Monday, November 20, 2017

[Editorial] “I Think It’s Gonna Be a Long, Long Time….”: Rocket Man

By on August 10, 2017

The recent naming of Noel Zamot as Revitalization Coordinator (RC) for Puerto Rico, a post that is key to the transformation of Puerto Rico’s infrastructure, could not have come a moment too soon. The post comes with considerable challenges because the island is bankrupt and hogtied under the control of the Financial Oversight & Management Board (FOMB), which was enabled by an act of the U.S. Congress when it passed the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) in June 2016.

Although Mr. Zamot comes from the aeronautical realm, it does not take rocket science to understand that investors are not chomping at the bit to put their money behind critical projects in a jurisdiction tarnished by broken deals.

The truth is that bankrupt jurisdictions dealing with control boards go through a first stage of adjustment that is often very painful for everyone involved. Puerto Rico has not been the exception. For all the column inches that have been written about the restructuring of Puerto Rico’s $73 billion debt load, few areas were more important to Mr. Zamot’s revitalization charge than closing the restructuring support agreement (RSA) struck by the Puerto Rico Electric Power Authority (Prepa) and a majority of the bankrupt utility’s creditor constituencies in 2016.

Such was the importance of Prepa’s overhaul that U.S. House Natural Resources Committee Chairman Rob Bishop (R-Utah) tried to have his then-staff director Bill Cooper codify the Prepa deal into Promesa, but they found opposition from Dems across the aisle. When the final bill came down the pike, language stipulated that all deals done prior to May 18, 2016, would qualify as prearranged protected deals heading down a path to Title VI for consensual negotiations.

The last thing Bishop expected was for the incoming administration of Gov. Ricardo Rosselló to take another crack at the Prepa deal and, in so doing, toss the negotiations of the original deal into the trash. In one fell swoop, the Rosselló administration blew to kingdom come a deal four years in the making to the tune of more than $100 million in legal and financial advisory fees.

Signs that the FOMB would fail to certify the RSA and file under Title III for bankruptcy proceedings surfaced when board members started to make exigencies regarding electricity rates that were impossible to keep.

Time For Thaw of Critical Projects

The Prepa snit includes additional layers of political infighting between the utility and the Puerto Rico Energy Commission (PREC) over the value and procedures in the approval of critical projects. Such was the case when Prepa Executive Director Ricardo Ramos included infrastructure works in the utility’s fiscal plan that had been left out by PREC in their recommendations for the overhaul of Puerto Rico’s energy infrastructure. These included the Aguirre Offshore GasPort and new generation units at the Palo Seco powerplant. In so doing, Prepa gave the impression they believe they could skirt the energy commission and go straight to the RC.

So, Zamot has his work cut out for him in developing infrastructure works in the realm of energy and beyond. Although he is the first to admit that Puerto Rico will have a hard time raising the money for large infrastructure works—he will go piecemeal by pursuing smaller critical projects that will be put on a fast track.

Zamot claims several investors have expressed interest in smaller projects—the Rosselló administration has been vocal in backing various projects, such as the creation of express lanes on freeways, maritime cargo zones and the renewal of the Aguadilla and Ponce airports.

In an interview with Caribbean Business that took place as this newspaper was going to press, Associated General Contractors Puerto Rico President Francisco Díaz Massó let on that he recently submitted a list of 20 critical projects to Zamot. Díaz Massó is of the thinking that Puerto Rico could be a type of testing ground for the grander infrastructure plan being driven by the Trump administration on a national scale.

The hiring of Zamot is a step in the right direction, but there are some harsh realities coming in the times of Promesa. Investors remain very skeptical of a jurisdiction that promises one thing and does another. They see actions such as Excelerate Energy’s termination of a contract to develop the Aguirre Offshore GasPort with caution. The project managers of the gasport want greater guarantees that the mechanical completion of the Aguirre facility will not be scuttled after work has begun. Those are but some of the red flags that make Zamot’s job very difficult, which is extremely unfortunate because Puerto Rico has a crying need to develop infrastructure that will create jobs on a massive scale—not bit by bit.

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