibility and relationship with its creditors.
However, this hearing enlightens the steps that PREPA must take to curb, in the short term, its cyclical crisis of budget insufficiency, and to sustainably undertake, the modernization of the electricity generation and distribution network.
The energy system´s health is a high priority for the Island. Economic reactivation depends on it. Paving the way to solutions to bankruptcy under Title III of the federal PROMESA law will lead the way to the utility's financial recovery. And to a model that the rest of the public system can follow.
A lesson is repeated to PREPA in this process, presided by Judge Laura Taylor Swain: it has to provide accurate data and projections. It has to work together with bondholders searching for agreements. It has to act with openness to gain credibility before the Court, its creditors, investors and members.
This lack of PREPA´s credibility led the Court to deny the $ 1 billion requested, granting much less with other important changes to the initial request. At the hearing, warnings were questioned and suspicions were validated.
On behalf of Puerto Rico, the Oversight Board argued that PREPA urgently needed funds to avoid a shutdown in a matter of days. Among the new versions, it appeared that it would have no cash by mid-February. Then, at the beginning of March. The most recent version extends the period until April. Meanwhile, citizens and the private sector are still suffering this uncertainty. That tension has high costs on the Island´s economic and mental health.
In this scenario, the federal government is holding $ 4,7 billion authorized as an emergency loan by Congress after the September disasters. Part of these funds were to soften to the cost of energy restoration. The government has known since December that federal authorities will not lend directly money to PREPA.
After the Court´s authorization for a central government loan of only $ 300 million, it is obvious that PREPA has to take short-term measures to guarantee its operation.
This includes fair and efficient billing. It has $ 223 million owed by the government. Through provision of Law 22 of 2016 - for the reform in subsidies and delay in service payments for PREPA and the Aqueduct and Sewer Authority -, agencies and corporations have to catch up with their payments. Gerardo Portela, executive director of the Fiscal Agency and Financial Advisory Authority, said in Court that he did not know about this issue.
Besides, PREPA must focus on the design of a methodology that will lead the way for free competition to allow its modernization. This methodology must include a viable schedule, with rigorous processes, that will ensure the credibility that PREPA lacks.
In search of transparency, the local government and the Board must publish PREPA´s revised version of the fiscal plan submitted to the oversight body. It is also vital that PREPA´s bill for privatization be presented, with enough time to allow frank deliberation. Four weeks after the governor announced his intention to privatize the corporation assets, the details of the proposal are unknown.
The litigation under Title III is a laboratory to test openness and gain the credibility that Puerto Rico needs to rise up. The diligent and responsible use of the granted loan will also help in this issue. Actions and consistency provide confidence.
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