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Fresh from nixing Ondeo’s contract to manage Puerto Rico’s water system, the Calderon administration is about to grant private companies 17 contracts exceeding $500 million to continue managing the island’s public housing system. Is privatization good or bad?


February 19, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

Who can do it better? Efforts to privatize government enterprises and services have yielded mixed results. Here’s an overview.

If the cancellation of Ondeo’s management contract seems a setback for privatization, it isn’t the last word on it.

This strategy, pioneered by Gov. Luis Muñoz Marin and taken up by other governors from both of Puerto Rico’s main political parties, will again take center stage with the imminent selection of private companies to run the island’s public housing. The contracts are worth more than $500 million in operational costs and management fees.

Within the next week, the Puerto Rico Public Housing Administration (AVP by its Spanish acronym) will announce the names of 17 companies chosen to take over the management of 329 public housing projects islandwide that are home to nearly a quarter-million people.

The new contracts include major changes, said Housing Secretary Ileana Echegoyen. They will be less costly and for shorter terms. Private operators will get paid only for units occupied rather than for all units.

Thirteen of 15 five-year contracts awarded under the Rossello administration in 1999 expire Feb. 29. The 15 contracts added up to $428.3 million in operational costs and $142.1 million in management fees. Two of the contracts were canceled: one for noncompliance, and the other because company officials were indicted on fraud charges.

The 17 new operators must be chosen by month’s end to allow for continuity in the administration of 56,508 housing units, each averaging four occupants, said Echegoyen.

Big changes are afoot with this new contracting phase. For one, contracts will last two years and five months instead of five years, since federal funds can’t be committed for that long. This permits aligning the contracts, upon their termination in September 2006, with the federal fiscal year, which begins in October, said AVP Administrator Carlos G. Laboy-Diaz.

The federal government foots the entire bill for public housing in Puerto Rico. The public housing budget for fiscal year (FY) 2003 was $171 million, up from $166 million in FY 2002.

Second, contracts will be less expensive this time around. "We are going to lower the cost per unit," said Echegoyen, citing a March 21, 2003 report by the Office of the Inspector General of the Department of Housing & Urban Development (HUD), which found that management fees in Puerto Rico exceeded those paid in New York and Chicago.

The report evaluated the process of selecting public housing management companies and payments made to these companies; it found serious lapses in the 1999 procurement process. According to AVP data, per-unit costs on current contracts range between $106 and $147, with per-unit, per-month (PUM) management fees ranging from $33 to $59.

"We hope to reduce the fee to at least the national average," said Laboy-Diaz. Average PUM costs in the States range from $24 in Chicago to $34 in New York and $35 in Boston. In Puerto Rico, the average is $42, he said.

Other changes include more restrictive clauses, according to Echegoyen, that will improve the monitoring of companies. She said paying only for units occupied should spur operators to fill apartments as soon as vacancies arise, rather than keeping them empty for any length of time, as has been the case. Housing officials could not say what percentage of public housing units are vacant, but insisted the problem is improving.

AVP also increased the number of geographical areas in which the island is divided—from 15 to 17—to allow for greater competition. Each contract covers a region, though one company could get more than one contract.

The privatization of the island’s public housing management began in 1992 under Popular Democratic Party Gov. Rafael Hernandez Colon, making it one of the longest-running privatization initiatives in Puerto Rico. Privatization isn’t limited to selling off state assets; it also extends to hiring private companies to manage those assets, as in the case of public housing.

Another example is the Ondeo contract to manage the Puerto Rico Aqueduct & Sewer Authority (Prasa), recently rescinded by the Calderon administration after less than two years of being in effect. The Rossello administration privatized the operational side of Prasa in 1995. Ondeo took over when the Water Co.’s contract expired in 2002.

Private operators that run public housing are closer to residents and can make decisions faster, said Echegoyen. "Centralization of the process isn’t a realistic model," she said.

