The Chance Puerto Rico Cannot Afford to Miss
Devastating hurricanes have worsened Puerto Rico’s economic crisis, but they have also opened the door to a glimmer of hope. Privatization has finally become an issue of public debate, since Governor Ricardo Roselló has proposed to sell the state-run power company.
The privatization of the Puerto Rico Electric Power Authority (PREPA) will improve the power system on the island and, more importantly, will set the ground for market liberalization and revitalization of the island.
During his declaration, Roselló acknowledged that PREPA is a burden to the island due to its poor services and obsolete system, resulting in “one of the great impediments to … economic development.”
Hurricane María struck Puerto Rico more than four months ago, but 30 percent of the population remain without power. PREPA’s performance in light of the disaster was the straw that broke the camel’s back and motivated Roselló to initiate the process.
Privatization, in this case, is not easy. The Puerto Rican government has to fulfill the bureaucratic requirements that will take at least 18 months and political support. Although legislators tend to favor Roselló’s initiative, a federal oversight board and a federal judge will have the last word.
Afterwards, Puerto Rico still needs to find firms willing to invest in a bankrupt company.
Those who oppose privatization argue that prices would become higher, since it would remove the electricity subsidy and let private firms profit from the energy system without the sufficient regulation.
However, they ignore that PREPA’s likely privatization would end to a state-run monopoly — as in no competition. Entering companies would have to compete for customer approval with high-quality, reliable, and low-cost services.
Further, privatization does not mean deregulation, which is a separate but related matter. For instance, Roselló declared that at least 30 percent of the power supply should come from renewable sources. Hence, regulation and monitoring remain.
Professor Steve Hanke of Johns Hopkins University has supported PREPA’s privatization on Twitter:
This (Privatization) is exactly the move Puerto Rico should be taking. They can no longer rely on an overextended, ineffective government to alleviate their condition https://t.co/Rm69VexWaJ
— Prof. Steve Hanke (@steve_hanke) January 30, 2018
Puerto Rico has more than $70 billion in debt and an unemployment rate of 10.1 percent. The endemic corruption in the government has undermined public administration, and generous public programs are simply not an option when the government owes $43.2 billion in pension payments.
This could be the start of something big for Puerto Rico, particularly if the privatization process is fair and transparent, and the government steps back and allows competitive firms and market forces to work their magic.
