May 12, 2021

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Center for the New Economy recommends renegotiating contract with LUMA Energy

“The objective reality is that PREPA is a disaster in every sense of the word and the agreement with LUMA Energy is flawed. Both things are true ”, mentioned Sergio Marxuach

photo: Cybernews

THE CAPITOL – The Economic Development Commission, chaired by representative Luis Raúl Torres Cruz, received on Monday, the analysis of the director of public policy of the Center for a New Economy (CNE), Sergio Marxuach Colón, on House Resolution 136, which conducts an investigation on the contract of the Electric Power Authority and LUMA Energy.

One of the main concerns of Marxuach Colón is that in the 15 years that LUMA will be in Puerto Rico, a just, modern and resilient transformation of the archipelago’s electrical system cannot be advanced.

“The problem we are facing regarding (the transaction) is an extremely complicated one that cannot be resolved with binary or simplistic solutions” for or “against LUMA,” the CNE’s director of public policy declared in a written communication.

“The objective reality is that PREPA is a disaster in every sense of the word and the agreement with LUMA Energy is flawed. Both things are true ”, mentioned Marxuach in his verbal presentation.

Also, the lawyer explained to the representatives, the reasons why PREPA ended up bankrupt, some of the main deficiencies of the agreement with LUMA Energy and made several recommendations on how to address some of these failures.

According to Marxuach Colón, the inescapable conclusion is that PREPA simply cannot continue to operate as it has done so far.

“We agree with the government of Puerto Rico, as well as with several other organizations, that the time has come to take drastic action with respect to PREPA, since it has proven incapable of reform and has been immune to the efforts of various administrations. to modernize and improve its operations ”, he stated.

On the other hand, the economics expert also mentioned that, in Puerto Rico, among the various interest groups, such as suppliers, political parties, subsidy beneficiaries, unions, bondholders, bankers, there is a behavior known as “rent hunting.” .

“This phenomenon makes it difficult to change the structure of PREPA, since each of the groups that benefit from the status quo are well organized and have a strong interest in protecting their benefits, while consumers are disorganized and the costs of acting collectively, they exceed the individual benefit that each one would receive, ”noted Marxuach, who also served as undersecretary of Commerce and Economic Development of the Commonwealth of Puerto Rico.

Based on the recommendations of the invited expert, any transaction for the transformation of Puerto Rico’s electricity system “needs to take into account the predatory behavior of stakeholders internal and external to PREPA that benefit from the current situation and provide mechanisms to limit or eliminate it “, expressed the written statement of the CNE.

“If the currently favored privatization process is limited to simply transferring the assets or operation of a corrupt company in the public sector to a group of investors in the private sector, without interrupting or dismantling the rent-hunting network that we have described above Then we will have achieved absolutely nothing, “he said.

As part of the findings of the investigation by the CNE, a non-profit and non-partisan expert group, “they are concerned that the government of Puerto Rico appears to lack the necessary capacity to successfully negotiate and manage this type of complex multi-level process. and several implementation dimensions that intersect and reinforce each other ”.

“In our opinion, the government of Puerto Rico needs to develop a greater capacity to clearly establish the public policy objectives to be achieved and to successfully negotiate this type of agreement, if it is to continue with the policy of public-private partnerships in the future. The most prudent course of action at this time is to renegotiate the agreement with LUMA to better allocate and balance risks between the parties. If it is concluded that the defects of the agreement cannot be remedied, then its cancellation should be considered ”, expressed Marxuach Colón.

The public hearing was held remotely, in compliance with the measures of the House of Representatives against COVID-19.

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