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The public works projects announced last summer are behind schedule, but they are moving forward. Adding to those is another $2 billion to be invested this election year.


March 11, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

Making quick magic: In the past three years, the Calderon administration has invested $5.9 billion in nearly 3,000 infrastructure projects as part of several short-term initiatives to jump-start the local economy. Has it worked?

Barely six months into his job as the Calderon administration’s second economic czar, Economic Development & Commerce (EDC) Secretary Milton Segarra discussed with CARIBBEAN BUSINESS in July 2003 a series of strategies to ramp up the island’s economy in the following 18 months (CB July 24, 2003).

At the top of Segarra’s bag of quick-magic tricks was a commitment to fulfill the administration’s promise to invest $7.9 billion in infrastructure projects over its four-year term. During his interview, Segarra unveiled some 90 public works projects worth $1.3 billion that were slated to start construction between July and December 2003.

The former Tourism Co. executive director also outlined a set of new or revamped initiatives in four main areas, promising to cut through the red tape in the government’s permitting process, reduce the cost of doing business, boost local exports, and focus on developing high-tech industries.

Eight months later–and one year after becoming head of the EDC–Segarra again sat down with CARIBBEAN BUSINESS to give an update on all his initiatives.

Progress at hand

"We have been having follow-up meetings, virtually every week, on the projects and initiatives we discussed last year and on others that in some way have to do with economic development," Segarra told CARIBBEAN BUSINESS. "We have been able to move forward or complete 98% of the initiatives we presented in July."

The administration has been claiming all along–and Segarra said people have noticed–that Puerto Rico has experienced a moderate sustained economic rebound. "The island’s economy grew 1.9% last year, when we predicted 1.7%," said Segarra.

"For this fiscal year, I’m expecting growth of 3.1%, although the Planning Board gives a more conservative figure of 2.9%."

Infrastructure investment

Segarra said that of the 90 government infrastructure projects slated to begin construction between July and December 2003, 51 are under construction, 16 are in the bidding process, 20 are in the design stage or are otherwise pending, one for housing was altered by the developer, one for a new school was replaced with another, and one was canceled.

These 89 projects represent a $1.3 billion investment in practically every corner of every municipality in Puerto Rico, noted Segarra.

There were 61 additional public works projects worth $1 million or more (amounting to $377 million) slated to start construction during the second half of 2003, but these weren’t on the original list. On top of those, there are 46 projects valued at $24.7 million; 54 projects, worth $15 million, to improve the island’s public housing so it complies with the Americans with Disabilities Act; 45 projects, valued at $13.4 million, to repave roads; 19 projects for $43 million to revitalize urban centers; 69 projects, worth $10 million, under the Agua para Todos (Water for Everyone) program, and 358 projects for $380 million under the Special Communities program.

"As of July 2003, we had invested $3.1 billion in public works projects. We now have $5.9 billion in government infrastructure invested, equivalent to 2,990 projects islandwide," said Segarra. "This clearly demonstrates how important this investment has been to the economic rebound, since we have been able to move forward and double the number of public projects under construction."

The remaining $2 billion of the $7.9 billion in government infrastructure projects earmarked for this four-year term will be processed, out to bid, and under construction before year’s end, said Segarra.

Public projects galore

Segarra announced that construction on another 150 projects, worth $1.1 billion, is expected to have begun between January and June of this year. These don’t include an additional 29 projects costing $193 million for the Martin Peña Canal, the revitalization of urban centers, facilities of the Department of Sports & Recreation, projects of the National Parks Co., and the new headquarters of the Government Development Bank.

"The goal of this administration is to achieve $7.9 billion in public works investment in four years, which is equivalent to 4,000 government infrastructure projects," indicated Segarra. "Construction investment, both public and private, is one of the most important economic development components of our economy."

During the past 18 months, said Segarra, private-sector projects declined because of the prevailing recession in both the mainland U.S. and Puerto Rico. "That’s when the government came in and pushed ahead its public works projects, to inject as much money as possible into the economy," said Segarra. "That’s the role we tried to stimulate during the recession, to have public work projects come out as quickly as possible as a way to compensate for the decline in the private sector."

Nowadays, added Segarra, the private sector is making significant investments in machinery and equipment. This indicates that investor confidence has returned on a short-term basis, which will ultimately translate into larger investments in the long term. "The rebound in private and public-sector investments will undoubtedly lead to a 3.1% growth in our economy this year," he said.

