Government warns of Puerto Rico electric, water utility finances
SAN JUAN – The Gov. Ricardo Rosselló administration’s fiscal team reiterated Tuesday that the deteriorating finances of the Puerto Rico Electric Power Authority (Prepa) and the Aqueduct & Sewer Authority (Prasa) were of significant concern, including the possibility of both ending up with depleted balances as soon as this month.
In the case of the central government, although the estimated amount needed to end the year dropped significantly—nearly $2.8 billion less than initially projected—it still needs about $780 million, explained Gerardo Portela, the director of the Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym).
The lowered estimate is largely due to a revision of up to $1.4 billion in the amount the government expected to use for work related to Hurricane María. Also, some of the macroeconomic projections were revised upward, particularly the outmigration figure. Instead of a 15% population loss this fiscal year, the board’s economists and the government now project a 10% loss, which in turn improves the revenue outlook.
The official added that although Treasury liquidity currently ranges from $1.7 billion to $2 billion, the effect of hurricanes Irma and María have become evident. The most recent projection has liquidity dropping to $1.4 billion by Dec. 31 and, absent additional funding, continuing its free fall.
Along with a group of consultants, lawyers and other officials, Portela presented the government’s most recent financial figures to the island’s fiscal control board during its 11th public meeting, which was held in New York.
“Prepa needs additional funds,” the Aafaf official said. The public corporation needs at least $537 million to operate, but it could use up its reserves by mid-December and be in the red by year’s end, or minus-$224 million. Thus, it is estimated Prepa would need close to $760 million in additional liquidity.
As for Prasa, an entity whose checkbook is also on track to end the year with a negative balance, an about $121 million cash need is projected.
Working on federal loans
To board questions about how the fiscal gap at both public corporations will be bridged, particularly at Prepa, Portela mentioned controls on the pace of payments to suppliers, as well as finalizing the process of obtaining federal Community Disaster Loans (CDLs). Both the government and the board are betting on these loans to meet not only the liquidity needs of Prepa, but also of the central government and Prasa.
Congress recently approved an allocation of up to $4.9 billion from this program, which Puerto Rico and other jurisdictions recently affected by natural disasters would have access to. These loans operate through the Federal Emergency Management Agency (FEMA) and serve to meet emergency cash needs to sustain basic government operations, including payroll.
Although Puerto Rico is not the only jurisdiction that could benefit from the CDLs, it was estimated that up to $4 billion of the approved amount could be disbursed to the central government, public entities and municipalities.
“The structure is being evaluated and the government will ensure all the necessary controls are in place,” Portela told Caribbean Business in a telephone interview after his participation in the board meeting.
The official added that an “aggressive agenda” is underway with Treasury and FEMA personnel to advance the process and obtain the disbursement as soon as possible. However, he did not offer more details on the terms and conditions, amount, structure, timetable or recipients, as it is all still under discussion with the federal government.
“There should be more clarity about this in the coming weeks,” Portela said.
Looking into contracts
Since the board approved the new protocol for the approval of government contracts on Oct. 31, the panel has reviewed 11 worth a combined $496 million. It must give the go-ahead before the government can sign any agreement of more than $10 million with a contractor.
Jaresko said no additional information was requested for 10 of the contracts reviewed, while the rest are still under evaluation. These contractual arrangements are mostly healthcare-related and for debris removal, the executive director explained.
In the case of the controversial contract between Prepa and Whitefish Energy Holdings, Jaresko said it was reviewed and additional information about the transaction was requested. Also, the board received preliminary information Friday about the contract with Cobra Energy, another company hired by the public corporation to assist in the restoration of the island’s grid after María.
Meanwhile, the board said it made changes to two of its already approved codes: the review of debt transactions and its code of conduct.
The board reduced from 15 to seven the number of days to review any debt transaction the government or any of its entities intends to issue, pursuant to Promesa section 207. The analysis would include criteria such as the amount, use, purpose, terms and conditions, impact on fiscal plans and budgets, and other alternatives to the proposed transaction.
The board has already reviewed “multiple” debt transactions during the past year, Jaresko said, but did not give details about their amount, which entities were involved or the type of debt approved.
The panel also revised its code of conduct to include language that addresses some of the concerns raised by Sobrino at the 10th public meeting on Oct. 31 regarding possible conflicts of interest in the participation of some board members in the new contract-review process.
The board’s ethics adviser, Andrea Bonime-Blanc, presented the changes to the code of conduct, which now extends to the panel’s entire staff and requires each member to be proactive in raising a red flag were there to be any appearance of conflict of interest in the revision of contracts.
Members Andrew Biggs, Carlos García, Arthur González, Ana Matosantos and David Skeel attended the board meeting, along with Carrión, Sobrino and Jaresko. Member José R. González was absent.