SAN JUAN, Puerto Rico — The head of a federal oversight board managing Puerto Rico’s finances has declared that it is “impossible” for the U.S. territory to fulfill the demands of bondholders totaling $8.5 billion in a bankruptcy dispute involving the island’s electric utility.
Robert Mujica Jr. presented a revised fiscal strategy for Puerto Rico’s Electric Power Authority on Tuesday. According to this plan, which was requested by a federal judge in charge of the proceedings, the government can offer creditors a sum of $2.6 billion. Notably, the proposal does not include any increases in electricity rates to facilitate repayment of the company’s debt, which exceeds $9 billion, while projected expenses are anticipated to be higher than those outlined in the prior fiscal plan.
The oversight board is currently engaged in a fraught mediation process with creditors amid efforts to restructure the only remaining debt following Puerto Rico’s declaration in 2015 that it could not manage its more than $70 billion public debt. This precipitated the largest municipal bankruptcy in U.S. history two years later.
“It’s gone on for too long,” Mujica commented regarding the ongoing case, adding that it is crucial to expedite a resolution.
Economic experts have noted that the prolonged uncertainty surrounding the case has deterred prospective investors and hindered economic growth on the island.
Mujica emphasized that the government has yet to identify sources for the $2.6 billion it is offering while cautioning against any increase in electricity rates. He pointed to the already high costs of energy and the precarious condition of Puerto Rico’s electricity grid.
“The system requires investment,” Mujica stated, insisting that all revenues must be directed toward strengthening and enhancing the grid. “Puerto Ricans deserve a utility that operates effectively and is dependable.”
The situation is aggravated by frequent power outages that have been exacerbated since Hurricane Maria devastated the infrastructure in September 2017, when it made landfall as a Category 4 storm. The electric grid, however, had been struggling for years due to inadequate maintenance and lack of investment.
Mujica indicated that meeting the bondholders’ demands, which total $12 billion with interest, would necessitate an increase in electric rates by up to eight cents, a burden he believes the residents of Puerto Rico cannot shoulder.
The current proposal from the government of $2.6 billion signifies an 80% reduction in the power company’s debt and has gained acceptance from 44% of creditors, as well as one third of all bondholders.
Luma Energy, the organization responsible for the transmission and distribution of electricity in Puerto Rico, estimates that the grid requires approximately $25 billion in federal funding up until fiscal year 2034 for complete reconstruction and upkeep.
Mujica revealed that out of the projected $17 billion in funding from the U.S. Federal Emergency Management Agency, merely $3.2 billion has thus far been allocated.
“The system right now is deteriorating more rapidly than the investments are being implemented,” he remarked.
