Puerto Rico near locking in privatization deals
SAN JUAN, May 19 (Reuters) – Puerto Rico’s drive to lease highways, airports and other infrastructure to private investors is gathering speed.
The U.S. commonwealth, battling a years-long recession and double-digit unemployment rate, is near closing on a major highway concession and readying for market an offer to lease out San Juan’s international airport.
“We have other projects that will be moving into the pipeline as well,” said David Alvarez, executive director of the Public Private Partnership Authority, a new entity meant to help lift the Caribbean island’s recession-bound economy.
Three pre-qualified groups are expected to place bids by May 31 for the highway deal, which involves PR-22 that runs from San Juan west along the north coast to Arecibo.
Money from the roads deal, which will also include the smaller PR-5, will pay off debt issued by the Puerto Rico Highway and Transportation Authority and fund infrastructure projects, officials say.
The pre-qualified groups are: Companhia de Concessaes Rodoviorias, Itinere Infraestructuras SA and Citi Infrastructure Investors; Abertis Infraestructuras and Goldman Sachs Infrastructure Partners II LP; and OHL Concesiones and Morgan Stanley Infrastructure Inc.
Government officials say they will pick a winner in June and close the 50-year contract for the roads over the summer. They expect the deal to include a substantial upfront payment and a long-term investment commitment from the bidders.
The government also plans to lease out PR 52, the island’s other major highway, which runs from San Juan to Ponce.
San Juan’s Luis Munoz Marin International Airport, the busiest in the Caribbean, could be the first major U.S. airport to successfully form a public private partnership (PPP), if the government reaches a deal.
Talks with American Airlines and other carriers that must sign off on any deal have dragged on months longer than expected but should wrap up next month, Alvarez said.
The government has been in talks with American, the airport’s largest carrier, regarding an investment of nearly $200 million it made in the airport back in the early 1990s.
In addition, the government and the airline are drafting a memorandum of understanding that will establish ground rules for the carriers under a privately managed airport.
American Airlines spokeswoman Dori Robau Alvarez said the airline had executed an initial MOU that establishes “the business terms for a privatization that is acceptable to the airlines” and talks on other matters were under way.
There is expected to be strong interest during the Request For Qualifications process, which will be launched immediately following the approval by the air carriers which Alvarez expected before June 30.
Proceeds from the airport deal will bail out the cash strapped Ports Authority and fund infrastructure projects.
The PPPA, an entity of Puerto Rico’s Government Development Bank, is the sole government power to authorize and oversee PPPs, an arrangement that takes out political risk for bidders that legislative approval often entails.
The PPPA was created as part of a sweeping piece of legislation that set the ground rules for PPPs and established guidelines and procedures the government must follow when considering PPPs.
The concession deals would allow Puerto Rico’s public corporations to resume infrastructure investment, but the administration has yet to attract any PPP that involves fresh capital construction investment in new public works.
The administration of Governor Luis Fortuno is looking to PPPs for investment as it grapples with challenging fiscal circumstances and an economy stumbling through its fifth year of recession.
The budget deficit, which was $3.3 billion when Fortuno took office in January 2009, has been cut to $1 billion this year and will be reduced in the upcoming budget to $616 million before being completely eliminated in 2013. Puerto Rico’s fiscal year runs from July 1-June 30.
Even so, the Planning Board predicts the economy will shrink by 1 percent this fiscal year and post a gain of 0.7 percent in Fiscal Year 2012, which begins July 1. (Reporting by San Juan newsroom; additional reporting and writing by Michael Connor in Miami)
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