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  January 24, 2018

Puerto Rico's New Power Struggle: Privatization

Four months after Hurricane Maria and with close to half of its residents still without power, Puerto Rico has announced it will privatize its debt-ridden public electric utility, PREPA. We speak to Petra Bartosiewicz of Harper's Magazine
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Petra Bartosiewicz is a contributor to Harper's Magazine


AARON MATÉ: It's The Real News. I'm Aaron Maté. Four months after Hurricane Maria, close to half of Puerto Rico's residents are still without power. Now, a new power struggle is on the island's hands. Puerto Rico has announced it will privatize its struggling electric utility, PREPA [Puerto Rico Electric Power Authority]. Even before the storm hit, PREPA was in trouble. It filed for bankruptcy in July, after incurring over $9 billion in debt.

On Monday, Governor Ricardo Rosselló announced that PREPA could no longer operate as it has so far, and will be privatized and sold off within 18 months. Investors who hold a large chunk of PREPA's bonds have welcomed the move, but among its critics are San Juan Mayor Carmen Yulín Cruz, who said, "The privatization of PREPA is to put economic development of the island in private hands. The authority will serve other interests."

Well, I'm joined now by Petra Bartosiewicz. In her latest piece for Harper's Magazine, she reports on how privatization has been pushed on Puerto Rico long before the storm hit, and it's helped bring the island to the dire state it's in today. The piece is called, "Before the Deluge: How Washington Sealed Puerto Rico's Fate." Petra, welcome. Can you explain what PREPA is and the significance of this announcement that it's going to be privatized, something that was not a surprise to many people as this is a move that has been pushed for many years now?

P. BARTOSIEWICZ: Of course. So PREPA is the electrical utility that provides power on the island. It's been a public authority since it was formed in 1941. Like a lot of Puerto Rico's public operations, it increasingly over the decades began to rely on public debt, issuing bonds to run its operations. Even before the hurricane, there were widespread reports that the utility, which is run by a board of directors that is appointed by the governor, so it's a political appointees at the top of the authority, had been plagued by years of mismanagement, corruption. The infrastructure that was so decimated by the hurricane was already in terrible shape, even before Maria hit the shores of Puerto Rico last September.

In the aftermath of the hurricane, the utility was a centerpiece of the recovery effort focus because obviously without power, nothing else can be done. At this point, the island, which started in September with no power to any of the residents, now has something around half of the power restored, which is still a long way to go. Since the beginning of the disaster recovery effort, there were talks about privatizing PREPA. This move this week was not a surprise to many I think, but it's going to be requiring the bankruptcy judge that's overseeing the financial recovery process in Puerto Rico to approve. The legislature will have to approve it, and also it's potentially going to set up a fight with the creditors, the bond holders themselves, who wanted in some ways to see PREPA privatized, but are not eager to see it sold off piece by piece, which is what Governor Rosselló has sort of suggested is going to be the plan over the next 18 months.

AARON MATÉ: Why don't they want it sold off in that way?

P. BARTOSIEWICZ: I think that they want to make sure that they're going to receive the maximum amount on their investment. I think that it's still sort of premature because I'm just following this in the news like everybody else, but I think some of the comments that I've seen suggest that they fear they will not have as much control over the process if it's sold off piecemeal to investors. Also, it might be that the valuations won't be as consistent as they had expected.

AARON MATÉ: Okay. Now this is a big question, but if you could briefly summarize how a utility like PREPA was put in this position in the first place, where it was, where the island was forced to be in a position of so much debt, owing so much money to bondholders it had sold bonds to?

P. BARTOSIEWICZ: Well the island for many decades was kind of set up as a tax haven for corporations and a lot of the economy depended on tax benefits that were offered to corporations, particularly U.S.-based corporations, and most specifically in the pharmaceutical industry who came to Puerto Rico and were given benefits such as not paying taxes on revenue that they generated in Puerto Rico. There was a low labor cost here. The minimum wage was always lower here than in mainland U.S.

