Puerto Rico taps public private partnerships to boost economy
Puerto Rico moved to increase private investment in infrastructure as the hurricane ravaged island looks to rebuild its economy.
The island government said Monday that it's working on six public private partnership projects that would lead to $300 million to $400 million of investment in projects ranging from a hydroelectric dam to student housing.
Puerto Rico will seek requests for qualifications for three of the projects and it is already working with companies on the other three. If the projects go forward, they would boost an economy that has been struggling with long-term economic decline compounded by the impacts of two major hurricanes in the last two months.
"It's a way that's politically feasible to get more private sector participation in the economy in general and in services generally provided by the government,” said Vicente Feliciano, president of Advantage Business Consulting in San Juan.
Puerto Rico is in the midst of restructuring more $50 billion of public sector bond debt under the supervision of a federal control board appointed last year. The public-private partnerships were announced as Congress considers a disaster relief package that includes $4.9 billion of short term aid to keep the Puerto Rico and U.S. Virgin Islands governments afloat.
“The combination of the projects we have identified, plus private sector proposals, may constitute a new action plan for the [Public Private Partnerships] Authority to address the state of emergency following Hurricane Maria,” said Omar Marrero, the authority’s executive director. “Now commences a process of evaluation and competition to choose entities that best benefit Puerto Rico.”
Puerto Rico Gov. Ricardo Rosselló said in announcing the projects Monday that they would “create thousands of jobs at the same time as they will add funds to the Treasury and guarantee less expenses for the government of Puerto Rico.”
Squire Patton Boggs Partner Roddy Devlin predicted strong market interest in the projects, noting that over 700 people attended the Puerto Rico government-sponsored P3 summit in April.
He said financing for the projects would be “complicated” given the prevailing economic conditions. “However, if there was ever a time to bring together all interested parties to come up with creative solutions to address Puerto Rico’s pressing infrastructure needs, now is that time.”
The government said it expected the six projects would directly or indirectly create 7,000 jobs.
Three private sector entities presented unsolicited proposals in the energy sector. One proposal was for a hydroelectric dam that, the government said, would make the island’s electrical generation more flexible and would lower electrical prices.
The governor also said that a company was proposing creating an electrical generation facility to service peak demand, known as a peaking unit. This would increase the reliability, efficiency, and environmental friendliness of the island’s power generation.
The government is looking at a proposal to generate electricity using liquefied natural gas in the north of Puerto Rico in a bid to diversify the sources of electricity and lower electrical prices.
One of the other projects would be for a speedboat system between Cataño, Vieques, Culebra, and possibly the Roosevelt Roads base. Cataño is next to San Juan on the eastern side of Puerto Rico’s north coast. Vieques and Culebra are islands politically part of Puerto Rico but off the east coast of the central island. Roosevelt Roads is in Puerto Rico’s southeast.
Another project would be to finance 500 housing units and renovate the student center and mixed-use buildings in the Mayagüez campus of University of Puerto Rico.
Finally, the government is hoping to get investments to improve government parking.
The most important of the proposals are for electricity, but these are also the ones that will take the longest to complete, Feliciano said. The natural gas project, in particular, would be helpful but also take a lot of time to complete.
John Hallacy, municipal analyst for The Bond Buyer, said that as things stand any bonding for these projects would probably be taxable. If the federal government passed legislation to help with the recent hurricanes’ effects, it could conceivably include provisions allowing these and other bonds to be sold on tax-exempt basis, he said.