Fiscal board says its presence has prevented PR from falling into deficit

Robert Mujica, executive director of the Financial Oversight and Management Board

By The Star Staff

The Financial Oversight and Management Board said Wednesday that its presence in Puerto Rico is the only thing that has prevented the U.S. territory from falling into a deficit.

“At present, only the Oversight Board’s presence prevents Puerto Rico from falling back into budget deficits,” Robert Mujica, the oversight board’s executive director, said in a congressional hearing before the House Committee on Natural Resources’ Subcommittee on Indian and Insular Affairs. “By the time the Oversight Board terminates, the government must be able to enact and maintain a balanced budget throughout the fiscal year. Otherwise, Puerto Rico will end up with deficits and the kind of painful adjustments so difficult to implement by any government.”

Similarly, Mujica used the recent example of fuel contracts that power Puerto Rico Electric Power Authority (PREPA) generation plants to justify its presence. The oversight board recently paralyzed a $20 billion contract awarded to New Fortress Energy, the parent company of Genera PR, which operates PREPA’s legacy power plants.

“The Oversight Board continues to review energy contracts between the government and private providers to ensure that they promote market competition and are not inconsistent with the fiscal plan,” Mujica said. “In addition, the Oversight Board is working closely with the government to expedite federal disbursement and government use of appropriated FEMA funds for investment in the electrical grid. The most pressing energy issue before the Oversight Board is the debt restructuring of PREPA.”

The poor condition of PREPA and the Puerto Rico energy system (both the dilapidated grid and the aged and outdated power plants) require substantial expenditure for maintenance and repair well beyond funds made available by the federal government for disaster recovery, Mujica insisted.

“A specific group of bondholders is demanding full payment in the amount of $8.5 billion of principal plus years of accrued interest, a total of about $12 billion – a recovery level grossly above and beyond what PREPA’s customers can afford and what is legally defensible,” he told the House subcommittee. “Those bondholders’ demand would equate to a su–rcharge of 8 cents per kWh [kilowatt-hour] for 50 years for the principle alone, effectively saddling families and businesses with rates that stifle the economy and limit the ability to repair and maintain a Puerto Rico electrical grid already in severe need of investment. Puerto Rico has among the highest electricity rates in the U.S. and the worst records of performance, the result of decades of rampant mismanagement and neglect.”

On March 28 of this year, the oversight board filed PREPA’s Fifth Amended Plan of Adjustment to reduce payment to creditors by more than $10 billion, excluding claims of pension holders. The plan would cut PREPA’s debt by almost 80%, to $2.6 billion, excluding pension liabilities. Holders of approximately 44% of the debt have agreed to the proposal. The oversight board will be working with the government to identify the source of funds to support the recovery for creditors proposed in the plan to avoid additional electricity rate increases, Mujica noted. Together with the government, the board will have to make the difficult decision to identify the funds, but the board firmly believes that it is critical to Puerto Rico and its economic recovery to end PREPA’s Title III case as soon as reasonably possible, he said.

While the oversight board is committed to concluding that final bankruptcy, its overarching objective remains to ensure that the Commonwealth of Puerto Rico and its instrumentalities exit their restructuring processes as viable, fiscally responsible entities, Mujica said.

“The Oversight Board is not a permanent institution,” he said. “Congress defines when it terminates. PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act] requires that before the Oversight Board terminates, the government must balance its budget for at least four consecutive fiscal years in accordance with modified accrual standards, and Puerto Rico must have adequate access to short-term and long-term credit markets at reasonable interest rates. The Oversight Board has worked diligently toward those goals, and, together with the government, has recently reached an important milestone: on June 27, 2025, the Oversight Board certified the fiscal year 2026 budget for the Commonwealth that is consistent with the fiscal plan. It had been developed jointly with the administration of Governor Jenniffer González Colón and the Legislative Assembly. This budget could qualify as the first of four consecutive balanced budgets for the Commonwealth under PROMESA and represents major progress from the prior years.”