Monday, October 23, 2017

Puerto Rico gov’t pushes for Prepa’s RSA deal, still awaits board’s approval

By on June 15, 2017

By Eva Llorens Velez and Luis Valentín Ortiz

SAN JUAN — While the debt-ridden Puerto Rico Electric Power Authority (Prepa) has the option of petitioning for bankruptcy protection under Title III of the federal Promesa law, utility director Ricardo Ramos recently said the debt-restructuring deal reached with creditors will be pushed through the collective-creditor action provisions of Title VI in July.

Nevertheless, Prepa’s restructuring support agreement (RSA)—which seeks to restructure the utility’s operations and $8.9 billion in debt—has yet to secure the approval from the commonwealth’s Financial Oversight & Management Board (FOMB). The deadline for the latter was recently extended once again, from June 9 to June 16.

Entrance to the Puerto Rico Electric Power Authority in San Juan. (Yoel Parrilla/CB)

“I can’t speculate on what the board’s determination is going to be or the process with Prepa’s RSA. Beyond what the facts are, I can’t really comment on that,” said Wednesday Elías Sánchez, the government’s representative before the FOMB. 

Caribbean Business asked whether the board has signaled to the administration resistance or concerns over the deal. “That would be to speculate on something that I’m not aware of,” said Sánchez.

On Thursday, Rep. Rob Bishop (R-Utah) sent a letter to the fiscal board in which he says Congress is concerned “with the continued failure of the Oversight Board” to approve the RSA. The document says the board is not adhering “to the explicit text and statutory intent” of Promesa, as it pertains to the process of evaluating and signing off on Prepa’s deal.

“I have received the letter from Chairman Bishop and thank him for his leadership and his continued interest in the PROMESA agenda for Puerto Rico. We understand his concerns and his position and will respond to the Chairman shortly,” FOMB Chairman José Carrión said in a statement released Thursday afternoon.

As for Gerardo Portela, director of the Puerto Rico Fiscal Agency & Financial Advisory Authority, he told Caribbean Business that the commonwealth government continues discussions with the FOMB, as it has done for the past months.

As of this writing, the oversight board had yet to respond to a request for comment.

Prepa’s RSA approval by oversight board gets yet another extension

This week, Prepa also extended other deadlines to June 28 to finalize the required documentation and begin the voting process by all creditors over the “qualifying modification,” as defined by Title VI. The extensions come amid a Wall Street Journal report that the deal was on the verge of collapsing because oversight board members could not reach a consensus over the RSA’s terms.

Moreover, Ramos has previously said Prepa is receiving a lot of pressure from Congress to move the RSA forward. When asked Wednesday whether the administration has recently been pressured by Congress members to finalize the RSA, Sánchez said it hasn’t occurred as far as he knows. 

Yet, he warned that if anyone threatens the commonwealth with reducing federal transfers over a financial transaction such as Prepa’s RSA,  “the Puerto Rico government will exercise its duty and will answer accordingly.”

When Gov. Ricardo Rosselló came to office, he said he would renegotiate the previous Prepa RSA that still had several milestones pending. Under that deal, bondholders agreed to a 15% haircut, or reduction to principal, in exchange for new bonds maturing in 2043 and backed by a special charge on customers’ bills.

In April, Rosselló announced the government had reworked the deal to restructure Prepa’s debt that kept the 15% haircut, but extended the maturities of the new bonds to 2047. The new RSA, the administration says, saves $2.2 billion in debt-servicing costs over the next five years.

A firm ‘no’ from manufacturers

Local manufacturers are one of the groups that have said the new RSA is still a bad deal for Puerto Rico because it will result in high energy rates for some years between now and 2047. Josen Rossi, managing partner & chairman of Aireko Construction, said Prepa’s debt is unsustainable and the public utility should adjust its debt through the bankruptcy process provided by Title III to force another renegotiation. He said the RSA goes against the idea of giving the island financial stability.

During a recent energy forum at the Puerto Rico Manufacturers Association (PRMA) Convention, Ramos acknowledged that rates will be high for some years in which the deal is in effect.

“The debt repayment is high and it will increase rates for some years, but that is how the RSA will work. We have an agreement that works while having rates at 30¢ per kilowatt-hour (kWh) for some of the years under current projections for energy demand and oil prices, which could change,” he said.

He said the FOMB’s requirement that the utility should strive to have an energy rate of 21¢ per kWh by 2023 as part of Prepa’s Fiscal Plan is “totally unreachable.”

“We have done different simulations with projects, including a pipeline and more energy generation in the north, to try to reach that goal and it is unreachable,” Ramos added. The oversight board also ordered Prepa to repeal the contribution in lieu of taxes with municipalities during a period of three to five years and create a rate-restructuring process.

Prepa says ‘no’ to Aguirre pipeline

In an interview with Caribbean Business, Ramos said the idea of reviving a 42-mile natural gas-pipeline project from EcoEléctrica to the Aguirre powerplant in Salinas that would replace the proposed Aguirre Offshore GasPort (AOGP) is a nonstarter because the latter already has 99% of its permits.

Arctas Capital Group, a Houston-based firm, said during Puerto Rico Energy Commission (PREC) proceedings on the economic analysis of the AOGP that a 42-mile natural gas pipeline from the existing EcoEléctrica liquefied natural gas facility in Peñuelas to Aguirre—complemented with a floating storage regasification unit (FSRU)—makes more economic sense than the AOGP.

That project, previously known as the Gasoducto del Sur, was cancelled because of political opposition. Arctas said the pipeline would cost much less and would obtain easier financing than the AOGP. The pipeline alone would cost about $160 million and with the FSRU, about $231 million. But the alternatives are at least $250 million less than the AOGP.

42-Mile Gas Pipeline from EcoEléctrica Touted Over GasPort

“No one has talked to me about that. The project is not even part of the Integrated Resource Plan and why would I want to replace the AOGP, which has 99% of its permits, to go through the permitting process again with another project?” Ramos asked.

PREC is pushing Prepa to examine other alternatives to the AOGP to avoid possible unreasonable rate hikes to consumers brought on by the project’s cost. PREC is also launching a probe into Prepa’s performance to ensure it is not incurring wasteful spending and to develop performance metrics. PREC recently accused the utility of trying to slow the process.

Ramos denied the claim. He said he has a small staff to deal with the Prepa probe, as many staffers have retired from the utility. Whatever employees he has, he claimed, are working on the utility’s fiscal plan, which requires Prepa to find ways to reach the 21¢ per kWh benchmark by 2023.

“I lost half my staff and three more are leaving. I just requested more time,” he said.

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