The economy grew to depend on these, particularly these pharmaceutical companies. Entire towns were dominated by one industry, which was the production of a particular drug, even. So these long-held benefits then were, started to be rolled back and in 2006, the island entered a recession that it never recovered from. In order to finance, the government increasingly began issuing bonds, bonds that were not necessarily financially smart because they could not necessarily pay them back, which is what ultimately happened. The bond that doubled between I think 2006 and 2015, and by 2015 the island clearly could not meet its bond obligations. It couldn't even pay off the annual amounts that it owed. That's how we entered this sort of fiscal crisis that led to the creation of the financial control board that is now supposed to oversee the paying of these debts and the restructuring of the entire finances of the island.

AARON MATÉ: Right. Meanwhile, as you point out in the piece, because of the status imposed on Puerto Rico by Washington, it's not, it doesn't have access to the bankruptcy protections that other municipalities like Detroit has available to them.

P. BARTOSIEWICZ: That's correct. Puerto Rico has a long history as a colonial subject, first of Spain, then of the United States and then eventually it became a commonwealth. But it does not have all the rights of states, which is why there's been an independence movement and a statehood movement in Puerto Rico, because many people believe that they should have those rights of self-determination. Bankruptcy would be something that they could have declared if they were a city like Detroit, but because they're not, they could not do that.

The whole process of the fiscal control board ultimately came about as a way of restructuring the island's finances, but it comes at the price of a lot of independent control by Puerto Ricans of their financial fate, which is something that the people on the island really have resented for a long time because they feel they have the responsibilities of any state or city, but they don't have the rights that go along with that.

AARON MATÉ: Right. Speaking of things that constrain Puerto Rico's ability to handle the situation that it's in, let's talk about the money that has been offered by the federal government, or the lack thereof. There's been no major bailout and the argument for privatization is that only private investment will help PREPA be able to raise the capital it needs in order to make the necessary repairs. Well, that's true right, but only in so far as the federal government refuses to actually give it money to do so. In other words, privatization is not the only option in theory. It's only the only option if the government will not help fund what Puerto Rico needs.

P. BARTOSIEWICZ: I think it's difficult to even overstate the magnitude of the financial crisis facing the island right now. They were in dire straits even before Hurricane Maria hit in September, but now, the island was utterly devastated, the worst hurricane ever to hit Puerto Rico, and the governor estimated that it would require some $94 billion to restructure the island and rebuild after the hurricane. To give you a comparison, that's the amount that he asked for from the White House administration. Texas and Florida were granted $44 billion for their respective hurricane recovery efforts in November, but Puerto Rico's request for $94 billion was deferred with no definite timeline as to when that money would come through and how much would come through.

The Trump administration said that they wanted to do further studies on what was needed. Right now on the ground you have FEMA and the U.S. Army Corp of Engineers which are putting billions into the, mainly into the rebuilding of the electrical grid, but it's still a drop in the bucket compared to what is really needed overall.

AARON MATÉ: Right. I mean even if people are opposed to privatizing their public utility, how can they organize and mobilize around it when they don't even have power and they're struggling to rebuild their lives?

P. BARTOSIEWICZ: Yes, Puerto Rico has a rich history of protest. The independence movement was vibrant for many years, but it has struggled in recent times and I think part of the problem is there is right now just such a low morale in the sense of what are they rebuilding towards? There's been some 200,000 people have left the island since the hurricane. Already the island was depopulating even before that. It's possibly a moment of a real crossroads, where the island, depending on how they recover from this natural disaster, will be able to set itself up in the future.

AARON MATÉ: Petra Bartosiewicz, here latest piece for Harper's Magazine is called, "Before the Deluge: How Washington Sealed Puerto Rico's Fate." Thank you.


AARON MATÉ: And thank you for joining us on The Real News.


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