On September 8, the Governor of Puerto Rico unveiled a “new” economic plan and demanded that creditors “share the burdens of the sacrifices.” Unfortunately the actual document – the Fiscal and Economic Growth Plan (FEGP) – was low on shared sacrifice, high on creditor profit, and geared toward a sell-off of the island’s entire infrastructure.
In addition to a slew of austerity measures, the FEGP will establish a five-person Financial Control Board whose members are nominated by “interested parties,” including Puerto Rico’s hedge fund creditors and the US federal government. This board, which was already submitted for legislative approval last week, will have “extensive subpoena powers” and oversight authority over the entire government of Puerto Rico.
The core FEGP proposal is the sale of Commonwealth real estate assets, and the establishment of “P3s” throughout the island: public-private partnerships that turn public infrastructure into private, revenue-generating concessions. Repeatedly throughout the document, the FEGP extols the virtues of P3s, and urges “a voluntary exchange offer that can garner widespread creditor acceptance.”
This exchange will not be voluntary.
Congress has taken no action on HR 870, which would extend some bankruptcy relief to Puerto Rico. The island’s fiscal agent, the Government Development Bank, will run out of cash in December 2015. Yet the very next month, in January 2016, the island faces a bond payment of $945 million. Puerto Rico, therefore, has her back to the wall. With no visible option, P3s will soon blanket the island.
They will surround the island.
A frenzy of P3s off the coast of Puerto Rico…waiting…waiting…
They will swallow her public school system, water supply (PRASA); electrical power (PREPA); highways and bridges (PRHTA); public buildings and infrastructure (PRIFA), and even its prisons.
With no money or bankruptcy powers, this swallowing of Puerto Rico’s infrastructure will be the only way for the island to offer “a voluntary exchange that can garner widespread creditor acceptance.”
It is also a prescription for disaster, because P3s have a history of exploitation.
In 2003, in California, an Australian investment bank named Macquarie Infrastructure Partners assumed management of the South Bay Expressway. The moment the toll road opened to traffic, the Macquarie shell company filed for bankruptcy, and taxpayers lost $80 million.
In 2012, the Ohio Public Interest Research Group (PIRG) issued a highly critical study of plans to privatize the 241-mile Ohio Turnpike.
In Canada, just last year, the auditor general of Ontario studied 74 P3 projects. She found that these P3s cost Ontario taxpayers $8 billion more in loans and other expenses, than if they’d been publicly funded.
Sammy Glick comes to Puerto Rico: MACQUARIE INVESTMENT MANAGEMENT
In British Columbia, the Macquarie company – the same one that pulled a bankruptcy maneuver in California – refined another maneuver called “equity flipping.” Macquarie invested only 10-15% of its own money into two hospital and two highway projects, borrowed the rest from a bank, then flipped all four P3 projects to other corporate buyers. Macquarie reaped profits of up to 50 percent – on the full value of each deal.
A 2007 study of Macquarie’s projects in the US found an abysmal record. None of these projects operated successfully, and two of them went bankrupt.
This is a problem for Puerto Rico: because as of 2009, Macquarie is developing the P3 program for the entire island. In 2011, Macquarie was the “financial advisor” for the 35-year P3 concession on the PR-5 and PR-22 highways, with $1.2 billion in project financing.
With a history of strategic bankruptcies, equity flips and failed projects, Macquarie is leading Puerto Rico into the brave new world of public-private partnerships. On the other side of the table: dozens of hedge funds, all jockeying for position.
All of them are politically wired. One of them spent $100,000 in Washington, to ensure that Chapter 9 bankruptcy relief stayed bottled up in committee. 47 of them contributed $1.28 million to Gov. Andrew Cuomo’s election fund. Just one of them, Apollo Management, gave $250,000 to Hillary Clinton for a speech in May. Jeb Bush received $900,000 from them.
Picture yourself as Puerto Rico, sitting at this table. Your island is broke on December 2015. You owe $945 million on January 2016. You have no bankruptcy protection. Your P3 advisor is Sammy Glick. 47 hedge fund sharks are drooling for your water, electricity, and highway concessions. A Financial Control Board has been appointed.
There will be no P3s at this table, only P5s: Public-Private Partnerships for the Plunder of Puerto Rico.