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Bond insurer asks Puerto Rico fiscal board to put utility under receivership

By on July 19, 2018

SAN JUAN – National Public Finance Guarantee, a monoline bond insurer, has written to Puerto Rico’s Financial Oversight and Management Board, requesting that the Puerto Rico Electric Power Authority (Prepa) be put under receivership, saying that the utility’s current governing board members are politically controlled.

The assertions by National, an indirect subsidiary of bond insurance giant MBIA Inc., come as the U.S. House Natural Resources Committee is slated to hold an oversight hearing Wednesday over recent Prepa management upheaval, and ask the government how it intends to keep the public power company free from political influence.

Judge Laura Taylor Swain declined last year attempts to put Prepa under the direct control of the fiscal board after the government fought its attempt to place its revitalization coordinator, Noel Zamot, at the utility’s helm.

National chronicled recent developments in a letter, saying that on July 11,  Prepa Executive Director Walter Higgins announced his resignation after only four months of service due to political pressure from the commonwealth government. Higgins had been selected through a process described by Gov. Ricardo Rosselló as independent and objective.

In response to Higgins’s resignation, Prepa’s board announced that one of its members, Rafael Díaz Granados, would assume the role of executive director.

“Almost immediately, extreme political pressure was brought to bear against the Board regarding Díaz-Granados’s salary, culminating with an ultimatum from the Governor: Vote to reduce the Executive Director’s salary or resign. As a result of this politically motivated decree, a majority of PREPA’s Board—Rafael DíazGranados, Ernesto Sgroi, Edwin Irizarry, Erroll Davis, and Nisha Desai—resigned their posts under duress, citing ‘the petty political interest of politicians.’ Commonwealth government officials have also confirmed that these resignations were in direct response to Governor Rosselló’s ultimatum,” the letter reads.

“The two PREPA Board members who opted not to resign are, not surprisingly, political appointees. Then, on July 12, 2018, Governor Rosselló appointed two new members of the PREPA Board: Elí Diaz, who is not politically independent, and Ralph Kreil. At present, only one out of four PREPA Board members is politically independent. And this minority-independent Board has already held its first meeting, at which it installed Diaz—Director of Prasa, a public corporation with one of the largest account receivable balances owing to Prepa—as the new PREPA Board Chairman,” the letter continues.

Rosselló’s “ouster of independent Prepa Board members has at once gutted, and inverted, the utility’s statutory leadership structure, and has plunged Prepa into crisis,” the firm recapitulated.

“Under PREPA’s Enabling Act, as amended by Act 37-2017, the Prepa Board must have a majority of independent members. This explicit legal requirement is designed to ensure that PREPA’s leadership is professional, competent, and free from undue political influence. The current composition of the Prepa Board is the exact opposite—at least three out of four members are political insiders,” states the letter, written on July 17, before the governing board appointed José Ortiz as director.

“Thus, PREPA has, once again, become completely politicized in contravention of Commonwealth law. Moreover, it may take months for independent Board members to be selected and assume majority control as required by law. Absent immediate action to remedy this crisis, Prepa’s admitted history of ‘administrative and operational dysfunction tied to excessive government bureaucracy and politicization’ (see P.R. House Bill 1481) will continue at this critical juncture for Prepa, its stakeholders, and the people of Puerto Rico,” the insurer adds.

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