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Injection of federal funds pique interest in public-private partnerships

By on June 15, 2018

Editor’s note: This report first appeared in the June 14-20 issue of Caribbean Business

The flow of billions of dollars in federal funds to help rebuild Puerto Rico’s infrastructure has piqued interest in the creation of public-private partnerships because they give the private sector a chance to use the funds as seed money, along with private funds, to finance projects.

“There is a lot more interest. Why? I’ll tell you why, because there are few places in the world where we can anticipate an economic injection of over $60 billion in federal funds, and that is important because it gives the private sector leverage,” said Omar Marrero, director of the Puerto Rico Public-Private Partnerships Authority (PPPA).

Next week, the government hosts its annual P3 Summit—at a time when the government has a new fiscal plan, a proposed budget and a significant amount of federal funds that will be directed toward the reconstruction of infrastructure—which will provide an opportunity to discuss innovative ideas for projects through public-private partnerships (P3s).

“After the hurricane’s passage, the creation of P3s and the need to centralize the reconstruction of Puerto Rico in one place, have joined to create the synergy in favor of P3s. This event allows us to present public-private alliances as pillars for the island’s reconstruction,” Marrero said.

The day-and-a-half event provides an opportunity to hear about Puerto Rico’s progress since its last P3 Summit in April 2017, and get to know details about ongoing projects and prospective P3 opportunities. The government is trying to attract interest from the private sector to form partnerships with the government in the areas of housing, highways, solid-waste management, energy and health. For instance, Marrero said the government is seeking alliances to run Centro Médico in San Juan’s Río Piedras district and the Comprehensive Cancer Center.

While the P3 law already allows the private sector to access federal and state funds as “seed money” to execute a project, the huge injection of federal funds for infrastructure will allow investors to obtain better financing terms and yields to optimize funding for projects.

Using the $18.5 billion in Community Development Block Grant (CDBG) funding received after the hurricane, “we are going to design a program that can establish guarantees or credit enhancements to broaden the viability of projects,” said Marrero, a lawyer who focused on finance.

Marrero noted, for instance, that as part of the viability study for the proposed P3 to provide maritime transportation to the island-municipalities of Vieques and Culebra, the government is analyzing how much federal funding is available to do certain improvements to the infrastructure required to execute it. The same analysis is being completed for the proposed concession of island ports. “We are revisiting their financing structure to examine how we can make them more viable with the arrival of this new federal funding, which includes reducing the amortization period,” he said.

These projects will go for public biddings after the viability studies are completed, he said.

After the passage of Hurricane Maria, the PPPA received proposals for new projects, including energy-storage systems using batteries at powerplants, and presented by Tesla Inc., which is also involved in projects in Culebra.

The government recently proposed a new Incentives Code that did not include incentives for P3 projects, but Marrero said the P3 law contains its own incentives, including a special 20 percent tax rate on all income for all concessionaires. P3s also have full tax exemption on business equipment and properties, which are public in the case of public-private partnerships.

“We trust, with the quality of the panelists we will have at [next week’s] P3 Summit, and the quality of the information that will be presented, we are going to attract interest,” he said.

The P3 Summit, to be held at the Puerto Rico Convention Center, features Mark Romoff as keynote speaker, who is the president & CEO of the Canadian Council for Public-Private Partnerships. Canada has more than 600 alliances that have injected millions of dollars into the economy. The summit will also include a panel discussion by investors, who will speak frankly on the pros and cons of Puerto Rico as an infrastructure and real-estate investment destination. A panel discussion will also be held on the bankability of proposed projects and information about unsolicited projects.

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