Hurricane Maria hit Puerto Rico in September 2017. Graphic: Wikipedia

Hurricane-devastated Puerto Rico has become the pilot program for US President Donald Trump’s US$1.5 trillion fund to rebuild America’s infrastructure – and Singapore’s Temasek could be set to join global players in cashing in on the program.

Puerto Rico Governor Ricardo Rossello said the island had just approved the most comprehensive privatization (public private partnership, or P3) legislation in the United States and at the same time mandated Citigroup chief executive officer Michael Corbat to find strategic investors for the island’s electric utility, Puerto Rico Electric Power Authority (PREPA).

To many in Puerto Rico, Hurricane Maria was a blessing in disguise, as the island was facing an even more devastating slow death under $70 billion of unsustainable debt to New York hedge funds and asset managers.

The giant storm that struck Puerto Rico last September should really be named Hurricane PREPA, as the Category 4-5 hurricane seemed to target Puerto Rico’s horribly inefficient and basically Third World utility, the president of Puerto Rico Manufacturers, Rodrigo Masses Artze, has said.

In an interview with Capitol Intelligence on the sidelines of the SelectUSA Investment Summit, Puerto Rican Commerce and Economic Development Secretary Manuel Laboy Rivera said the government was going ahead with the privatization of PREPA, the island’s water and sewage utilities PRASA (Puerto Rico Aqueducts and Sewage Authority), ports and cruise terminals and regional airports.

Puerto Rico plans to split the privatization of PREPA into two parts, the sale of some 2,000-2,500 megawatts of power generation and a long-term concession for the island’s transmission and distribution activities, Laboy said.

While Puerto Rico expects to spend some 180 days to finalize the privatization of PREPA, Laboy said US and foreign utilities were welcome to follow the example of Elon Musk’s Tesla unit Tesla Solar and submit unsolicited bids for PREPA or any other Puerto Rican government-owned assets.

Puerto Rico’s ultimate goal is that the privatization of PREPA will lead to the island becoming the best in class for a mix of LNG, renewables (solar and wind) and microgrids, Laboy said.

With PREPA’s Wall Street bond holders wiped out, Trump and Puerto Rico’s pro-privatization governor can now have Chicago-based Exelon Corporation and Rome-based ENEL join forces to build a best-in-its-class utility in Puerto Rico operating natural-gas plants along with cost-efficient wind power and solar energy.

Rossello said he especially welcomes interest for PREPA from US players such as Exelon and European energy groups such as Rome’s ENEL and Milan’s A2A.

Exelon CEO Chris Crane already has experience taking over badly managed locally owned utilities such as Washington, DC’s PEPCO, while Italy’s state-owned ENEL is best in its class in operating utilities in difficult foreign markets (Russia, Chile) and at the same time is owner of America’s largest renewable company, Enel Americas.

The current independent power producer working with PREPA – the secretive Arlington, Virginia-based AES Corp – will ultimately be excluded from the estimated $5 billion to $9 billion privatization on US national-security grounds because of the company’s controlling Chinese shareholder, Chinese Investment Corp.

Terna Group, a listed Italian-government-controlled power-grid operator, is also interested in potentially looking at working on Puerto Rico’s power grid destroyed by Hurricane Maria, Terna CEO Luigi Ferraris said in an interview.

Ferraris said the company had managed turnkey projects in Brazil, Uruguay and Peru and was interested in pursuing similar opportunities in the United States.

However, he said the company, with 2017 revenues of €2.25 billion  (US$2.62 billion), was not interested in entering any new markets via acquisition but could partner up with a US player such as Tesla.

Italian listed utility A2A, which provides power generation, transmission and distribution to Milan and Brescia, would be interested taking over PREPA activities in Puerto Rico if they were to receive a request for proposals (RFP) from Rossello, a2s head of international business and development Oreste Bramanti said in a telephone interview.

Gas Natural Fenosa, based in Barceloneta, Spain, already operates a 540MW combined cycle plant and an LNG regasification plant through its controlling stake in EcoElectrica at Peñuelas, Puerto Rico.

A2A is the undisputed benchmark for successful privatization of municipal or public assets in the world. The City of Milan had privatized then AEM Milan, the city utility, through a 1998 initial public offering of a 49% stake with deeply discounted shares offered to Milan residents.

The share offering was greatly oversubscribed and could serve as model for a likely debt-to-equity deal for PREPA, European M&A and distressed-banking sources told Capitol Intelligence.

Puerto Rico’s aggressive move to privatize state assets could not come at a better time, as US and foreign infrastructure funds such as Washington, DC-based The Carlyle Group; the United Arab Emirates’ sovereign wealth funds Abu Dhabi Investment Authority (ADIA) and Mubadala; Australia’s Macquarie Group; and Singapore’s sovereign wealth fund Temasek are all seeking to invest an aggregate $200 billion in US infrastructure.

Temasek is likely to become a leader in US transport P3s both for its direct ownership of Singapore’s global port operator PSA International Ltd and its majority stakes in Singapore Airlines and interest in Basel, Switzerland-based listed airport duty-free giant Dufry AG.

In a brief statement to Capitol Intelligence during her husband Lee Hsien Loong’s recent visit with Trump in Washington, Temasek CEO Ho Ching said the fund “may look” at co-investing in Trump’s planned infrastructure fund.

Singaporean Prime Minister Lee Hsien Loong’s Oval Office meeting with Trump on October 23, 2017, was highlighted with the announcement that Singapore Airlines would purchase from Chicago-based Boeing Co some 20 777-9 and 19 787-10 aircraft for a total deal value of US$13.8 billion.

Lee, in a move stressing Singapore’s close ties with US business leaders, participated in an interview with The Carlyle Group co-founder and co-chairman David Rubenstein at an Economic Club of Washington, DC, event just ahead of his meeting with Trump.

Temasek and other global sovereign wealth funds are looking at the the Port of Baltimore and Puerto Rico’s Luis Muñoz Marín International Airport as models for private-public partnerships in the United States.

Puerto Rico is the first and only US territory or state to privatize a major airport. In 2001, it sold San Juan Munoz Airport to Canada’s Public Sector Pension Investment Board (PSP Investments) and Mexico’s Grupo Aeroportuario del Sureste SAB de CV, and it handed over its toll-highway concessions to Madrid-based Abertis and Goldman Sachs.

Carlyle Group co-CEO Glenn Youngkin said he always told major foreign funds that love to invest in emerging markets that the “greatest emerging market opportunity around the world today is to invest in US infrastructure. Rule of law, accountability of a workforce, the dependability of construction, and we have such a nascent industry investing in something which is our greatest need. This is why we are getting so excited.”

Rossello also picked the best investment bank in the world to oversee its privatization program: Citigroup. Citigroup CEO Michael Corbat has a wealth of experience of managing best-practice privatizations when he headed Citigroup European investment banking operations.

Citigroup’s head of European investment banking, Milan-based Luigi de Vecchi, can easily corral strategic players such as ENEL, A2A and Terna to participate in what could easily be a $10 billion to $20 billion infrastructure investment program in Puerto Rico alone, and the upcoming $1.5 trillion in infrastructure investment in the world’s largest economy, the United States of America.

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PK Semler

Peter K Semler is the chief executive editor and founder of Capitol Intelligence. Previously, he was the Washington, DC, bureau chief for Mergermarket (Dealreporter/Debtwire) of the Financial Times and headed political and economic coverage of the US House of Representatives and Senate.