Puerto Rico’s New Power Struggle: Privatization

This Real News Network interview with Petra Bartosiewicz of Harper’s Magazine discusses Puerto Rico’s plans to privatize its debt-ridden public electric utility, PREPA. This decision was announced last week —  at a time when close to half of the island’s residents still lack power even though Hurricane Maria occurred four months ago. Bartosiewicz’s recent Harper’s article, Before the Deluge:How Washington sealed Puerto Rico’s fate, is well worth your time.

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, her 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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  1. Nell

    It is a shame the independence movement did not win out a long time ago. If Puerto Rico was its own state with its own currency I am sure it would be a lot better off now. Obviously it sucks being a vassal to the USA (as it sucked for many countries being part of the British Empire). We can all imagine, I am sure, what Trump thinks of Puerto Rico and it’s inhabitants.

    1. Fred

      I agree, the US should “liberate” the Commonwealth of Puerto Rico. The sooner the better. I can see the tweets now from “Trump the Liberator”.

    2. PJ

      Sure. It could be functioning as well as Jamaica, the Dominican Republic or Cuba. Absent extraordinary natural resources e.g. Trinidad , affluent sizable Caribbean entities require heavy external subsidies like Martinique , Guadeloupe , or for that matter , pre-storm Puerto Rico. The Puerto Rican diaspora is one aspect of the greater Caribbean diaspora , and for the same reasons : ambitious people on heavily populated islands with limited local growth prospects moved to more affluent places for better opportunities.
      There are lots of particular issues to debate about Puerto Rico ; but that reality is always in the background.

    3. lyle

      Actually if you look at the British Virgin Islands or any of the other small islands you find they are having to beg for help in the case of the BVI they have to go hat in hand to London, even had to beg for help to catch the escapees from the prison right after the storm. The recovery in PR is about where the recovery in the BVI is and also where the recovery in the USVI is. Or look at Barbuda again a british possession having to go hat in hand to London for Assistance. So a good benchmark to see how things would go would be to look at the other Caribbean Islands damaged primarily by Irma, some of which got essentially wiped out.
      A pretty good direct comparison because the topography is similar would be the USVI vs the BVI. In the USVI and the BVI it is folks in the countryside that are still without power as in PR. Note that the British possessions are poorer than the US possessions.

  2. jackiebass

    This is classic neoliberalism. Create a crises by getting a country in debt to the point they can’t repay the debt. then sell off all of the public assets at bargain basement prices.

    1. pretzelattack

      oh good, the market is now going to save us all, this time it will work i’m sure. just abolish government and we will all live happily ever after in our corporate dystopia.

  3. listener

    This is an excellent opportunity for Puerto Rico to become an independent country, sovereign nation. Many other countries would support them in a comeback from this awful mess. Problem is, they won’t as long as the U.S. has them under their thumb. It’s a country with a huge potential for tourism and other opportunities but we’re dragging our feet, and them along with us. Let them go, or make them a state.

  4. BD

    How could a commonwealth like Puerto Rico maintain a public utility system without a tax base? Always been one disaster away from crisis. And now, the disaster come, the vultures hover over the carcass – the commons — and they will gorge themselves until only the bones of democracy remain. The light of Global Oligarchy dawns. What kind of light is that?

  5. XXYY

    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.

    I have had this same thought. The comparison to Greece, Detroit, New Orleans, etc. seems apt. When a society reaches a certain point, where basic systems needed to support the population are no longer functioning, is it worthwhile or even possible to make continued efforts? Of course this is easy for me to ask, I’m not affected by this (so far), but one would think that the minimum for a functioning society is for people to be willing to move there, or even visit. If there is an ongoing exodus of the existing population, and everyone outside reacts with horror to a mention of the place, this is a very steep hill to climb. I’m not saying Puerto Rico or anywhere else I’ve mentioned is necessarily in this situation, of course.

    This question itself seems very germane, however, since we are likely to have an increasing number of devastated/abandoned areas over the next few decades as a result of climate disasters (Miami and other low-lying cities), industrial disasters, (Fukushima in Japan is a vivid example), economic disasters (cities formerly based on manufacturing and resource extraction), etc. IMO we need a way if thinking about this and managing it creatively and flexibly, not just single-mindedly trying to restore a past situation that may no longer be tenable.

    I don’t claim to have good solutions here. I am proposing that we develop a richer set of tools in our toolbox.

  6. Highway 200

    it does not seem that any of the comments are coming from PR residents. The massive exodus from here (I reside in PR since 1979, full time) says it all, and that exodus is increasing.
    As I have asked before, can NC please publish some commentary on the person who is actually running PR? Natalie Jaresko. Yes, the notorious Natalie. PLEASE.

