How corporate thieves prey on Puerto Rico

November 17, 2017

The scandal of a tiny Montana firm getting a multimillion-dollar reconstruction contract for Puerto Rico is just the tip of the neoliberal iceberg, writes Christopher Baum.

ALMOST TWO months after Hurricane Maria struck Puerto Rico, more than 750,000 Puerto Rican homes and businesses remain without electricity.

Yet political and business elites in the U.S. and on the island itself seem more interested in continuing the project of turning Puerto Rico into a cash machine for private companies than in giving the Puerto Rican people the aid they desperately need.

In the weeks following the hurricane, the Puerto Rico Electric Power Authority (PREPA) signed two highly dubious contracts with private U.S. firms to help with the rebuilding of the island's utilities infrastructure.

The more notorious of the two deals was a $300 million contract with a little-known Montana company called Whitefish Energy, which at the time Maria struck had only two permanent employees--and no experience on any projects even remotely approaching the scale of rebuilding Puerto Rico's power infrastructure.

In fact, as a two-year-old company, Whitefish could claim very little experience of any kind. What they did have going for them, apparently, was ties to the Trump administration's Interior Secretary Ryan Zinke.

San Juan suffers through another blackout
San Juan suffers through another blackout

This deal was so suspicious that even many congressional Republicans cried foul. In the face of enormous public and political pressure, Puerto Rico Gov. Ricardo Rosselló announced on October 29 that he had instructed PREPA to cancel the Whitefish contract.

The deal still works out pretty well for Whitefish, however. As the New York Times reported, the company will continue to do repair work on the island through November 30.

The contract permits Whitefish to bill PREPA $319 an hour for each worker--of which the workers themselves, according to the Times, will receive between $42 and $100 an hour.

Whitefish is also authorized to charge $412 per worker per day for food and lodging, along with similarly exorbitant rates for equipment and transportation. As the Times notes, all of these figures as far above the norm, even for emergency work in remote areas.

And to top it all off, millions of Puerto Ricans who had their power restored were plunged into darkness again when a high-voltage transmission line supposedly repaired by Whitefish failed again.

PREPA HAS defended the Whitefish Energy contract by pointing out that, unlike more established companies, Whitefish didn't require a down payment from the bankrupt utility.

Yet PREPA did somehow manage to scrape together $15 million as a down payment on its other dubious contract.

This was with Cobra Acquisitions, which was formed earlier this year when its parent corporation, the oil-field services company Mammoth Energy, acquired and combined two smaller businesses.

Cobra at least has some experience with prior disaster recovery efforts, having been "involved in repairs in Texas and Florida following hurricanes Harvey and Irma," according to CNN. But as with Whitefish, questions remain as to how it managed to beat out larger and more experienced firms.

Both contracts contain statements asserting that the deals had been reviewed and approved by the Federal Emergency Management Agency (FEMA)--a claim the agency describes as "inaccurate."

In a letter to FEMA Administrator William B. Long asking for confirmation and clarification on this point, the House Committee on Energy Commerce also notes that both contracts contain "language which would appear to have the effect of preventing government oversight of the agreement, raising additional questions about the contracting review process for recovery efforts in Puerto Rico."

THE SPECIFICS of these deals obviously raise questions about the judgment and priorities of the officials in charge of Puerto Rico's power authority. But a more basic question is why PREPA awarded contracts to any private companies at all in the wake of the storm.

As a member of the American Public Power Association and signatory to its mutual aid agreement, PREPA is entitled to seek aid from any of the other publicly owned utility companies that participate in the program.

As the New York Times reported, "Such mutual aid arrangements are common after emergencies, and are usually invoked immediately." But PREPA didn't take this step until after the Whitefish debacle, when it finally requested--and promptly received--aid from New York and Florida. (Florida, incidentally, is where Whitefish got many of their contract employees--PREPA could have hired them directly at a fraction of the rate they paid to Whitefish.

Speaking to Reuters on November 2, Rosselló blamed the delay on the U.S. Army Corps of Engineers, which has been tasked by FEMA with aiding PREPA, the U.S. Department of Energy and private firms in restoring power to Puerto Rico.

