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Monday, February 13, 2012

8:21 AM 2/13/2012: Fortuño's Plan to Energize Puerto Rico - Wall Street Journal

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Gov. Louis Fortuño's efforts to reduce Puerto Rico's high electricity prices are opposed by environmentalists.

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FEBRUARY 13, 2012, 6:56 A.M. ET
Fortuño's Plan to Energize Puerto Rico
Tax cuts and regulatory reforms are increasing investment on the island.
By MARY ANASTASIA O'GRADY
Old San Juan, Puerto Rico
Full story: Wall Street Journal
So Mitt Romney doesn't "care about the very poor." But what about the rest of the American political class who jumped all over him for his recent gaffe? Its loud protestations aside, how truly interested is Washington in reducing poverty?
That question occurred to me during an interview with Puerto Rican Gov. Luis Fortuño here 10 days ago. If his plan to boost the island's competitiveness by switching electricity generation from oil to natural gas is to succeed, he's going to need relief from the pernicious 1920 Jones Act. It prohibits any ship not made in the U.S. from carrying cargo between U.S. ports. There are no liquefied-natural-gas (LNG) tankers made in the U.S. Unless Puerto Rico gets a Jones Act exemption, it cannot take advantage of the U.S. natural gas bonanza to make itself more competitive.
The Jones Act is good if you are a union shipbuilder who doesn't like competition, or a member of Congress who takes political contributions from the maritime lobby. But it's bad if you are a low-income Puerto Rican who needs a job. And there are plenty of those.
Puerto Ricans are American citizens but they are significantly poorer than the rest of the country. Per capita income on the island in 2010 was roughly $16,300 compared to just over $47,000 for the nation as a whole.
Life on the island is also expensive, in part because of the high price of electricity, 68% of which is produced using imported oil. The governor's office says that the price of electricity here went up 100% from 2001 to 2011.
Gov. Louis Fortuño's efforts to reduce Puerto Rico's high electricity prices are opposed by environmentalists.
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Mr. Fortuño made a name for himself by refusing to raise taxes when he inherited a welfare-state basket case in 2009. Instead he eliminated 21,000 government jobs—13% of the total central government work force—cut taxes and began aggressively deregulating. For the record, he did impose a temporary excise tax (set to expire in 2016) on multinational corporations because, he says, Puerto Rican companies pay much higher rates and it was the only fair way to spread the pain during the fiscal emergency.
His reforms have paid off. In a ranking of budget deficits as a percentage of revenues with the 50 states, the island now places 15th, up from 51st three years ago, according to the governor. Unemployment is "down" to 13% from a high of almost 17% in July 2010 and after six straight years of economic contraction, Mr. Fortuño expects 2012 economic growth to be 1%-1.25%. With the U.S. economy expected to grow at only around 2.5%, he says that will put Puerto Rico close to its long-term historical relationship with the mainland. His polls show it might even be enough to get him re-elected in November, something that he admits looked impossible only one year ago.
The governor knows that Puerto Rico ought to be growing faster than the national economy, and he recognizes that won't happen unless he can make it a more promising destination for capital. His tax cuts and regulatory streamlining have had some effect. The Economist Intelligence Unit reported in November that it expects gross fixed investment to "rebound by a modest 2% in 2011-12, the first growth in several years." But Puerto Rico needs more.
Public-private infrastructure projects may help: A $1.5 billion toll-road concession from San Juan west to Hatilo and Aguadilla; public-private partnerships in education bringing $878 million to the island for the modernization of 100 schools; and bidding is now under way for a concession to modernize the Luis Muñoz Marín Airport in San Juan.
But bringing down high energy costs remains a fundamental challenge, and one that is exacerbated by new costly federal regulations on emissions that would require the installation of scrubbers on oil-fired electricity plants. To meet those regulations affordably, Mr. Fortuño wants to convert the island's oil-fired plants to cheaper, cleaner natural gas. To that end, he proposes a pipeline from the southern LNG terminal at Punta Guayanilla across the island to San Juan. The U.S. Army Corps of Engineers has assessed the proposal and said it would produce no significant environmental impact.
It sounds like a plan to help the poor and unemployed. There are only two problems. First, the Sierra Club and local environmentalists have ginned up fears about the project and promised to sue to stop construction. Second, the Jones Act is still in the way.
The governor admits that his administration could have done a better job communicating the pipeline plan to Puerto Ricans, but he also points out that "some of the same groups that have opposed the pipeline have also opposed wind-power and solar projects. They are opposing everything, including waste-to-energy" projects which he maintains are less polluting than landfills.
Mr. Fortuño says that he expects Washington to give him a carve-out for LNG tankers, but he doesn't have it yet. He also says that a large part of the environmentalist push-back is political, suggesting to me that he ought to be more worried than he is. This kind of politics needs to preserve the status quo of the welfare state. And that implies blocking Mr. Fortuño's development agenda no matter what it means to the poor.
Write to O'Grady@wsj.com
http://online.wsj.com/article/SB10001424052970203646004577215183632347566.html?mod=topix
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So Mitt Romney doesn't "care about the very poor." But what about the rest of the American political class who jumped all over him for his recent gaffe? Its loud protestations aside, how truly interested is Washington in reducing poverty? That question occurred to me during an interview with Puerto ...

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