Bad Things Happen in the Dark

12.12.14
Mairym Ramos
World News /12 Dec 2014
12.12.14

Bad Things Happen in the Dark

Home to around 42 million people and 28 island nations and territories; the Caribbean has a hard time competing for resources on the global stage. Yet, this region of the world is a veritable microcosm of the many challenges and opportunities facing the wider world. No area of the Caribbean economy highlights this more than the challenge of energy security. Powering an island economy involves a complex and in many ways antiquated supply chain of diesel fuels and petroleum products to keep aging turbines whirling. The majority of Caribbean electric utilities are state-owned enterprises (SOEs), increasing the pressure to keep these public services as a part of the electoral apparatus, rather than reforming them to become more efficient and cost effective for the public – an objective that is understandably hindered by the limited purchasing power individual islands enjoy and the geographic inability to form energy blocs or build interconnected power grids.

When it comes to electricity supply, the Caribbean represents a dueling battle between access on the one hand and affordability on the other. In Haiti for example, according to the International Energy Agency (IEA) a mere 28% of the population has access to electricity. Across the border in the Dominican Republic the number is closer to 96%. One island over in the U.S. territory of Puerto Rico, the number of residents with access to electricity is 100%, yet the challenge across all 3 islands and the broader region is not merely about access, it is also about affordability. Even though Puerto Rico has enjoyed de facto U.S. protectorship since it became a U.S. territory at the end of the Spanish-American War, the island’s residents are saddled with energy costs between 3 and 4 times higher than the mainland. This would have a crippling effect on any economy. In Puerto Rico the high cost of energy has quite literally paralyzed households, corporate investments and has cast a heavy yoke around the struggling economy’s neck.

While Puerto Ricans are comparatively well off next to their Haitian and Dominican neighbors, if the island were a U.S. state it would be the poorest state of the union. Imagine Mississippi with an energy bill 3 times higher than it is today?

Puerto Rico’s per capita GDP is about half of Mississippi’s, at $15,203, with some experts likening the island to America’s “third world country.” Rightly there would be a mass exodus to neighboring states, much like the flight of Puerto Rico’s financial and human capital to the U.S. mainland at the rate of 1,000 inhabitants per week. Coupled with Puerto Rico’s headline grabbing fiscal crisis, where the island has been likened to a ‘Greece of the Caribbean,’ due to its $73 billion public debt, reforming the ailing public utility, PREPA, requires leadership, fortitude and rapid decision making around viable local solutions that seem desperately lacking. PREPA, Puerto Rico’s electricity authority, much like the island, is laboring under $11 billion in debt and the recent bankruptcy of Puerto Rico’s transport authority is an ill omen of PREPA’s fate should imminent action not follow.

The consequences of lagging energy standards in the Caribbean and Puerto Rico, in particular, present a series of insidious threats to the region and to American security. For one the Caribbean is a long-standing entrepôt for the drug trade. With a hamstrung regional economy, declining corporate investments and tourism, the region’s already vibrant grey economy is sure to grow and become darker still as people turn to the seedy underworld of the drug trade and criminal gangs to make ends meet. Puerto Rico, again, if it were a part of the U.S. would be the most violent state per capita by a long margin. This criminality is in large part driven by the political neglect that the island has suffered in Washington and the lack of political leadership and consensus among Puerto Rico’s three political parties, which have been very busy serving their own narrow interests, while their ship and people sink.

The path forward on improving energy security in the Caribbean and Puerto Rico in particular involves the following key steps:

  1. Wean electric utilities off of costly foreign oil and diesel and look to viable alternatives such as propane as a bridge to natural gas. This bridge is in part driven by the U.S. shale gas bonanza that is slated to make America a net exporter of energy by 2020.
  2. De-risk contracts with heavily indebted public utilities like PREPA through global capital markets and insurance solutions that can attract viable commercial partners giving them comfort in light of enfeebled state-owned counterparties.
  3. Repeal crippling facets of the Merchant Marine or, as it is more commonly known Jones Act that nearly doubles the cost of ship-borne trade in U.S. islands, such as Hawaii and Puerto Rico, where it is more cost-effective to receive shipments from China, than it is from the U.S. mainland.

The conservative Heritage Foundation has argued vociferously that the Jones Act is an outdated protectionist policy that not only hampers U.S. economic competitiveness, but harms national security. No place feels the crippling effects of the Jones Act and its narrow interests more than Hawaii and Puerto Rico, two island territories that can ill-afford an unfair playing field. The time for political will and action around enhancing Caribbean energy security and increasing the cost-effectiveness of energy supply is now. Failure to take concerted action will only lead to long-term challenges and further backsliding in the region that will be costlier and more complex to solve in the future.

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