Saturday, September 23, 2017

Time For Thaw of Critical Projects



By on August 10, 2017

By Eva Lloréns Vélez and Philipe Schoene Roura

SAN JUAN — Anyone expecting once again to see massive infrastructure projects like the ones built in the 1990s or numerous construction trucks driving along the highways now that the new Revitalization Coordinator, Noel Zamot, has taken over the seat, may be in for a surprise.

Zamot, a former commander of the U.S. Air Force, who was tasked last week with identifying, coordinating and fast-tracking the execution of infrastructure projects under Title V of the federal law Promesa, said he is envisioning giving the seal of approval to projects that are cost-efficient, highly technological and create jobs. It will not take rocket science for him to identify the financing challenges inherent in putting critical projects in motion.

“Frankly, there is no money,” Zamot admitted during a wide-ranging interview with Caribbean Business.

Title V of Promesa provides for a process of expedited permits, both local and federal, for those infrastructure projects that are certified as critical by the Financial Oversight & Management Board (FOMB).

The laws calls for the Revitalization Coordinator to assess “critical projects” to improve performance of energy infrastructure and overall energy efficiency; expedite diversification and conversion of fuel sources for electric generation from oil to natural gas and renewables; promote development and utilization of energy sources found in Puerto Rico; contribute to transitioning to privatized generation capacities in Puerto Rico and support the Puerto Rico Energy Commission (PREC) in achieving its goal of reducing energy costs and ensuring affordable energy rates.

While it is not in his job description, Zamot knows it will be a Herculean task to convince investors to put money into projects on an island that has filed for bankruptcy. That is particularly true in the energy sector, thanks largely to the scuttling of a restructuring support agreement (RSA) struck between the Puerto Rico Electric Power Authority (Prepa) and its various creditor constituencies.

Energy stuck in intensive care

In the run-up to passing the Puerto Rico Oversight Management & Economic Stability Act (Promesa), U.S. Republican leadership in the House of Representatives, namely Natural Resources Subcommittee Chairman Rob Bishop (R-Utah), thought he had codified the Prepa RSA to head down a path to Title VI for consensual negotiations by putting in language that protected deals struck prior to May 18, 2016. The original Prepa RSA, which was struck in 2015, qualified as a prearranged.

Bishop and others in the GOP who appeased creditor constituencies—monoline bond insurers, fuel line lenders and retail bondholders holding more than $9 billion in Prepa debt—in the passing of Promesa were not counting on the Rosselló administration taking another crack at the deal. In so doing, they opened the door for the possibility that the deal could be broken because, as a different RSA, it no longer met the May 2016 protection criteria.

In June 2017, the FOMB announced it would not be certifying the new Prepa RSA—instead of heading down a path to Title VI, the utility was sent down a path to Title III for bankruptcy proceedings in federal court. In one fell swoop, the deal was blown as was investors’ confidence.

“When the Oversight Board started to demand requirements to the fiscal plan—that could not be met—we knew the deal was at risk,” said one adviser to a Prepa creditor constituency, who chose to remain nameless. “Prepa was chosen for a reason, to try to be a consensual process—the agreements that were made before the P.R. Energy Commission (PREC) regarding the transition charge—all of that was done to encourage private development to come to the island; to encourage rebuilding Prepa’s generation fleet. The two best powerplants are the EcoEléctrica and the AES [Applied Energy Services Corp] plant. More people were lined up to rebuild the critical infrastructure at Aguirre [in Salinas] and Costa Sur [Guayanilla] and most likely Palo Seco [Cataño]—that is at best stalled.”

Advisers with ties to the FOMB told Caribbean Business that board members wanted more investment for infrastructure overhaul on behalf of the creditors in the RSA equation.

“What they are seeking now is a combination between major investment for creditors and P3s [public-private partnerships] that could be brought together,” one adviser told Caribbean Business. “If creditors provide a bit of support for transmission and distribution through public-private partnerships, you could see new money for combined-cycle units—that is the vision right now.”

As previously reported by Caribbean Business, sources close to the matter confirmed that the amount of investment for infrastructure became a bone of contention as the utility’s fiscal plan was being tweaked prior to certification by the FOMB. Prepa Executive Director Ricardo Ramos included many projects in the fiscal plan that PREC has insisted be kept out. By including the Aguirre Offshore GasPort and new generation units at the Palo Seco power plant, Prepa’s top brass gave the impression it was shunning PREC.

Promesa, however, establishes that the revitalization coordinator has the final word on critical infrastructure projects. “Under Promesa, all that goes to hell; if Prepa wanted to, it could bypass the energy commission—the buck stops with the revitalization coordinator,” said an adviser with ties to the Rosselló administration.

Prepa and its regulator, PREC, continue to be at odds over projects that the utility should pursue. For instance, Prepa wants to build the Aguirre Offshore GasPort, a liquefied natural gas project that could help reduce the cost of energy. PREC, however, appears to be more inclined to force Prepa to seek other alternatives because, at $358 million, the panel believes it is a costly project.

Revitalization Coordinator Noel Zamot. (Juan J. Rodríguez/CB)

“How much weight are you going to put on the opinions of the Energy Commission versus Prepa, or is your opinion the one that matters?” Caribbean Business asked.

Zamot said the government has an approved fiscal plan that states Prepa shall be transformed. “We see Title V as part of that transformation,” he replied.