"Privatization is a mechanism to decentralize and get services to people more directly. The key is to maintain prices that are fair and reasonable and to develop a working relationship between the government and the managers," said Echegoyen. "Third, the public housing administration must constantly monitor services given to ensure contract compliance."

Still, AVP has looked at other options. In 2003, it decided to transfer the management of five housing projects to four municipalities: Manati, Carolina, Guayama, and Caguas. Manati has a New Progressive Party mayor; the other towns are Popular Democratic Party strongholds.

Laboy-Diaz said municipalities can more easily provide services to public housing residents. Asked how the program is working, he said, "It’s like when you are a baby. First you crawl and then you walk. I would say it’s now walking."

The P word

The word privatization has been getting short shrift of late.

Blame it on the cancellation of the Ondeo contract and the troubles with the Urban Train. These are some of the most widely publicized recent examples of government privatization projects gone awry.

For every failure, however, there is a success story waiting to be told. Privatization of public housing, despite some problems, is one example of success. There are others: Metrobus, the San Juan-Rio Piedras bus line run by private operators since September 1991; Teodoro Moscoso Bridge, which this month celebrates its 10th anniversary; Thames Water Puerto Rico Inc., operator for the past six years of the North Coast Superaqueduct; and EcoElectrica L.P., which is supplying electricity to the Puerto Rico Electric Power Authority under a 22-year contract worth about $200 million a year.

The biggest privatization of all was that of Puerto Rico Telephone Co. The crown jewel of Puerto Rico’s assets, the phone company was sold in 1999 for $2 billion ($469 million in cash and $1.5 billion in debt) to a consortium comprising GTE Corp. (now Verizon) and Banco Popular Inc. The government and employees retain a stake in the company of 28% and 7%, respectively.

Still, it is the blatant failures, such as the Calderon administration’s contracting of Ondeo, and corruption schemes that have tainted some privatization initiatives, particularly the sale of health facilities under Rossello’s Health Reform program, that resonate loudest and cause people to question the value of privatization.

For all the controversy swirling around it, privatization is a fact of life in the government’s operations. "Privatization isn’t a new thing. I think the problem is people confuse privatization with the selling of assets, but it isn’t just selling of assets. It’s contracting out services, management agreements, it’s all kinds of things," said economist Jose Joaquin Villamil, president of Estudios Tecnicos Inc.

According to the Center for Competitive Government at Temple University, formerly the Privatization Research Center, the privatization of government services in the U.S. has accelerated in the past two decades, especially at state and local levels. "The most widely used method of privatization is contracting out," according to the center’s website.

The latest privatization at the national level is the Bush administration’s plan to turn over thousands of federal jobs to private, for-profit contractors. The American Federation of Government Employees (AFL-CIO) warned on its website that 850,000 federal jobs—roughly one-half of the federal work force—are at risk under the plan. Among the examples of federal services that would be turned over to private, for-profit contractors are those providing healthcare to veterans, guarding dangerous prisoners, supervising housing contractors, safeguarding the borders, and processing Social Security checks.

Dong business with the government

The government of Puerto Rico is an active contractor of private services, but statistics that can shed light on the magnitude of such contracting are inadequate.

According to the Puerto Rico Office of the Comptroller, which audits all such activity, the level of contracting has been steadily growing over the past decade. The total number of contracts registered in FY 1992 was 78,975 with a total value in excess of $2.7 billion. By FY 2003, the number had shot to 107,669 contracts with a total value in excess of $18 billion.

Unfortunately, the Comptroller’s Office doesn’t keep separate figures on contracts between government and the private sector and contracts between government agencies; instead, it consolidates them into one number. Thus, it is impossible to know which of the two has the edge.

Agency spokeswoman Lisandra Rivera said there is no way to provide a breakdown because the figures are regularly consolidated. Also, the figures include all types of contracts, such as those to buy supplies, which don’t fit the definition of privatization.

Among the various services the government contracts from the private sector are data processing, training, administrative consulting, accounting, auditing, construction, and legal & technical services.

