October 31, 2017
Good Morning! In today’s Blog, we consider the growing questions with regard to both the federal and Puerto Rican response to the human and fiscal devastation caused by Hurricane Maria–and what the implication’s might be for the U.S. territory’s debt–and governance.
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The Price of Solvency. Almost three weeks after the hiring of Whitefish Energy Holdings created its own storm wave of criticism and investigation claims, both the FBI and the PROMESA oversight board have commenced investigations about PREPA’s decision to award a $300 million contract to a small Montana energy firm, Whitefish Energy Holdings, to rebuild Puerto Rico’s electrical infrastructure—with the PROMESA Oversight Board intending to discuss and approve today a process to review Puerto Rico’s contract—one which Governor Ricardo Rosselló Nevares canceled on Sunday—at a time when only 30% of the U.S. territory’s power has been restored. The issue is anticipated to light up the agenda at the PROMESA Board’s tenth meeting today at the headquarters of the College of Engineers and Surveyors of Puerto Rico, in Hato Rey, under its authority to review and revoke laws which are incompatible with its Fiscal Plan, as well as any contract that the government of Puerto Rico has granted—marking the first time the Congressionally enacted entity will seek to exercise the authority Congress authorized to revoke contracts or laws of the Puerto Rican government. The House Committee on Natural Resources has scheduled hearings over the next three weeks in Washington on the storm recovery and transparency in the reconstruction process—although it remains unclear whether those hearings will closely examine the adverse fiscal, physical, and human costs imposed by the Jones Act on the recovery and loss of lives. The Committee has not indicated whether it will compare the responses of FEMA in Puerto Rico to its responses in Houston and Florida.
Just after declaring an emergency due to the devastation wrought by Hurricane Maria, Gov. Rosselló Nevares had approved executive order 2018-53 to exempt government agencies from complying with the requirements of law when hiring and purchasing to deal with the ensuing physical disaster—effectively clearing the way to for the Electric Power Authority (AEE) to award a $ 300 million contract to Whitefish Energy-company, which, at the time of its hiring, had only two employees-to repair part of the electrical network devastated by the hurricane. That award, however, caused a governance storm of its own, triggering apprehensions by FEMA, Members of Congress, and now an investigation by the Federal Bureau of Investigation (FBI).
Thus the PROMESA Board holds its first meeting in the wake of the storm’s fiscal and physical devastation, mayhap marking a fiscal storm—albeit, presumably, the Board’s inquiries will examine not just PREPA’s responses, but also compare the responses of FEMA in Puerto Rico compared to its responses in Houston and Florida—that is, the PROMESA Board could question the accountability of FEMA.
As for the fiscal storm, the Oversight Board expects to be briefed on the process underway to reconfigure the Fiscal Plan, as well how the firm Kobre & Kim will investigate Puerto Rico’s debt: according to the report of the firm hired to investigate the reasons for the U.S. territory’s fiscal collapse and the issuance of debt, the first report of the causes of the crisis would take about 200 days: the investigator has already issued an information request to Banco Popular and has identified 79 witnesses who will he instructed to preserve documents.