Puerto Rico’s Retirement Problem

Yesterday, Moody’s Investors Service issued a press release announcing it was downgrading the Commonwealth’s of Puerto Rico A3 rating to Baa1. Its decision was partly based on the weak funding of the government’s pension plans and the “significant strain that future pension requirements will likely exert on the Commonwealth’s financial position.”

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Las finanzas de la AEE y el gasoducto

Recientemente se ha discutido mucho la seguridad y el impacto ambiental de la construcción por parte de la Autoridad de Energía Eléctrica (la “AEE”) de un gasoducto que cruzaría la isla de Puerto Rico de norte a sur.  Sin embargo, en este debate, que entendemos es muy importante, se ha obviado analizar la situación financiera de la AEE, la organización que, de llevarse a cabo la construcción del gasoducto, estaría a cargo de su operación y mantenimiento por varias décadas.

La AEE estima que el proyecto del gasoducto costaría alrededor de $450 millones, eso antes de tomar en consideración los inevitables cost overruns, change orders, yconstruction delays.  Si utilizamos el Superacueducto y el Tren Urbano como precedentes se podría esperar que el costo final del gasoducto sea alrededor del doble del estimado original.  De todas maneras, aún si utilizamos el estimado de $450 millones como base, al costo anual del servicio de esa deuda habría que añadirle el costo del “peaje” (toll) que la AEE tendría que pagar por el gas natural más el costo de operar y darle mantenimiento al tubo por 30 años o mas. Continue reading “Las finanzas de la AEE y el gasoducto”

Darkness Visible: A Financial Analysis of the Puerto Rico Electric Power Authority

Executive Summary

This is CNE’s third look, since 2005, at the electricity sector in Puerto Rico. Some of the highlights in this report include the following:

Financial losses continue. For fiscal years 2009, 2008, and 2007, PREPA incurred losses before contributed capital of $163 million, $323.7 million, and $96.9 million, respectively.

Insolvency is a risk in the short term. As of June 30, 2009 and December 31, 2009, PREPA had unconsolidated net assets (on a stand-alone basis, excluding subsidiaries) of negative $9.8 million and negative $109.9 million, respectively. This means that as of each of those dates PREPA’s core operating company was technically insolvent, on a balance sheet basis, because its total liabilities exceeded its total assets.

PREPA is implementing a financial stabilization plan to address these issues. The plan consists of several actions intended to reduce costs, increase liquidity, and cut back its dependency on fuel oil. The principal elements of the cost reduction plan include (1) reducing the number of employees through attrition and the elimination of temporary and vacant positions; (2) reducing expenses associated with its retirees’ health care benefits; and (3) reducing overtime and miscellaneous expenses.

 
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