Tuesday, August 20, 2019

National Public Finance: Prepa’s Privatization Lacks Transparency

By on February 22, 2019

Editor’s note: The following originally appeared in the Feb. 21 -27, 2019, issue of Caribbean Business.

National Public Finance, the largest creditor of the Puerto Rico Electric Power Authority (Prepa), complained that regulations for the privatization of the bankrupt utility lacked transparency, required Prepa to compensate “unsuccessful proponents” and limit the role of the Puerto Rico Energy Bureau (PREB), the energy sector’s regulator.

The remarks are contained in a letter dated Feb. 15, which National’s general manager, John Jordan, sent to Omar Marrero, the head of the Public-Private Partnerships Authority, about regulations for the proposed sale of Prepa’s generation assets and the public-private partnership that will be created to manage the utility’s transmission and distribution facilities.

The monoline bond insurer said it was concerned the draft privatization rules limit the role PREB will have in the process. The bureau will be involved in the approval of a preliminary contract through an energy compliance certificate. However, PREB will only have 15 days to complete the review, which National says is a very short period. PREB will also assist Prepa in supervising the transformation contract after it goes into effect but will not be able to amend the contract or interfere with contractual matters.

National says PREB’s role should be enhanced “in light of Prepa’s well-documented history of blunders and scandals.” While public-private partnerships may have worked in the past with smaller projects, Prepa’s transformation is “unprecedented,” Jordan says.

National also says an energy bureau representative should be part of the partnership committee that will negotiate the transformation contract, National said.

Second, the insurer expressed concern the draft privatization rules limit information on the requests for proposals (RFPs). The RFPs do not contain details about the due-diligence process that would be available to proponents, nor the commercial and technical details about Prepa. “Requiring such disclosures would ensure fair access to information for all proponents and stakeholders, and would render the bidding process more transparent and effective,” Jordan said.

National also complained that the rules contemplate “vague and uncapped payments” from Prepa to unsuccessful proponents. For instance, the utility, at its sole discretion, can decide to pay a stipend if it wants to terminate the procurement of a transaction. The amounts for the stipends are not defined.

Prepa may also pay a stipend to a proponent in the event of a cancellation or pay a stipend or partial compensation to unsuccessful proponents that submit compliant proposals. “Yet, stipend and partial compensation are not defined,” he said, adding the regulations allow Prepa to pay compensation at its own choosing, without any guidelines.

Meanwhile, Prepa and the Energy Bureau were on opposite sides of the table regarding a House bill that would create regulations to evaluate utility bills after hurricanes Irma and Maria struck the island. The bill comes amid complaints the utility “overbilled” customers for the service. The Energy Bureau, which supported the bill, says it has received more than 122 complaints, from September 2017 to December 2018, from customers about overbilling. In December, the Energy Bureau issued an order giving customers in Maunabo, Vieques and Culebra 60 days to challenge their bill. The law provides a 30-day limit.

Prepa’s chief executive officer, José Ortiz, said the legislation was not necessary. “Since September 2017 to February 2019, [Prepa] has not issued any suspension of service warning, so clients have ample time to object to their bills, request a payment plan or pay in full,” he said.

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