The federal control board responsible for the finances of the territory agrees.
On Tuesday, Puerto Rico's governor announced that his administration would cancel a debt restructuring agreement for the island's power company. He called it unfeasible.
Although the deal was in the making for many years, it was delayed by the pandemic. Many people expected it to be approved soon as Puerto Rico's government declares bankruptcy in 2015. In 2015, Puerto Rico declared that it could not pay its $70 billion public debt.
The Electric Power Authority of the island holds over $9 billion of this debt. This is the largest government agency. Economists believe that restructuring this debt is crucial for the island’s economic growth.
Gov. Pedro Pierluisi stated that the proposed deal is not feasible or in Puerto Rico's best interests.
He stated that he was committed to the company's bankruptcy resolution and that he supported a deal that would provide an island with an efficient, reliable, cleaner, and more reliable electric energy system.
The federal control board, which oversees Puerto Rico's finances as well as the ongoing bankruptcy-like proceedings in federal court, said that it supports Pierluisi’s decision. It noted, however, that the plan would have reduced the debt of the power company by 32%. The board also stated that some terms were rejected by legislators who needed to approve the plan.
According to the board, it hopes to reach a new settlement via mediation or other means.
Both the governor's office and the board stated that worldwide economic conditions, including the rise in inflation and rising oil prices, have significantly changed since the 2019 agreement with creditors.
The Institute for Energy Economics and Financial Analysis criticised the plan Monday, stating that it "ignore Puerto Rico's financial vulnerability and places the future of its electricity grid in danger."
Tom Sanzillo is the director of financial analysis at the Ohio-based nonprofit. He said that the deal would have resulted in a significant rate increase while bondholders were repaid for legacy debt of $8.2 billion.
He stated that Puerto Rico would not have received any benefits from the U.S. federal government's $12 billion Puerto Rico was slated to receive to repair its power grid after Hurricane Maria had it not imposed new debt service.
He stated that the company would use the money to repay bondholders. This is fiscal gimmickry.
Jose Caraballo-Cueto (a Puerto Rican economist, university professor) praised the rejection of this plan and said that a good deal on restructuring debt cannot leave a government with greater liabilities than assets.
He said that "it was a good choice," noting that Puerto Rico's energy costs are among the highest in the United States and that the proposed deal would have resulted in even higher power bills, despite ongoing outages.
He said, "They must sit down and seek out a reasonable agreement."
Puerto Rico's power company has not yet reached out to creditors who have Puerto Rico's debt.