Jose Martinez Laboy, who oversees the government’s strategic projects and infrastructure out of his office at the State Department, said more than 95% of the public works and housing built by the government is privatized.

Private sector supports privatization

The private sector is a strong supporter of privatization, arguing that the government has grown too big and unmanageable and should focus on being a regulator rather than a competitor.

"The government should be a facilitator," said Puerto Rico Line President Bob Leith, who in 1995 sought to buy Navieras from the government as part of a group of investors that included employees from the shipping authority. He lost out to a group headed by Ronald Katims, who had been part of Puerto Rico Marine Management Inc., Navieras’ operating arm.

"The power of privatization is that private enterprise has historically been better at operating a service than any government agency," said Rupert R. Amy, president & CEO of executive search firm Careers Inc. "This has nothing to do with the level of experience and sense of duty of the people involved; it has to do with a sense of culture."

A common refrain among executives is the government’s inflated payroll. "When you evaluate the Puerto Rico government’s huge work force and payroll in relation to clients’ satisfaction with the services it provides, the trend is toward dissatisfaction," said William Riefkohl, executive vice president of the Puerto Rico Manufacturers Association (PRMA).

"Throughout the world, there are many examples of countries, states, and communities with approximately the same population and size as the island, but with a government size less than half of ours and with more efficient services," said Riefkhol.

Richard Carrion, chairman, president & CEO of Popular Inc., said in a speech last November that patronage is to blame for the public sector’s bloated work force, which consumes nearly 19% of the gross national product. "I don’t believe blindly in privatization, but I do believe blindly in productivity," he told members of the PRMA. "It’s difficult to be productive in government because the system doesn’t reward productivity, but fights it. It is difficult to be productive when job permanency depends on the next elections."

Villamil, who teaches a seminar on privatization at the University of Puerto Rico (UPR) Graduate School of Planning, argues the time is ripe for the government to rethink itself. "One problem in the past 45 to 50 years is that the government has seen itself as an employment agency. It’s the employer of last resort, and that has led to inefficiency," he said.

The key in getting a discourse on privatization off the ground, according to Villamil, is to start by examining what role the government should have in providing certain goods and services. That role varies from time to time.

In the 1940s, said Villamil, the government had a strong role in providing basic infrastructure because there were fewer alternatives. "Perhaps now that role isn’t as clear-cut. Maybe the government shouldn’t be in the business of providing certain infrastructural services," he said.

"In general, there are a number of services that shouldn’t be handled by the government, such as telephone service. There also is really no strong argument for having the government produce and sell electric energy," said Villamil.

UPR Graduate School of Planning Director Elias R. Gutierrez believes the state’s intervention should be limited to exceptional cases such as public safety and health, though in the latter, the state has a choice of providing health services directly or purchasing private health insurance, as is now being done. However, he sees no reason for the government to be involved in the production of electrical energy or water, in transportation, or in anything else.

The role of government, said Gutierrez, should be to establish standards and regulations and to make sure everyone, including the public sector, complies. "The role of government in supervising privatized activity is essential," said Villamil.

But privatization can’t be improvised, as has been the case in Puerto Rico, said Villamil. A policy spelling out the purposes and objectives is essential, as are guidelines on how the government will monitor the way services are delivered. Also, the government must prepare in the event of failure.

A good example, said Villamil, is the way the British privatized telecommunications services. "They first established a strong public policy on the future of telecommunications in Great Britain—what sort of telecommunications system the country needed and should have—and then, on the basis of that policy, they set up regulatory guidelines. Then, they privatized by selling shares in British telecommunications; the way they sold the shares was by limiting the amount of shares anyone could purchase," he said.

According to Villamil, there are many reasons to privatize, such as the government’s inefficiency, the need to raise capital, and the desire to improve services. "We need to look at it as a policy instrument, not as an end in itself," he said.

