Sunday, December 8, 2019

Congressional hearings seek to define fiscal board’s role in Puerto Rico recovery

By on November 6, 2017

SAN JUAN – The role of the Financial Oversight and Management Board (FOMB) in the face of recovery efforts after a wind beast named María leveled Puerto Rico will be re-examined during a House Natural Resources Subcommittee hearing Tuesday as debt restructuring seems to be taking a backseat to recovery.

Although the subcommittee chaired by Rep. Rob Bishop (R-Utah) created the board through the drafting of the Puerto Rico Oversight, Management and Economic Stability Act (Promesa) in 2016 to provide oversight in Puerto Rico’s restructuring of more than $118 billion combined in debt and unfunded pension liabilities, the possibility exists that new oversight tools could be legislated.

A hearing memo put out by the Natural Resources committee points out: “As the Oversight Board’s powers were constructed to address the fiscal crisis of Puerto Rico and not the humanitarian crisis caused by hurricanes, new powers may need to be legislated to maximize the Oversight Board’s response.

“This hearing aims to assess 1) what the Oversight Board is doing immediately in response to the hurricanes and whether the Board needs additional tools to ensure Puerto Rico’s successful recovery; and 2) the strength of local entities in ensuring transparent and accountable use of Federal resources. With the devastation and humanitarian crisis brought on by Hurricanes Irma and Maria, the role of the Oversight Board must be reexamined and clarified as necessary.”

(Screen capture of www.naturalresources.house.gov)

The back-to-back glancing blow of Irma and the full onslaught of María, both major hurricanes, now raises questions about the board’s role in Puerto Rico recovery efforts. Controversy came to the forefront two weeks ago when board members spent time on the Hill informing Bishop and senators on both sides of the aisle in separate meetings that they intended to use the powers vested in them under Title III that they would be appointing Revitalization Coordinator Noel Zamot as chief transformation officer for the crippled Puerto Rico Electric Power Authority (Prepa).

The initiative to assert control came on the heels of the controversial contract with Whitefish Energy Holdings, a Montana-based company with a two-person front and a meager track record, hired by the utility to the tune of $300 million.

Although Bishop has a particular interest in Prepa because he believes the utility’s efficient recovery is essential to put Puerto Rico on a path to sustainable development, his interests go well beyond the Whitefish deal.

“The answer is ‘yes, categorically,’ a source on the Hill with ties to the GOP told Caribbean Business when asked whether Bishop’s interests in Prepa were broader. “I think there is a view in Congress, and this includes Bishop, that Puerto Rico will continue to be a drain on the federal Treasury absent of affirmative action in Congress that allows Puerto Rico to thrive. It is impossible to continue to support a welfare jurisdiction and we know how important the utility is to the economy.”

To that end, the hearing will be divided in two sessions—a first round features FOMB Executive Director Natalie Jaresko and Zamot to explore their roles and actions pertaining to the recovery efforts in Puerto Rico after the onslaught of María. The second round features testimony by Prepa Executive Director Ricardo Ramos, who will answer questions pertaining to the irregularities surrounding the Whitefish deal and the delay in contacting the American Public Power Association.

Bishop and other influential members of Congress are suspicious of that deal and the hiring of Cobra Acquisitions for $200 million because of the lack of transparency—both contracts contain clauses asserting Federal Emergency Management Agency (FEMA) compliance and oversight, prerequisites which the agency later denied.

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“The recent Whitefish contract highlights the need for supervision of the funds that will be made available to Puerto Rico in the upcoming months,” the memo asserts.

“Contracts of a certain magnitude need to be properly vetted by responsible actors through a transparent and accountable process, rather than utility managers in an ill-advised moment of desperation. Furthermore, the Committee has an interest in ensuring that the process for long-term recovery and the rebuilding efforts are coordinated and harmonized with the overall goals set forth under PROMESA. The recovery process must be as efficient and effective as possible.”

Although Gov. Ricardo Rosselló has since canceled the Whitefish contract, the firm has 30 days to complete work it has begun, which includes connecting the Aguirre Power Plant in the South by re-connecting primary lines to the grid in the North and reconnecting Aguirre to the north through Aguas Buenas along a route that had 33 towers destroyed. Sources with knowledge of the matter told Caribbean Business that work should be complete by Nov. 25.

Puerto Rico electric utility rejects fiscal board’s intention to appoint ‘chief transformation officer’

The Rosselló administration is challenging the board over its naming of Zamot as CTO to oversee the recovery efforts executed by Prepa, alleging that it goes beyond the FOMB’s purview. Judge Laura Taylor Swain, who is overseeing Title III bankruptcy proceedings, “will consider this filing the week of November 13, 2017. If the judge decides in favor of the Oversight Board, one may conclude the Oversight Board has the power to appoint a ‘Chief Transformation Officer’ for each of the entities within Title III,” the memo concludes.

The GOP source said the House committee will wait to see if Judge Swain decides Zamot’s appointment is within the parameters of Promesa and whether it is within the FOMB’s purview to certify the use of federal money granted for the island’s recovery.

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“Congress will wait to see how the judge decides before it acts. I think Natural Resources is interested in seeing the board name someone to oversee the disaster recovery efforts. If the Congress were to do anything, it would be to give the board more powers to name a hurricane czar—that sort of thing. Congress will use the powers vested in Article IV, which gives it authority over the territories to do whatever must be done,” the source said.

More than two weeks ago, Bishop let on that he was “not leaving anything off the table as pertains to Promesa,” during an impromptu press conference held at the Muñiz Air National Guard Base in Isla Verde on the heels of a visit to the mountain town of Utuado together with members of a bipartisan congressional delegation.

 

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