Francisco Javier Cimadevilla of Caribbean Business
Recently, the Puerto Rico Aqueduct & Sewer Authority (Prasa)
chairman appeared before the Legislature to explain the Calderon
administration’s decision to cancel Prasa’s management
contract with private operator Ondeo because the French company
was demanding additional money to run the authority. Ondeo had
said Prasa’s situation was so bad it needed an additional $113
million a year on top of the $360 million a year it was receiving
under its 10-year management contract in order to make it work.
“No way,” said Agosto Alicea. “We’ll take it over.”
Last week, the same man went before the same Legislature and said
he couldn’t run Prasa unless the administration assigned more
money. He said running Prasa requires $550 million a year, so he
asked the Government Development Bank to fork over an additional
$215 million a year on top of the $360 million a year budgeted.
Does Alicea think he’s in wonderland?
Some politicians and sectors of the press have attempted to
portray the whole Ondeo debacle as an indictment of the policy of
privatization. To us, the episode is more an indictment of this
administration’s poor management of the whole issue than
Although fewer every day, there may be some things—like
roadways, the police, or museums—that, because of their nature,
government must provide. But there are few things, if any, that
the private sector couldn’t manage better.
As explained in our front-page story today, privatization is
neither good nor bad in and of itself. The key is how you go about
it, including the selection of the new private-sector buyer or
In Puerto Rico’s recent history, we’ve had a good number of
privatizations that have yielded excellent results: the sale of
several government-owned hotels, the sale of the pineapple
program, the Teodoro Moscoso Bridge, the Superaqueduct, and
Metrobus. Others, like the Health Reform and the sale of Puerto
Rico Telephone, are still works in progress but are looking good.
If yet others, like turning over the management of Prasa to a
private company, haven’t yielded the expected results, it
hasn’t been because privatization itself wasn’t a good idea.
In the case of Prasa, most people in Puerto Rico acknowledge that
Ondeo’s predecessor, the Water Co., had managed to improve the
system, even if it still had a long way to go.
When the Water Co.’s contract expired in 2002, the Calderon
administration was loath to validate the selection that had been
made by the prior administration. It insisted on getting a new
private operator and brought in Ondeo. Then, the administration
failed to manage that contract adequately. Now Prasa is back in
government hands and Agosto Alicea says he needs, on average, $250
million more a year to run it. Who will pay for it? The taxpayers,
of course. Now that’s a case for privatization if we ever saw
Privatization comes in many shapes. One involves the outright
sale of government assets to a private company, like the sale of
the government-owned hotels or the unprofitable Navieras, which
had accumulated losses of hundreds of millions of dollars. Another
type of privatization involves opening up a government monopoly to
competition by private companies, like the government allowing
private companies AES and EcoElectrica to set up power plants side
by side with Prepa’s own.
Still another modality is for the government to remain the
owner but to turn over the management to a private company, as is
the case of the island’s public housing projects and, until now,
Prasa. In those cases, the government is responsible for making a
good selection of the private operator and supervising the
contract effectively. The latter requires making sure the private
operator delivers the results promised under the contract, but
with the leeway the operator requires to manage the enterprise
more efficiently than the government, which is presumably what it
was hired to do. In the case of Ondeo, this administration failed
to do both.