The future of the Puerto Rico Electric Power Authority (PREPA) has three paths: the confirmation of the Restructuring Support Agreement (RSA, English acronym), the protection of Title III the PROMESA law, and a series of lawsuits for payment in which the Court will decide where the funds to pay the bondholders of the public corporation will come from.
The fate will soon be decided. Last night, the term was extended until Tuesday for the Board to approve the RSA under Title VI of the PROMESA law. That would be a day before the agreement is brought to markets, which is scheduled for June 28th, according to Carlos Gallisá, representative of the public interest in the PREPA Board.
The agreement in controversy reduces by 15% the main amount of the PREPA debt, which reaches $ 9.4 billion.
So far, the RSA has not been approved because it does not have the support of enough members of the Board, who are under pressure from several congress members, including Robert Bishop, chairman of the House Committee on Natural Resources, with jurisdiction in Puerto Rico.
"The RSA has been extended many times. Many bought the bonds at a discount and would get them paid by 85% with the deal. It is a lucrative business for those who have bought at a discount", said on his part, the also representative of public interest in the PREPA Board, Luis Santini Gaudier.
The RSA, which was negotiated and approved when Puerto Rico did not have a legal mechanism to renegotiate its debt, has been extended 16 times by the Ad Hoc group OF PREPA.
Last March, Ricardo Rosselló Nevares administration renegotiated the agreement achieving additional savings in the early years of the pact.
If the Board does not approve the document under Title VI of the PROMESA law, which provides for voluntary adjustments of the debt between the government and the creditors, PREPA would be exposed to claims for payment, confirmed several experts consulted by El Nuevo Día.
This would complicate the legal situation of the public corporation, which since 2014 has faced problems with paying its debts.
The other option would be for PREPA to seek protection from those claims under Title III of the PROMESA law, which provides for debt adjustment processes similar to those in the US Bankruptcy Court. This process, however, could represent a bittersweet path for the public corporation.
On one hand, Title III of the PROMESA law provides for an orderly process, avoiding the complications that multiple legal payment proceedings will imply with inconsistant results between them. Likewise, the adjustment of debts under the supervision of the Federal Court opens, in theory, the door for decreasing additional cuts to the PREPA debt, easing the burden beyond the 15% currently stipulated in the RSA , explained Santini Gaudier.
But, on the other hand, the same process opens the door to a process of liquidation or privatization of assets of PREPA, according to analyst Matt Fabian from Municipal Market Analytics. This is partly because the process under Title III of the PROMESA law will not provide access to the markets that PREPA needs to restore its electricity production and distribution system.
“Puerto Rico will be forced to move from a single, monopolistic energy provider to one likely to favor multiple privatized entities with more diversified sources of power," noted Fabian in a report published this week.
The RSA is supposed to inject money into PREPA, so that the electrical system can be renewed, achieving better efficiencies than the current ones.
This is important because at present PREPA has no other way of getting the money it needs to update the system.
Tomás Torres, coordinator of the Institute for Competitiveness and Sustainable Economy (ICSE), indicated, meanwhile, that a Title III case for the PREPA debt should be considered. In his view, both the current RSA and the PREPA Fiscal Plan set a dramatic increase in energy costs for the coming years, reducing the capacity of the economy to improve.
"The discussion, as I see it, is when we want PREPA to go to Title III: in July 2017 or 2023. By 2023, the rate, according to PREPA plans, should be at 30 cents per kilowatt - now, because the demand is estimated to drop by 23%, and that raises the rate. That means that if now you pay $ 200, by 2023 you will pay $ 300”, described Torres
"That is unsustainable for our economy. That does not help economic development or provide at atmosphere to get out of the crisis, on the contrary, it adds a burden", he said, explaining that such a high rate would draw a substantial amount of money from the economy.
However when the Board approved the PREPA Fiscal Plan, incorporated an amendment requiring the energy rate to be around 21 cents kilowatt-hours by 2023. This has been estimated by the authorities of PREPA as a difficult rate to reach despite the fact that the energy cost is currently below that figure.
Reporter Joanisabel González collaborated in this story.