The chairman of the Puerto Rico Aqueduct and Sewer Authority (PRASA), Elí Díaz Atienza, outlined the public corporation’s debt restructuring and capital improvement program (CIP), stressing that PRASA’s forbearance agreements include a debt relief of approximately $380 million over the next ten years.
The presentation was organized by the Puerto Rico chapter of the Associated General Contractors of America (AGCPR) at the Las Nereidas Room of La Concha Resort in, San Juan on Thursday, Sept. 26.
Díaz Atienza explained that due to the entity’s lack of market access and the need to pay CIP outstanding debt and improve its financial situation, on June 30, 2016, PRASA entered into forbearance agreements related to State Revolving Funds (SRF) loans and Rural Development (RD) programs, which were later extended on various occasions until July 31, 2019.
After three years of ongoing communication with federal agencies, last July, PRASA consummated definitive agreements restructuring its debt obligations under the SRF loans and RD bonds totaling almost $1 billion.
Agreements achieve $380 million in debt service relief for PRASA and renewed access to federal programs for infrastructure investments
The terms of these agreements include the consolidation of more than 400 loans into three loans (two SRF loans and one RD loan); extended maturities and lower interests; that the restructured federal debt was issued in parity with other senior debt under PRASA’s Master Agreement of Trust; and the termination of the commonwealth guarantee on the federal debt, that is, reducing overall government contingent liabilities by $1 billion.
According to the PRASA chairman, the debt modification allowed the Authority to have access to additional federal funds. “We estimate approximately $440 million from these federal programs alone for the next five years,” he said.
However, in the PowerPoint presentation, PRASA estimated that it would receive $435 million during the next six years. The entity estimated that $346 million, or 18 percent of the six-year CIP, may qualify in SRF funding. Furthermore, it also expects to incur in $24 million on projects qualifying for RD funding.
Díaz Atienza said that the water industry’s main challenges are environmental regulations by the U.S. Environmental Protection Agency (EPA), which entail higher capital and operating costs; an aging infrastructure and capital intensive operation, and vulnerability to climate changes and natural disasters, as evidenced in the aftermath of 2017’s Hurricane Maria, and most recently with yellow waters in the metropolitan area due to increased manganese levels—which the chairman attributed to droughts.
PRASA intends to tackle these challenges through its revised CIP by renewing its infrastructure, ensuring water quality to its clients.;. and focusing on increasing the system’s resiliency to reduce its vulnerability to weather-related events.
Analysts evaluate the government's debt management
All in all, the entity expects to incur in more than $3.4 billion in resiliency projects. However, Díaz Atienza noted that these can only be executed if federal funding is available for 100 percent of the amount, adding that the Community Development Block Grant for Disaster Relief (CDBG-DR) funds must be obligated and disbursed at the same speed as funding from the Federal Emergency Management Agency (FEMA).
“If we don’t have matching funds, it will be very difficult for a government with a large financial problem... Not only do we need FEMA, we need the CDBG to move at the same speed,” he asserted. Díaz Atienza and Gov. Wanda Vázquez visited Washington, D.C. earlier this month, in which he urged agency heads to approve CBG-DR funding for Puerto Rico.
PRASA Aims to Escape FOMB Scrutiny
Díaz Atienza also informed that PRASA is in the process of establishing a public-private partnership (p3) to delegate the operation of its digital water consumption reading system. This is part of the Authority’s three goals, which also include its debt restructuring and modifying tariffs, which have already been done.
With this in mind, Díaz Atienza—who is also the governor’s representative before the Financial Oversight & Management Board (FOMB) created by the PROMESA Act—aims to convince the FOMB to eliminate PRASA from its list of “covered entities.” That is, to be excluded from the federally-created oversight entity’s fiscal plan.
“Ideally, when we complete these, we should basically be outside [FOMB’s] fiscal plan. One of the things that we trying to push for is that once these processes are completed, we are removed as a covered entity,” the chairman stated.
The president of the AGCPR, Alejandro Abrams, voiced his approval of PRASA’s restructuring program, highlighting its “benefits” for the construction industry.
“AGCPR welcomes the beginning of PRASA’s Capital Improvement Program and considers it a step toward the right direction. This will result in benefits of immeasurable value for the agency, consumers and economic development,” Abrams told THE WEEKLY JOURNAL via written statement.
“Puerto Rico needs a strong and modern infrastructure on all levels in order to optimize its potential as a destination for investment, tourism and living. AGCPR associates have the capacity and the experience to, along with PRASA, deliver the planned work. We are ready,” Abrams added.
The AGCPR has more than 300 associates, generating roughly 80 percent of economic activity in the island’s construction industry.
Editor's note: This story was published on the October 2 print edition of The Weekly Journal.