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Puerto Rico fiscal board sues utility fuel suppliers, labs over fraudulent transactions

By on June 30, 2019

The interim administrator of Prepa’s Fuel Purchase Office, Edwin Rodríguez, foreground, and his attorney, José Andreu Font, abruptly leave during a Senate hearing on the utility’s fuel purchases, February 2016. (CB file)

Damages could be in the billions for ‘massive overpayments and other improper compensation’

SAN JUAN – The Special Claims Committee of the Financial Oversight and Management Board for Puerto Rico filed a complaint Sunday against several fuel suppliers and laboratories seeking to recover potentially billions of dollars in fraudulent payments made by the Puerto Rico Electric Power Authority (Prepa).

Fuel oil purchases are Prepa’s single largest expense, the board said in the press release about its legal recourse, in which the panel alleges that between 2002 and 2015 certain fuel suppliers received “massive overpayments and other improper compensation from PREPA, which is required by contract and environmental regulations to purchase only high-grade fuel oil, which is more expensive and cleaner than low-grade oil.”

Fuel companies Trafigura and Vitol allegedly supplied Prepa with oil that “did not meet the applicable contractual or regulatory specifications, but nonetheless received payment from PREPA at the price of the higher quality fuel oil,” the release reads.

The complaint also alleges that suppliers were aided by the laboratories Carlos R. Méndez & Associates, Inspectorate America Corp., and Altol, all of which “received payments for falsifying test results concerning the fuel oil supplied” to Prepa.

These payments, the board maintains, contributed to Prepa’s insolvency by “increasing the cost of its operations and causing PREPA to slide deeper into debt,” according to the board.

The committee is asking the U.S. District Court for the District of Puerto Rico for authority to recover those payments “for the benefit of PREPA’s stakeholders,” according to the release.

“The Oversight Board has a responsibility to recover payments that were made illegally,” said David Skeel, a member of the board’s Special Claims Committee. “Based on the facts known, PREPA’s customers and creditors were harmed and we intend to pursue those claims vigorously.”

A group of Prepa customers already filed a lawsuit against the fuel suppliers and laboratories, as well as Prepa insiders and the utility itself. That class action litigation is subject to the stay the U.S. District Court put in place under the Puerto Rico Oversight, Management, and Economic Stability Act of 2016 (Promesa). The Special Claims Committee adopted the allegations of the class complaint in support of the claims of overpayments.

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