Acknowledging the delays in several public works projects, Segarra attributed some to a longer-than-expected permitting process and others to an insufficient number of bidders. "Because of the large numbers of public projects out to bid, some didn’t have enough firms bidding on them, and these had to be resubmitted," he said.

Permitting red tape

Segarra cited breakthroughs in cutting through the red tape to secure government permits. For one, several permits were consolidated at the Environmental Quality Board. Additionally, there was an initiative to increase the number of permits that can be obtained through certifications at the Department of Natural & Environmental Resources. That agency also completed a number of studies that, according to Segarra, have helped to speed up several processes and procedures in its permitting process.

"Many people have told me the Department of Natural & Environmental Resources is much more effective now in handling and processing permits," said Segarra. "The creation of an auxiliary secretariat for permits at the department is a direct result of this initiative."

What’s more, said Segarra, there has been an increase in the number of permits issued through categorical exclusions–those meeting certain requirements, which don’t have to go through the entire lengthy permitting process.

Although he is proud of the significant strides made in the permitting process, Segarra said he will never be satisfied because delays can turn into obstacles for economic development. "We still have work to do on the internal processes at those agencies involved with permits, where there’s still bureaucracy," he said. "But we also have to provide these agencies with the right technology to increase their efficiency."

Some agencies, such as the Regulations & Permits Administration, the Planning Board, and the Environmental Quality Board, have made significant investments in technology, said Segarra. Then there are others, such as the Department of Natural & Environmental Resources, that need to make further technological investments to boost their effectiveness.

"The permitting process will never reach an ideal stage because it must evolve with the changes in Puerto Rico’s social and economic development," said Segarra.

Project Management Office

In 2003, Segarra set up a Project Management Office in his own agency to help push through major projects stuck in the permitting process. Last July, the office was handling eight projects.

"We now have two people working full-time on 47 projects with a potential for 8,482 jobs and over $4 billion in investments. There are public and private-sector projects in the areas of manufacturing, tourism, housing, and commerce," said Segarra.

The office only accepts cases referred by one of the government’s promotion agencies, including the Puerto Rico Industrial Development Co. (Pridco), the Puerto Rico Tourism Co., the Department of Housing, the Department of Agriculture, the Commerce & Export Co. (previously the Commerce Development Administration), and the Planning Board.

Of the Planning Board’s project to digitize its cadastral maps (showing property lines, buildings, and related information), Segarra said the first phase, covering land use in the San Juan metro area and the eastern region, has been completed.

"Beginning June 30, the 21 municipalities with a master land-use plan will have their maps digitized. There was great interest in including the eastern region because there are several tourism-related projects in the area and it is important to have a zoning reference to avoid or curtail problems there," said Segarra.

Reducing the cost of doing business

As part of the government’s efforts to reduce the cost of doing business on the island, the Puerto Rico Electric Power Authority will continue its practice of hedging, or buying insurance to counter rises in the price of petroleum so as to avoid raising energy costs to businesses and other consumers.

"We added two initiatives. The first increases from 6% to 8% the credit on the fixed portion of industrial clients’ electricity bills. The second provides a discount of 10% on the monthly electricity bill of a small or midsize business in an urban center," said Segarra. "We have identified $6 million in reserve funds for each of these initiatives."

In addition, said Segarra, the Muñiz Air Base in Carolina now offers extended operating hours for customs handling and processing during the most important holidays. Also, the Department of the Treasury’s Electronic Tax, Payment & Release program for cargo processing is fully operational at customs broker Nestor Reyes Inc. The remaining seven brokers are in the process of testing the software, added Segarra.

Legislative changes

Segarra said the administration remains committed to stopping any legislative effort to increase the cost of doing business in Puerto Rico.

"Our public policy has been and continues to be that any measure will have our support as long as it has a productivity element at its core," he said. "Recently, legislation was introduced in the Senate to declare July 25 a legal holiday and to force businesses to close on that day. We opposed it, and it didn’t pass."

The Legislature amended the Preference Law, which provides a 2% to 15% cost preference to products manufactured by qualified companies looking to sell to the government, allowing them to compete with larger companies that can offer lower costs. As of Jan. 8, the board that hands out the preferences was renamed the Puerto Rican Industry Investment Board and moved from the Puerto Rico General Services Administration to Pridco.

