The executive director of a federal control board that oversees Puerto Rico’s finances said that it is “impossible” for the U.S. territory to pay the $8.5 billion bondholders are demanding in a bankruptcy case involving the island’s power company.
Robert Mujica Jr. unveiled a new fiscal plan for Puerto Rico’s Electric Power Authority on Tuesday, stating that the government can pay creditors $2.6 billion. The plan, requested by a federal judge overseeing the case, does not call for any rate increases to help pay off the company’s debt of more than $9 billion and the projected expenses are higher than those in the previous fiscal plan.
The board remains in contentious mediation with creditors as it tries to restructure the only outstanding debt that remains since Puerto Rico declared in 2015 that it could not afford to pay its more than $70 billion public debt load and then filed for the biggest U.S. municipal bankruptcy in history two years later.
“It’s gone on for too long,” Mujica said of the case. “It’s important for us to get out of this one.”
Economists have said that the unresolved case has spooked potential investors and hampered economic development on the island.
Mujica noted that officials don’t yet know where they would obtain funding for the $2.6 billion they’re offering, but warned it shouldn’t come from an increase in electric rates given already high power bills and the fragile state of Puerto Rico’s grid.
“The system needs investment,” Mujica said, adding that all revenue should go into fortifying and improving the grid. “Puerto Ricans deserve to have a utility that is performing and that is reliable.”
The island suffers from chronic power outages that worsened after Hurricane Maria razed the grid when it slammed into Puerto Rico as a Category 4 storm in September 2017. However, the grid was already crumbling given a lack of maintenance and investment for decades.
Mujica said that if the government agreed to bondholder demands, which total $12 billion including interest, it would mean an electric rate increase of up to eight cents that he says Puerto Ricans cannot afford.
The current offering of $2.6 billion, which represents an 80% reduction of the power company’s debt, has been accepted by 44% of creditors and a third of all bondholders.
Luma Energy, which oversees the transmission and distribution of power in Puerto Rico, says the grid needs up to $25 billion in federal funding through fiscal year 2034 to fully rebuild and maintain the system.
Of the $17 billion expected in funding from the U.S. Federal Emergency Management Agency, only $3.2 billion has been disbursed, Mujica said.
“The system right now is deteriorating faster than the investments are being made,” he said.
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