Villamil and Gutierrez agree government unions pose a formidable barrier to privatization efforts. "The idea of privatization is that you can make something more efficient," said Villamil. "However, if you are bound by bargaining agreements or restrictions from that side [unions], you might privatize, but you might not be able to generate the benefits of privatization."

Gutierrez, who helped negotiate the contract to privatize the Teodoro Moscoso Bridge 12 years ago, said privatization can’t succeed if a union is hostile or if the government won’t give the privatizer room to move, two factors he believes were responsible for the Ondeo debacle. "The government wanted to hire someone to manage the agency, but it wanted to keep control," he said.

"The success of privatization isn’t guaranteed," said Comptroller Manuel Diaz Saldaña. Examples of privatization failures are everywhere, not just in Puerto Rico. "Britain had a fantastic railroad, but it has been a disaster ever since it was privatized," said Villamil. The private sector can be good at some things and bad at others, he noted. "What really makes the difference isn’t whether it’s a public or private enterprise, but whether it’s part of a competitive market," said Villamil.

Gutierrez believes the current debate over the government’s tax structure is an opportunity to review the state’s intervention in productive activities. "I think we should make it a national objective that in 50 years, we will reduce the intervention of the state in productive sectors by 50%," he said.

"No economy can subsist with one-third of its salaried employees working for the government," said Villamil. "It isn’t sustainable."

The government point of view

Martinez Laboy said there are certain services that, because of their very nature, must remain in the state’s hands so they can be accessible to all citizens, regardless of demographics and income differences. These include health, education, water, and electricity.

Prasa Board Chairman Juan Agosto Alicea said he was among the first to support selling the phone company because of the competition that was expected in telecommunications in the wake of deregulation. "Also, from the consumer side, it wasn’t convenient for the government to have a monopoly," he said.

Agosto Alicea believes the government should retain control of such essential services as water, electricity, health, and public safety. "However, there may be some service areas that could use private resources when these are more efficient. That is known as outsourcing… I favor the outsourcing of some areas," he said. "There may be specific areas where the knowledge and technology of private enterprise is more advanced, which would make it more feasible to offer a more efficient service, and maybe even at a more reasonable cost."

Rafael B. Acosta, general manager of Teodoro Moscoso Bridge, said that before taking the route of privatization, the government must determine the objectives and see if there are advantages. "One can’t say that everything can be privatized," he said. The decision should be based on whom you serve and what kind of service you want to provide.

A short history of privatization

As far as letting go of its assets, the Puerto Rico government’s attitude has seesawed from embracing the concept to rejecting it altogether. The privatization of the government’s management functions is, as in the case of Prasa, fairly new.

One of the earliest sales of state assets in Puerto Rico occurred under Gov. Luis Muñoz Marin when the government sold off its carton, bottle, and cement plants to businessman Luis A. Ferre. The purchase paved the way for Ferre to create his multimillion-dollar construction and publishing empire.

Gov. Hernandez Colon sold off the long-distance service of the Puerto Rico Telephone Co. to Telefonica de España, but was rebuffed in his attempt to dispose of the company as a whole. He also privatized Teodoro Moscoso Bridge and the San Juan-Rio Piedras bus route.

The sale of the Puerto Rico Telephone Co. by Gov. Pedro Rossello unleashed vehement union protests, but he won out in the end. Under his Health Reform program, Rossello launched one of the most ambitious asset-divestment initiatives in the island’s history, whereby public hospitals and health clinics were sold off to private and public operators. According to the Government Development Bank, 57 facilities with a combined market value of $100.2 million had been sold as of January 2000. The sales netted a total $90 million.

Among the largest sales were the Carolina hospital, sold to the University of Puerto Rico for $32.4 million; Fajardo hospital, sold to San Pablo del Este for $14.1 million; Arecibo hospital, sold to Dr. Susoni Health Community Services Inc. for $26 million; and Ponce hospital, sold to Saint Luke’s Memorial Hospital for $23 million.