According to Rosselló, the Army Corps said it could help restore power within 45 days, and with no down payment, but PREPA moved ahead with subcontractors because "we are very unsatisfied" with the Army Corps, he said.

IF THE Army Corps of Engineers has been slow to make progress on the ground in Puerto Rico, it nonetheless managed to sign at least one eyebrow-raising contract of its own.

After the Whitefish deal was called off, the Army Corps announced a "sole-source modification"--at a stroke adding $600 million to the $240 million contract for work on power restoration that was signed in mid-October with Fluor, a California-based corporation.

Unlike Whitefish or Cobra, Fluor undeniably has a great deal of relevant experience--but that experience itself raises questions.

Fluor was one of several companies to receive massive no-bid contracts from FEMA to help with rebuilding in the wake of Hurricane Katrina in 2005. As USA Today reported at the time:

Federal court records show Fluor agreed to pay $3.2 million in 1997 to settle allegations that its FD Services division padded repair bills for cleaning up U.S. Navy bases in South Carolina after the 1989 strike of Hurricane Hugo. Fluor also agreed to pay $8.5 million in 2001 to settle allegations that it billed the government for work done for other clients, court records show.

According to the Project for Government Oversight's Federal Contractor Misconduct Database, there have been at least 40 instances of alleged misconduct by Fluor since 1995--and the company has so far paid out more than $205 million in penalties and settlements in connection to these allegations.

Among the charges leveled at Fluor are health and safety violations, anti-union labor practices and overcharging the government for contract work.

Nonetheless, when a devastating earthquake struck Haiti in 2010, Fluor was again awarded a contract to aid in the reconstruction efforts, and it has continued to receive hefty government contracts, domestically and abroad, in the years since.

ALL THESE dubious and lucrative deals with private firms, together with the lack of decisive action on the ground by PREPA itself, raise the issue that has plagued Puerto Rico's public utilities for years now: privatization.

In July 2016, Ángel Figueroa Jaramillo, president of Puerto Rico's Electrical Industry and Irrigation Workers Union (Unión de Trabajadores de la Industria Eléctrica y Riego, or UTIER), blasted the government and PREPA's leadership, saying:

Blackouts, long or short, continue to be the order of the day. The executive director of PREPA...has admitted as much. But the true cause is the gradual and intentional dismantling that the authority's own government is bringing about with its policies of austerity for eventual privatization.

UTIER has made this point on a number of occasions. Shortly before Maria hit, in the wake of storm damage in Puerto Rico from Hurricane Irma, the Intercept reported that a UTIER spokesperson had "denounced the utility's leadership for not sending 170 available workers out to reconnect lines and accused it of delaying restoration to build support for a corporate selloff."

Meanwhile, following Maria, the first steps toward repairing and rebuilding the power grid have taken place through subcontractors who bypass qualified workers on the island in favor of a labor force from the U.S.--for which, as we've seen, they charge exorbitant rates that mostly go to the company for "overhead costs," not the workers.

The drive to privatize is directly responsible for deterioration of PREPA. The utility survived previous privatizations, but suffered from the neoliberal strategy of "starv[ing] a public service until it ceases to function, and then us[ing] that failure as an excuse to privatize," as Brian Sullivan wrote in an article for SW.

Because of this vicious circle, Sullivan continued, "[b]etween 2012 and 2017, 30 percent of PREPA's workforce was lost, mostly through attrition. This meant that thousands of skilled workers who could have maintained the grid or cleared trees around power lines before Maria hit simply weren't available to do that work."

Privatization is a regular theme in Puerto Rico in the era of austerity. In their report from the island for, Monique Dols and Lance Selfa described how the Federación de Maestros de Puerto Rico (FMPR), a teachers' union, "charges Education Secretary Julia Keleher with unnecessarily delaying the opening of hundreds of schools in order push for privatization."

A September 2016 In These Times article explained the benefits according to the neoliberal logic: "Privatized workers have lower rates of unionization, are paid less than their publicly-employed counterparts, don't have access to benefits, and experience high turnover."

These trends are, of course, driven by a factor that privatization can always be counted on to add to the equation: profit.