    1. Alejandro

      A monopoly in private hands, with monopoly pricing power and little to no talk of how it will be regulated. As a resident, how do you feel about that?

    2. JBird

      I don’t know about current Puerto Rican politics except to know that its current political economy is the same economic plundering often helped by Congressional legislation that has been happening since we stole it from the Spanish.

      It’s really annoying to see people pontificate on how it’s all the locals fault when they have been economically blocked repeatedly for mainland financial interests. It stinks, but unfortunately, like with many of the Deep South States especially Alabama, Mississippi, and Louisiana, and Appalachia especially West Virginia, the political, and economic, elites make bank and they have stopped any attempts at reforms either by local citizens or the national government.

  7. The Rev Kev

    You wonder about that warehouse of hidden vital electrical (https://theintercept.com/2018/01/10/puerto-rico-electricity-prepa-hurricane-maria/) gear that the Feds seized a few weeks ago and how it all fits in. If the authorities in Puerto Rico wants to sell off the electrical grid (after being repaired by US taxpayer money via FEMA and the US Army Corps of Engineers) could it be that this warehouse would have been a bargaining chip in negotiations?
    That is, a prospective buyer would be told that after buying the grid, that they would also get this secret warehouse of vital components that would help them make further repairs quicker and make them all the more popular. An added bonus if you will. Of course, that scenario would all depend on the timeline that the authorities had in mind to sell the grid and if they had in mind a quick sale when the grid was worth the least. Maybe the main aim was to get rid of PREPA and all debts associated with the electrical supply and the warehouse was a sweetener if you will.

  8. mrtmbrnmn

    The terrible fate unfolding for Puerto Rico, death by debt hastened by disaster, like the country formerly known as Greece, the late lamented city of Detroit, and, alas, ultimately the entire planet, is just further proof if any were needed, that Naomi Klein’s “Shock Doctrine” is the most important book written in the 21st century so far. Read it and weep!

  9. Tyronius

    I have heard that Puerto Ricans not living on the island outnumber those still there, disturbing evidence that the problems faced by the Islanders are long standing and seemingly intransigent. The insights gained from my study (debt of thanks to NC for their invaluable contributions!) of the most recent disaster and its aftermath leave me deeply sympathetic of its residents, deeply frustrated by the historical treatment of the island, its people and its economy at the hands of the United States- and deeply angry with our political system that’s so clearly more sensitive to the whims of capital than the plight of real human beings.

    If We the People don’t stand up for them, and in the process for ourselves, then the stories of Detroit, Puerto Rico, West Virginia and other such places will be the harbingers of the fate of our country as a whole. There IS an alternative- but do Americans have what it takes to reverse this decline?

    Everywhere I look I see my fellow citizens desperately hanging on by their fingernails as more and more of us fall through the cracks- even while an ever richer and aloof elite engage in an endless race to exploit our society and the world of every last drop- and for what? Longer yachts? Bigger mansions? The ability to impose their will on even more hapless victims of runaway avarice?!

    Puerto Rico is, like the opioid crisis and the epidemic of mass shootings at schools and workplaces, both a glaring symptom of what ails our country and a warning; either We the People take a stand together or we’ll continue to be picked off until the entire American Experiment collapses in a massive tragedy of the commons.

    It’s going to take more than marches for social causes and outrage in Hollywood. Noble as those causes may be, they aren’t going to be solved without fundamental changes to our economic system. Therefore, I humbly submit that we must repeal Citizens United and return control of government to We the People, or Puerto Rico will happen to us all. It’s just a matter of time.

  10. Synoia

    I’d suggest solar panels, but here is this pesky “night” thing….

    But I do have a Germaine question: In Puerto Rico during part of the day is peak usage?

    If it’s mid afternoon, the the peak load is a/c. A more economic alternative is called “windows,” “fans,” and “sweating”.

    A grid has to be designed for peak loads.

    And before you protest, I’ve lived in the tropics and did not have a/c.

    1. Tyronius

      How nice of you to scoff at people’s need for a comfortable environment, nevermind conveniently ignoring that many with medical conditions can’t tolerate tropical heat.

      The biggest need for electricity in the tropics is for refrigeration. An efficient refrigerator could keep food cold overnight and the unit could run during the day. Batteries could provide power at night. An electric car could provide the needed capacity. All these things take money- which the Puerto Rican people lack for the ability to earn due to the economic situation, which of course is not their fault.

      Your attitude is as unhelpful as it is unfortunately common. This site provides daily evidence that our collective economic problems are systemic, the blame lying with corporations and the politicians who serve them instead of the interests of their more vulnerable constituents. Instead of blaming victims, at least direct your ire at the actual causes of the problem.

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