Other state assets sold under Rossello were one shipping company (money-losing Navieras for $69 million) and four hotels: the Caribe Hilton for $80 million; Ponce Hilton, $15 million; Mayaguez Hilton, $5.2 million; and El Convento, $3 million.

The Calderon administration has rescinded some health privatizations, essentially by taking over several clinics that ran into financial trouble under their private operators. It also decided against selling the Condado Vanderbilt and La Concha hotels. Instead, it agreed in 2003 to lease the properties to International Hospitality Associates Inc., headed by hotelier Hugh Andrews. Yearly rent on the 99-year lease is $1 million.

Privatized management contracts also have been cancelled. The Department of the Family rescinded the privatization of case management. In 2002, the Department of Corrections & Rehabilitation took back four jails from private operators: Ponce Young Adults, Ponce Adults, and Guayama Institution, run by Correctional Corp. of America; and the Bayamon penitentiary, run by Wackenhut. A total of $211 million in payments were made to the two companies between January 1997 and Dec. 31, 2001, according to Corrections.

"The decision to cancel was based on cost," said Hector Morales, assistant administrator in the Office of Budget & Finance at Corrections. He said the two companies were being paid a total of $54 million per year to run the four jails, on top of which the agency had to pay $27 million in rent to the Public Buildings Authority. Keeping the contracts would have been too expensive because of in-built, yearly cost-of-living increases, so the agency decided it would do the job, he said. The savings from canceling the contracts are estimated at $24.7 million.

Morales gave both companies a passing mark in terms of performance but noted they were too strict with inmates, not allowing them to smoke. Also, their recruitment policies were lacking. He said they hired overweight people "who wouldn’t have qualified under our requirements," and sociopenal staffers (sort of social workers who deal with inmates) without academic training.

Taking over where government leaves off isn’t always easy

Taking over state assets or managing those assets is a challenge, as some privatizers have learned. The complexities inherent in any enterprise can prove daunting even when the private sector is running the show. Following is a look at some current privatization efforts, including EcoElectrica whose service contract with Prepa fits the privatization definition.

Procesadora Campofresco Inc.

President Julio Mendez doesn’t regret taking over the Land Authority’s pineapple program, but he makes no secret it has been tough going.

"This is our first venture as pineapple growers, and it has taken time and money to learn the business," said Mendez, who founded Campofresco in 1982 to process oranges and passion fruit under the brand name Caribik Sun.

In 1996, the company bought the Lotus brand from the government. Three years later, it took over the production of pineapples under a $2 million deal by which Campofresco leases 1,950 acres of farmland for 25 years, with an option to buy should the government decide to sell.

Mendez said the company was up-to-date on its lease payments until recently, when it stopped making them because the government owes it $3.4 million in product sales to the Education Department for its lunch program. "The Agriculture Department says Education won’t pay; education says Agriculture has not billed them; and I’m in the middle like ham in a sandwich," he said.

Meanwhile, Campofresco has been struggling to produce more pineapple, which has meant getting permission from the government to buy seeds from outside Puerto Rico since not enough seeds are available locally. Whereas a single orange can produce multiple seeds, a pineapple produces two seeds every 18 months.

"It’s a very big problem," said Mendez, adding that getting a permit isn’t easy because of opposition in some quarters to the importation of seeds. This is because of fear the seeds may spread diseases which, he said, are common to other Caribbean countries and are already found in Puerto Rico.

Campofresco’s production in 2000, its first year of operation, was 15,800 tons. This was more or less on par with the amount the Land Authority was delivering to the company before the privatization, despite the government’s commitment to supply 27,000 tons. It was based on that commitment, said Mendez, that Campofresco invested $15 million to expand its Santa Isabela plant.

Pineapple production rose to 18,800 tons in 2001; dropped to 18,200 in 2002; and dived to 16,000 in 2003. Production should increase to 23,000 this year. Mendez credited Agriculture Secretary Luis Rivero Cubano for helping him secure the permit to buy several million pineapple seeds needed to boost production. Field operations have been running in the red, but Mendez said he expects to break even this year. By 2005, production could reach 30,000 tons, he said.

