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Governor Rosselló Nevares anticipates that PREPA’s debt restructuring agreement needs modifications

(March 22, 2017 – Washington, DC) Governor Ricardo Rosselló Nevares highlighted that Puerto Ricans pay substantially more for energy than the residents of the continental United States.

The statement was made today during a hearing before the Subcommittee on Indian, Insular and Alaska Native Affairs of the federal House of Representatives on the restructuring of the Puerto Rico Electric Power Authority (PREPA) debt.

The chief executive made it clear that the Restructuring Support Agreement (RSA), which was negotiated by the prior administration, provides a useful framework for discussion, but requires modifications to the terms set forth in it.

“The restructuring of PREPA must incorporate a governance model that facilitates investor and consumer confidence and minimizes political interference,” stressed the governor.

The governor listed some concerns with the RSA, which include: the impact of the transition charge on Puerto Rican rate-payers, the effect the transaction may have on the capital and liquidity available to PREPA to complete its operational transition, the failure of certain creditor groups to provide significant concessions, the reality that the RSA does not provide for sufficient capital to close the transaction, and that, under the current conditions, the RSA would not be sustainable for bondholders.

Additionally, he indicated that to accept the terms of any financial restructuring there must be full understanding of the path it provides for PREPA to improve its operations, increase its reliability, diversify, and access new capital.

“Our analysis of PREPA’s operations and the interplay with the RSA is on-going and we continue to focus on potential modifications to the RSA that would recognize the interests of Puerto Rican rate payers as well as creditors and other constituents. I am committed to continuing this hard work toward a meaningful restructuring in order to transform PREPA into a modern utility that will support the people of Puerto Rico and a strong and growing Puerto Rico economy,” underscored the governor before the federal Congress.

“We were able to achieve what many thought was impossible, a Fiscal Plan that was comprehensive, thoughtful, addressed fiscal and economic concerns, and the wellbeing of the people of Puerto Rico. Now, we aim to do the same with the RSA,” he added.

During his address, Rosselló Nevares also pointed out that the high cost of energy has an impact when it is contextualized within an economy in which the median family income is approximately 33% of that of a family in the United States.

“Puerto Rico needs a reliable, cost-effective and efficient electrical system, as well as an effective program of conservation and maximization of its water resource in order to support the island’s socio-economic transformation,” expressed the governor.

Rosselló Nevares specified that the high electricity costs negatively impact both the ability of Puerto Rico to attract capital and to compete in a global economy, which is not sustainable for the residents or for the economy of the Island.

According to the governor’s vision, PREPA must have a modern and resilient transmission and distribution system—with diverse sources of fuel including renewables and supported by private capital—to invest in new and efficient generating capacity.

After the RSA was signed in December of 2015, Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA)—signed into law by the President on June 30, 2016— and which states in its last provision that “any durable solution for Puerto Rico’s fiscal and economic crisis should include permanent, pro-growth fiscal reforms that features, among other elements, a free flow of capital.”

The governor emphasized that “a critical part of PROMESA’s effectiveness, stems from the creation and certification of a Fiscal Plan. After much work, collaboration and thoughtful exchange, the Oversight Board’s certification of our fiscal plan on March 13th represented an important first step in moving forward with Puerto Rico’s good faith negotiations with its creditors and stakeholders.

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