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New Debt Audit Commission’s Report Raises Serious Questions

By on October 3, 2016

SAN JUAN—The Commission for the Comprehensive Audit of the Public Credit released Monday a new preliminary report that raises serious questions about the $673 million debt issuance conducted by the Puerto Rico Electric Power Authority (Prepa) on Aug. 21, 2013. While there has been no communication between the commission and the fiscal control board established by Promesa, the document will also be sent to the board for its consideration.

As first reported by Caribbean Business, the pre-audit report questions the actions of the utility, its auditors and advisers, including the Government Development Bank (GDB), and the underwriters who carried out the transaction. The document shows concern over possible conflicts of interest—including from URS Corp., Prepa’s consulting engineers since 1945—as well as highly optimistic projections by the authority, and supported by its advisors and auditors, that never materialized.

The debt audit commission president and union leader, Roberto Pagán, said Monday that the “serious findings” raised by the report reiterate the need to begin a formal auditing process.

However, of the $2.5 million assigned to the commission in the fiscal 2016 budget, only $300,000 has been received. Said sum was disbursed by the Treasury Department “about three weeks ago,” said Pagán, who added that these resources will help in hiring attorney Alvin Velázquez, who was named last week as executive coordinator of the commission. Velázquez currently works for the Service Employees International Union.

The Senate provided $100,000 to help in the commission’s work, an amount that former House Speaker Jaime Perelló said he would match. However, the lower chamber has yet to disburse the money, and it is not known when the commission will receive those funds, as well as the rest of its budgetary allocation. Under the current fiscal year’s budget, the commission wasn’t assign additional resources.

When asked by Caribbean Business on how the group hopes to work with Promesa’s fiscal board, Pagán said they expect to “complement each other in some degree” and that “to the extent that the [fiscal] board can provide information to the commission, that can help speed up the work.” He also noted that both have different roles to play, and that the commission’s work will continue.

From early June to mid-August, two students from the Hertie School of Governance in Berlin—Katja Litz and Ricardo Puga y Vidals—analyzed Prepa’s 2013 debt issuance based on public documents and interviews with current and former officials of both the utility and the GDB. Among those who were interviewed were Luis Aníbal Avilés, a former Prepa board chairman under the Aníbal Acevedo Vilá administration; Fernando Padilla, adviser to the GDB; and José Maeso, executive director of the State Office of Public Energy Policy.

“[The report] could have been deeper if there had been more access to information,” said Puga y Vidals, who along with Litz participated part of the summer internship program at the Puerto Rico Statistics Institute, while working the report under the supervision of the commission.

Meanwhile, Pagán explained that although the debt audit commission has requested privileged information to the government that has yet to be provided, the group wants to obtain the necessary resources before continuing efforts toward receiving information that is not publicly available, such as electronic communications between officials and advisers.

When questioned about the possible legal implications that could arise from the new study, Mario Marazzi, a committee member and director of the Statistics Institute, said it “was not the focus of this second report.”

In its first pre-audit, the commission—which comprises 17 members representing the public and private sectors, academia and labor unions—assessed the $3.5 billion general obligation bonds issued in 2014, as well as the tax revenue anticipation notes, or TRANs, issued in 2015.

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