Teodoro Moscoso Bridge

Described as one of Puerto Rico’s engineering feats, Teodoro Moscoso Bridge celebrates its 10th birthday on Feb. 29 with its now internationally famous World’s Best 10K Race. More than 10,000 participants are expected this year, all vying for cash prices in excess of $400,000. The first-place winner gets $20,000.

Since opening to the public on Feb. 23, 1994, some 73 million vehicles have whizzed across San Jose Lagoon via the 2.4-kilometer (about 1.5 miles) bridge. At normal speed, it takes 30 seconds for a car to cross, shaving 20 minutes off the regular drive from Isla Verde to Rio Piedras.

"The bridge has been a successful enterprise for everyone involved: the people of Puerto Rico, the government, and the partners," said General Manager Rafael B. Acosta, who came on board two years after the bridge’s opening. "Look at the roads. They’re a wreck. There is no maintenance. Now, look at how well-maintained the bridge is. That’s the name of the game."

Teodoro Moscoso Bridge, whose name celebrates one of the men responsible for Puerto Rico’s industrialization, was the product of a joint venture between Spanish firm Dragados & Construcciones S.A. (now Abertis), a builder of tunnels, highways, and railways in Europe and Israel; and Rexach Construction (now Supra). Construction started in 1992 and was completed in February 1994, two months ahead of its 24-month schedule.

The cost was $84 million, paid through a $116 million bond issue, which also covered initial investments by the partners in the project. The issue was refinanced last year for $153 million to take advantage of lower interest rates, according to Government Development Bank spokeswoman Maria S. Rosario.

To date, the bridge has brought in $112 million in revenue. Since opening, the toll has changed only once: In 2000, the fare went up from $1.50 to $1.75. Acosta said traffic slipped slightly as a result but then normalized. Daily traffic is about 25,000 vehicles.

The operation is making money. The 35-year concession agreement stipulates that all income from tolls go toward paying the operational costs of the bridge (about $3.5 million per year), bondholders, and debt service. Any money left over is divided between the government and the companies. Acosta said excess revenue was reported in 1997, 1998, 1999, 2000, and 2001. No excess was reported for 1995, 1996, 2002, or 2003.

Maintenance, representing 20% to 25% of operational costs, is ongoing. Two years ago, the protection system of the piles that sustain the bridge was revamped; also, a system to monitor the oxidation of the piles was installed. Each pile is numbered and a careful record is kept of each maintenance job. "The bridge is going to be there for a long time," said Acosta. Teodoro Moscoso Bridge was conceived as part of a duo: Route 66 and the bridge. But Route 66 was scrapped by the Rossello administration, forcing the company to sue. The case is still pending and is the only wrinkle in the company’s long-running relationship with the Puerto Rico government.

EcoElectrica L.P

Technical problems with equipment from Siemens-Westinghouse have prevented EcoElectrica L.P., the $670 million co-generation electric power plant in Peñuelas, from reaching all the energy availability required under its 22-year contract with the Puerto Rico Electric Power Authority (Prepa), worth about $200 million per year.

"It isn’t common for a rotor to break down, but it has happened to us!" said General Manager Ernesto Cordova with dismay. Besides the rotor, EcoElectrica has had problems with other parts of the turbines that operate the system. As a result, the company has been operating with less than 90% generating availability during its four years in operation.

Cordova hopes technical problems are now a thing of the past. "The serious problems were resolved in 2003," he said.

This year’s energy availability will be around 90%, on target with Prepa’s contract. Cordova said that in years EcoElectrica carries out any major maintenance, as it did in 2003 and will do this year, the company is required to have 90% availability. Last year, it had 89%, just one percentage point below the required level. In other years, the company must reach 93%.