The proposed merger between the Commerce Development Administration and the Puerto Rico Export Promotion Corp. (Promoexport) became law, creating the new Commerce & Export Co. of Puerto Rico.

Development of high-tech industries

To spur the development of high-tech industries in Puerto Rico, Segarra said last July that he would commission a study to evaluate the important areas at Pridco: the promotional process, the incentives, and the handling of real-estate property.

"A contract for $500,000 was signed and the study was commissioned to two firms: Puerto Rico’s Estudios Tecnicos and Florida’s Grubb & Ellis," said Segarra. "We should have the results of the study by August."

As for the industrial parks whose construction was to have begun late last year, Segarra said the one in Guanajibo in Mayaguez should go out to bid next week. The ones in Dorado and Aguadilla should begin construction in May and July, respectively. These industrial parks experienced four- to five-month delays in the permitting process. Hewlett-Packard will anchor the $20 million industrial park in Aguadilla.

"One of the most important directives we at the EDC will be working on in the coming months is the science & technology trust fund announced by Gov. Sila Calderon during her State of the Commonwealth address," said Segarra. "It will provide Puerto Rico with a mechanism like those of Singapore, Ireland, the U.S. mainland, Chile, and Australia to help the island compete in a knowledge-based economy."

Pleased with overall results

Segarra said he is happy with the results of the economic development initiatives implemented during his one-year tenure at the EDC, especially considering these were to have been completed in 18 months.

"I am pleased with the work we have been able to do, because what we’ve done has been focused," said Segarra. "Eight months after announcing these initiatives, we have completed 98% of them, when we said we were going to do them in 18 months. That shows you how the economic recovery is going and what high expectations we have."

Segarra said the remaining 2% of the projects have been delayed in the permitting process or require additional legislation. "The latter is the case with the science & technology trust fund, for which we will be presenting legislation this month," he said. "Although it is established in concept, I can’t include it among the completed projects because it hasn’t been submitted to the Legislature."

Contractors are benefiting from wave of public works projects

During the first two and a half years of the Calderon administration, local contractors dependent on public works projects had it tough as the government halted undertakings from the Rossello administration and put out bids for very few of its own. This dry period forced some construction companies out of business; others reduced their work force or took on private-sector projects to survive.

What is the situation for local contractors now that the government has put out $5.9 billion worth of public sector infrastructure projects and has another $2 billion worth of projects slated to start construction this year?

"Economic activity has definitely improved. Infrastructure projects are moving forward," Jorge Jose Fuentes, president of the local chapter of the Associated General Contractors of America (AGC), told CARIBBEAN BUSINESS.

Until now, jobs in the construction industry were in a downward spiral, according to Fuentes. With the recent wave of public works projects, the numbers should increase again. There are an estimated 85,000 workers in the local construction industry.

Four sections of Route 66 went to bid recently, and AGC members were awarded most of them, Fuentes indicated.

"For the new government finance center that will house the Government Development Bank and the Economic Development Bank, five AGC members submitted proposals. An AGC member also won a $25 million bid for the new convention center," said Fuentes. "The AGC member outbid a stateside firm."

What these projects demonstrate, said Fuentes, is that AGC members are interested in bidding on infrastructure projects from different government agencies.

"The Puerto Rico Aqueduct & Sewer Authority [Prasa] is the only agency not working with AGC since it terminated its contract with Ondeo. There were certain disagreements between AGC members and Prasa," said Fuentes.

According to Fuentes, Prasa wanted to place responsibility for the projects’ designs on contractors even though someone else drafts them. Because of the risks involved, AGC members decided not to bid on those projects, bidding instead on plans from the Infrastructure Finance Authority (AFI by its Spanish acronym).

"AFI projects are moving forward, and with the new structure at Prasa, AFI retakes a bigger and more important role as project developer and provider of capital investment," said Fuentes.

When asked if the current wave of public works projects is unusual, Fuentes said it is part of Puerto Rico’s typical political cycle. "It’s the type of public investment that you can expect during an election year. The government prepares projects during the first year and a half and then decides to make the capital investment in the last two. They hurry the projects to ensure they have completed some by election time," said Fuentes.

Fuentes attributed this to people’s short-term memories; they only remember accomplishments that come at the end of an administration.

The AGC’s 400 local members are responsible for almost 80% of the construction projects in Puerto Rico.

This Caribbean Business article appears courtesy of Casiano Communications.
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