MIAMI, March 10 (Reuters) - Puerto Rico’s government is preparing public-private partnerships to jump-start the island’s stalled economy and wants several of the big-ticket deals in place by year’s end.
Governor Luis Fortuno has in 15 months in office eliminated thousands of government jobs, put in place multibillion-dollar cuts in expenditures and pledged to eliminate the big municipal debt issuer’s persistent budget deficits.
His administration’s partnership initiatives are meant to lure outside investment to a Caribbean economy in recession since 2006 and come as the pace of global infrastructure deals between governments and businesses quickens.
Economists at the World Bank last month said public-private infrastructure deals, in which investors take on financial and operational responsibilities for civic projects, have risen 22 percent in developing countries during 2009’s third quarter from a year earlier.
For the first nine months of last year, commitments for public-private partnership deals tabulated by the World Bank were worth $66 billion, or 10 percent more than the deals reached a year earlier during the worst of the global credit crisis.
Fitch Ratings last week said the outlooks for infrastructure and project finance deals its analysts track were now mostly stabilizing and showed some signs of improvement during 2010.
“This follows two consecutive years where credit outlooks turned clearly negative,” Fitch said.
Infrastructure deals in developing countries have brighter prospects than those in developed nations, partly because economic growth in developed countries will likely lag that of emerging markets, according to Fitch.
In Puerto Rico, a U.S. commonwealth with big debts, chronically severe unemployment now at a 15.9 percent rate and per capita income half that of mainland America, officials are readying requests for qualifications for eight partnership projects. For fact box, see [ID:N10132478].
David Alvarez, the executive director of Puerto Rico’s new Public Private Partnership Authority, recently told investors in San Juan that the government will issue requests for proposals starting in the second quarter with an eye toward closing several deals by Dec. 31.
“PPPs will play a major role in the fiscal and economic reconstruction plan, and credit strengthening of Puerto Rico. Infrastructure investment is critical for sustained economic development and enhancement of quality of life,” Alvarez said.
The richest Puerto Rico deal is for Luis Munoz Marin Airport, the island’s main air gateway in Isla Verde. Ports Director Alvaro Pilar said Puerto Rico could realize $1 billion in a PPP for the airport, which is a hub for AMR Corp’s AMR.N American Airlines and handled 4.2 million passengers in 2009.
Along with two mainland airports, Puerto Rico won preliminary approval from the Federal Aviation Administration to put the Caribbean’s busiest airport into private hands in exchange for large upfront payments.
Almost a year ago, a mega deal for Chicago’s Midway Airport unraveled when the winning lease bidder could not raise financing to complete a deal that would have paid the city $2.52 billion in exchange for a 99-year lease.
The Fortuno administration is also pursuing a $1.4 billion school modernization program through a PPP. The plan calls for contracts to be awarded to the private sector to design, build and maintain the new modern school structures.
Another deal involves roads such as Puerto Rico’s Highway 22, which runs from San Juan along the island’s north coast to the west.
The proposals come after Puerto Rico last year passed legislation to create the Public-Private Partnership Authority, an entity of the commonwealth’s fiscal agent, the Government Development Bank.
The authority is the sole government power to authorize and oversee PPPs. The legislation also set ground rules for PPP deals, generally limiting them to 50-year leases and setting a special tax rate.
One potential investor hailed the legislation.
“It’s very important to have this point of reference, which lets everybody know the rules and regulations and gives us the security and tranquillity to make these long-term investments,” said Josep Martinez Vila, general director of business and operations for the Spanish firm Abertis (ABE.MC).
The firm operates the Teodoro Moscoso Bridge in San Juan, a privately financed toll facility, and has expressed interest in the other island projects.
“Our end goal is to have an infrastructure investment that can last 25, 30 or 40 years, during which time administrations can come and go,” he said recently in Puerto Rico.
Additional reporting by Reuters in San Juan; Editing by Kenneth Barry