Solving the technical glitches was important because payments are tied to availability. "The less the availability, the less the payment for capacity," said Cordova. Under the contract, EcoElectrica gets paid for capacity, about $10 million to $12 million per month, and for energy, between $8 million and $9 million, according to Prepa Deputy Executive Director Hector M. Alejandro.

Alejandro expressed satisfaction with EcoElectrica. "Though we had hoped it would take them less time to reach full availability, the data show…they are headed to proper compliance with the contract," he said.

EcoElectrica is currently operating in the black, although it lost money in its first year. "Puerto Rico’s average [power] availability is under 80%," said Cordova. "Therefore, it is companies such as AES [another co-generating plant] and EcoElectrica that are contributing to raising the availability."

First Transit

First came American Coach Line Metromovil in September 1991. Next, MetroCoach USA Inc. Now, it’s the turn of First Transit to run the San Juan-Rio Piedras bus line, known as Metrobus.

Metrobus I, that is. Metrobus II is run by the Metropolitan Bus Authority under a contract with the Highway & Transportation Authority (HTA), which owns these routes.

Domingo de Jesus "D.J." Gonzalez, general manager of Metrobus I, said First Transit, part of FirstGroup America, took over the bus route when it acquired a portion of MetroCoach USA. FirstGroup America is owned by FirstGroup PLC, a United Kingdom-based passenger-transport group with bus and rail operations spanning two continents, according to its website.

"Things are going well," said Gonzalez, noting that First Transit has been moving about 6,000 passengers a day on the route since taking over the contract, which MetroCoach had landed in 2002. The acquisition gave First Transit ownership of 24 buses and the use of another six owned by HTA.

Metrobus operates a local service, which runs along Ponce De Leon Avenue, and an express service that runs part of the way on Las Americas Expressway. Gonzalez said there are no plans to boost bus frequency, though he would like to increase passenger movement.

He conceded that First Transit is having some problems with the equipment, which he said is old and prone to breakdowns. However, the company doesn’t intend to invest in new equipment. "There is no need to change equipment now," said Gonzalez.

In addition to handling the bus service, First Transit also has several vehicle-maintenance contracts with the Puerto Rico government.

Thames Water Puerto Rico Inc

Every contract is a partnership," Tony Stanbridge, general manager of Thames Water Puerto Rico Inc., told a reporter recently.

His company’s partnership with the government proves this kind of arrangement can work despite disappointments like Ondeo, he said. "Public-private partnerships can be successful and have been successful in many parts of the world," said Stanbridge.

The $338 million Superaqueduct was designed to boost the water reserves of the San Juan metro area and seems to be working. Stanbridge said current production is around 90 million gallons a day, of which 75 million go to metropolitan San Juan.

Thames gets paid $12.6 million a year to operate the water system, of which $7 million is the company’s fee; the remaining $5.6 million pays for the chemicals and the power needed to keep the Superaqueduct running. This amount is reimbursed to the Puerto Rico Aqueduct & Sewer Authority.

Maintenance comes out of the company’s fee and, said Stanbridge, the focus is on prevention. For example, monitors for vibration and noise allow the company to determine the condition of the aqueduct and make repairs before there is any failure.

The aqueduct is in good condition and no leaks have been detected, according to Stanbridge. Weekly inspections cover the entire 57-kilometer (about 35 miles) length of the aqueduct. "The pipeline is built to last for decades," he said.

Four Basic Types of Privatization

  1. Complete sale of all agency assets: The complete operational control, authority, and property of the organization is transferred to a private entity.
  2. Partial sale of an agency’s assets: The government sells part of its proprietary interest in the agency’s assets and retains the remaining portion.
  3. Contracts of administration: The management of the agency is transferred to the private entity, but the government retains ownership of the assets.
  4. Contracts of service: The government grants a contract to a private entity to offer services normally provided by the state.

Source: Puerto Rico Office of the Comptroller

This Caribbean Business article appears courtesy of Casiano Communications.
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