January 24, 2018 Read More →

Puerto Rico’s Privatization Scheme Draws Skeptics

Associated Press:

One of the largest public utilities in the U.S. might soon be up for sale, but many wonder who would want to buy a power company that is worth roughly half of the $9 billion debt it holds and has an infrastructure nearly three times older than the industry average.

Concerns also are growing about whether plans to privatize Puerto Rico’s Electric Power Authority will translate into more affordable electric bills and better service. People in the U.S. territory say they cannot afford another financial blow amid an 11-year-old recession and many complain about receiving high power bills after Hurricane Maria when they didn’t even have electricity.

“Some people have faith that privatization will improve everything, but it’s not a guarantee,” said Puerto Rico economist Jose Caraballo. “If a good deal isn’t hammered out, Puerto Rico can end up worse than it is.”

The power company once known as the government’s crown jewel has seen a reduction in employees and a drop in the demand for energy amid a deep economic crisis and recent austerity measures. The agency now has some 5,800 employees and serves nearly 1.5 million customers with infrastructure that is roughly 45 years old, which officials say caused frequent power outages before the hurricane and an island-wide blackout in September 2016 that lasted a couple of days.

The company also has long been criticized for political patronage and inefficiency, and recently faced accusations of corruption. In June 2016, the owner of the U.S. territory’s biggest oil supplier was arrested after being charged with misappropriating $11 million in public funds. Jose Gonzalez Amador and his company, PetroWest, are accused of charging the power company a 0.5 percent municipal tax even though some municipalities granted them a lower rate or waived the tax altogether. Authorities say the charge was then passed on to consumers.

Given that situation, can the U.S. territory attract any takers?

Industry analysts say it’s a bit too early to tell, noting that it all depends on the type of measure the governor expects to submit in upcoming days to start the privatization process.

“It’s a complicated arrangement: What’s going to happen to the workers? Where is the debt going to land? What are the contracts going to look like? There are a lot of details here that have very real implications on how much electricity is going to cost for Puerto Rican customers,” said Cathy Kunkel, an energy analyst with the Ohio-based Institute for Energy Economics and Financial Analysis.

She said her main concern is that privatization could occur without a regulatory body, which is needed in part to look after consumers’ interests on an island where power bills have been double the average of those on the U.S. mainland, in part because imported fuel supplies three-fourths of the energy consumed in Puerto Rico, according to the U.S. Energy Information Administration.

The terms of the contract will determine the interest, Kunkel said, noting that the cost of any new investment in the electrical system will be paid by consumers.

“Private investors will want to make a profit,” she said.

More: Hope, Fear as Puerto Rico Moves to Privatize Power Company

Comments are closed.