September 12, 2017 Read More →

‘Vultures’ in Puerto Rico Seize on Hurricane Devastation to Advance Push for PREPA Privatization

The Intercept:

Vultures Circling the wreckage of Puerto Rico in the wake of Hurricane Irma are closing in on a long-sought prize: the privatizing of the island’s electric utility.

This most recent privatization push is taking place in the midst of a broader economic crisis in Puerto Rico, which is facing $74 billion of municipal debt. How did that happen? In a nutshell: Corporations flocked to the island for years thanks to a series of tax incentives, and public agencies there eagerly issued bonds to creditors who could collect a subsidy for buying them come tax season. Those incentives came under assault in the mid-90s, and, as they faded, manufacturers’ interest in the island faded too.

Due to a series of lingering and idiosyncratic tax breaks, American investors — hedge funds, mutual funds, and individuals — kept buying up bonds from Puerto Rico that were by then considered junk, without much concern for just how dire the island’s financial situation really was.

All this reached a breaking point in a 2006 recession that the global recession two years later only exacerbated. Before long, the commonwealth was having major trouble paying interest on its loans. But for reasons that remain a mystery, Puerto Rican public institutions have not been allowed to file for Chapter 9 bankruptcy since 1984. Because much of Puerto Rico’s debt is owned by a coterie of American creditors, however, the Puerto Rican government and agencies therein can still be sued in the American legal system for nonpayment.

That’s part of why hedge funds spent so much money to keep the anti-bankruptcy statute in place when debates around Puerto Rico’s debt started coming to a head in Washington post-crash. As lawmakers discussed the debt crisis, the funds poured millions of dollars into lobbying efforts and a string of front groups. One such outfit, dubbed Main Street Bondholders, was allegedly “comprised of small bondholders from across America who are committed to a policy process that returns Puerto Rico to sound financial management.”

To avoid a default — and a war between bondholders and the island’s government — Congress last July passed PROMESA. The law endows a federally appointed Financial Oversight and Management Board with broad authority to restructure the island’s debt and raise revenue. Among its powers are the ability to break union contracts, cut pensions, and take control of public assets. The legislation also established several policy protocols for how to rein in spending and fiscal management across various sectors of the Puerto Rican economy. Among the 30 percent cuts now outlined are plans to close down 75 percent of the commonwealth’s public agencies, lower the minimum wage, and privatize a slew of public corporations.

Like austerity measures elsewhere, PROMESA was passed amid tremendous controversy. Just before it went to a vote on Capitol Hill, a majority of Puerto Ricans were found to reject the creation of an oversight board. Many see it as a colonial power, one of many in the island’s long and fraught colonial relationship with a U.S. government that has severely limited Puerto Rico’s autonomy and democratic structures. It’s easy to see why: Though its authority officially circumvents that of the commonwealth governor and legislature, only one of the board’s seven members is required to be from Puerto Rico. The Puerto Rican governor is technically a member of the board but cannot vote on any of its final decisions. Protests have continued since PROMESA’s passage against various austerity measures, including a massive student strike against university privatization this past May.

Bondholders are angry about the restructuring arrangement and PREPA privatization plan for nearly opposite reasons. Unsatisfied with PROMESA and seeking faster repayment, they are now actively pressuring both the board and Puerto Rican government officials to expand cuts already slated to happen over the next several years. Those with who hold Prepa’s debt fear privatization could mean losing their collateral.

Though the drive to privatize PREPA has come largely from above, few would argue that it can continue as is. The status of the utility’s infrastructure has declined steadily over the last few decades, and many of its generation and distribution systems are dangerously outmoded. A blackout following a transmission line failure last September left half of the island without power.

“This disaster is waiting to happen. No one could say that they didn’t know the electrical system was in a state of disrepair,” says Cathy Kunkel, an energy analyst at the Institute for Energy Economics and Financial Analysis, who has presented expert testimony on PREPA’s status.

More: In Wake of Hurricane Irma, Vultures Eye Puerto Rico Electric Grid

Comments are closed.