It should come as no surprise, then, to find that public-sector unions in Puerto Rico have been the target of more direct union-busting attacks. In August, UTIER filed suit against PREPA and the government of Puerto Rico, claiming that several recently passed laws recently passed undermined the union's collective bargaining agreement.

THERE WAS another party named in that suit as well--the entity that probably more than any other holds the keys to Puerto Rico's future: the Federal Management Oversight Board, a seven-member panel appointed not by the people or the government of Puerto Rico, but by the President of the United States.

The board came into being in 2016 as a result of the Obama administration's Puerto Rican Oversight, Management, and Economic Stability Act, known by its Orwellian acronym PROMESA (which means "promise" in Spanish).

Under the board's supervision, Puerto Rico is facing intensified austerity measures, squeezing the Puerto Rican people in order to ensure that U.S. financial interests that hold the island's huge debt get every penny back that they possibility can. As Anamaría Lopez, of the Institute for New Economic Thinking, described:

Earlier this year, the board approved the Puerto Rican government's fiscal plan for 2017-2026, which included a number of austerity policies designed to slash the government's budget and free up money for creditors. Among these measures are cuts to pensions, health care and the University of Puerto Rico.

Selling off the publicly owned PREPA to private, for-profit companies appears to be a top priority.

In August, the oversight board appointed Noel Zamot as "revitalization coordinator," a kind of project manager role established to develop and oversee "critical projects." Speaking to the Puerto Rico newspaper Metro soon after Zamot's appointment, board chair José R. Carrión III stated that Zamot's primary focus "should be and will be energy, with the idea of privatizing the [PREPA] as quickly as possible."

This was, of course, before Hurricanes Irma and Maria wiped out huge parts of Puerto Rico's energy grid. These emergencies, combined with the Whitefish fiasco and PREPA's generally beleaguered state, gave the board the opportunity to step in and seize control.

At the end of October, it announced the appointment of Zamot as PREPA's "chief transformation officer," placing him effectively in command of the entire effort to rebuild Puerto Rico's utilities infrastructure.

It isn't very clear what qualifies Zamot for this role, as The Intercept pointed out:

Zamot's professional background has been varied and doesn't appear to have much to do with either electric utilities or debt restructuring. He has a degree in engineering, served in the Air Force, and has spent stints working at the United States Space Command, NATO, and the Wyle Aerospace Group's acquisition management division. Before being brought on by the fiscal oversight board, he was serving as the head of Corvus Analytics, a cybersecurity firm he founded in the Boston area.

ROSSELLÓ AND Ramos argue that the board has overstepped its authority by placing Zamot in charge of the rebuilding efforts, and they say they will challenge the appointment in court. But it is far from certain that they can prevail, given board's sweeping powers under PROMESA--and its evident readiness to play hardball.

For example, on November 7, the board called for Congress to makes its ability to name a new management team at PREPA a condition of the billions in federal aid planned for Puerto Rico. As a Reuters report summarized:

[Board executive director Natalie Jaresko] also said federal loans provided to the cash-strapped island government to help it with payroll should include a "formalized mechanism" linking the liquidity relief to a new fiscal plan being developed by the board.

Christian Sobrino, a top aide to Rosselló, said in an interview after the hearing that it was "beyond the pale" for Jaresko to ask for more power in the midst of an emergency. "If a similar action or similar words were drawn in the case of Florida or Texas or Louisiana or any other state, there would be outrage," Sobrino said, naming states that have recently experienced natural disasters.

Actually, the U.S. government has been happy to exploit emergencies in exactly those states to further the interests of big capital--most notoriously in the wake of Hurricane Katrina in 2005. This is the essence of what left-wing author Naomi Klein calls "disaster capitalism."

But the utterly undemocratic colonial relationship of the federal government to Puerto Rico compounds the consequences of the "shock doctrine."

The case of PREPA and the scandalous failure to even deliver necessary aid after Maria much less rebuild desperately needed infrastructure flow directly from the colonial relationship that has consigned Puerto Rico to poverty, declining living standards and political repression.

Undemocratic and unaccountable rule by Washington is at least as responsible for the suffering in Puerto Rico today as any natural disaster.

Monique Dols contributed to this article.

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