Energy projects, he said, will be evaluated based on their costs, impact on the environment and jobs they can create. Afterward, he said he will speak with government officials to determine which could be built.

“There is not sufficient money in the world to fix powerplants and bring them into the 21st century. Investors won’t see that as profitable. We should focus on projects that transform,” he said.

He envisions Puerto Rico following the path of other countries that have combined renewable and traditional sources of energy that use fossil fuels “that are useful and good for the environment.”

“We have to talk about natural gas and not about trying to rehabilitate all of Prepa’s assets to continue to use fossil fuels as has been done until now,” he said.

If you build it…

Despite the significant damage to investor confidence as pertains to energy, Zamot noted he has already been approached by individuals interested in talking about possible projects for Puerto Rico.

“There is a world of investors ready to invest…but we have to communicate to the world that while Puerto Rico is passing through tough times, we have a solution…. The fact that there has been some visible progress shows to the markets that our problems can be solved,” he said. “It will take time for us to get out of the crisis but when they see that with the board we are doing that, they will know that the time to invest is now,” he added.

While Zamot says his priorities are to move forward projects in the areas of energy, transportation and water infrastructure, he seeks projects that are also cost-efficient, small and midsize in scale that could be immediately implemented.

He hopes to have the first projects under Title V of Promesa ready to go by the end of the year. “I hope to have critical projects identified and going through permitting by the end of the year,” he said.

A look at his tweets and publications shows that the new Revitalization Coordinator is pro-environment and is also interested in cybersecurity and technology, all reasons that could explain why he favors the increased use of renewables over rebuilding the decades-old Prepa plants or the 19th century hydroelectric plants. While Promesa says otherwise, he also fell short of supporting the privatization of Prepa, as some members of the Oversight Board prefer, but would rather support a “transformation.”

While Zamot comes from the aeronautical realm, he said he is well-aware of the island’s energy-sector challenges and the fight to bring power rates down because he has frequently visited the island to see relatives. (He knows the energy tostones—the only cultural shock he experienced was learning about the existence of the “trifongo.”)

He was infrastructure manager at an Oklahoma base in charge of safety, logistics, medicine and electricity. His base won $1 million because of the energy savings he helped achieve, so he is ready for the challenge.

His way or the highway

In the area of transportation, he did not talk about the construction of new trains, railway systems or highways but on how to better coordinate the existing transportation systems through technological chips to promote the economy.

Rather than speaking about rebuilding water plants or sewer system projects, he spoke of intelligent water meters that can help the Puerto Rico Aqueduct & Sewer Authority (Prasa) prevent the theft and loss of water.

Francisco Díaz Massó, president of the local chapter of the Associated General Contractors, said he sent Zamot the organization’s list of 20 critical projects, which included the proposed Aguirre Offshore GasPort and completion of the Valenciano water treatment plant. He did not see his list of projects as incompatible with what Zamot is proposing.“I do not think there is a clash. They complement each other. We support renewable energy and cost-efficient projects,” Díaz said.

One of the issues raised in the drafting of Title V was permitting. Because Congress wanted to expedite permitting in the context of energy challenges, the interagency environmental subcommittee was inserted to address those permitting concerns.

Zamot said he is part of that committee. “I believe you can be profitable and respect the environment…. There is no reason why Puerto Rico cannot be the leader in creating high-technology projects that also respect and protect the environment,” Zamot said.

Title V has an expedited six-step process to determine whether a project will be approved that includes an evaluation by agencies and the Revitalization Coordinator, with each step taking 30 days to evaluate. However, Zamot said he is still determining how long it will take him to evaluate a project.

“If I am a project proponent, I have to try to convince the revitalization coordinator that what I am proposing should be a critical project—what criteria are essential to obtain that approval?” Caribbean Business asked.

“The approval of the project does not depend on me. It is the process. A critical project is one that fulfills a role in the areas of energy, transportation and water that does not depend on public financing, that executed,” he replied.

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Energy projects should comply with additional criteria, such as the diversification of fuels, the development of renewables or reducing reliance on oil. In that regard, Zamot declined to comment on whether he would support projects like the Aguirre Offshore GasPort or the waste-to-energy plant in Arecibo, the latter of which already has permits. However, he said he would very much support the creation of microgrids to provide energy.

Zamot said there is a website that will be up and running in the coming two weeks that would allow project proponents to submit projects.

“The vision of Title V is that it will be a one-stop shop…. All contacts will be there,” he said.

Caribbean Business asked “whether he had already discussed future projects with the Infrastructure Financing Authority and to detail which projects he would first be evaluating?”

Zamot said he met with officials from the Public-Private Partnership Authority and Fiscal Agency & Financial Advisory Authority (Fafaa) to ensure his process will not interfere with the proposed projects so the governing administration can move forward. Both sides agreed the processes run parallel to each other.

“We all agree that we have to have an impact on the economy…. My priority is to make Title V work. To be able to do that, I have to communicate the process and steps taken by the government to promote growth,” he said.

The Rosselló administration already has several projects that will go for bids starting as soon as this month. Omar Marrero, head of the Public-Private Partnerships Authority, has identified 25 projects that include the renewal or redevelopment of Centro Médico in Río Piedras, the creation of express lanes, maritime cargo zones, renewal of the Aguadilla and Ponce airports, and the proposed ferry to Vieques and Culebra.

“We all have the same vision and objectives,” Zamot said.

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