Caribbean Business - March 10, 2016 by Latin Media House, LLC

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COVER STORY

TOP STORY

Creditors Still Jockeying for Position Commonwealth Dealing With Counterproposal as Action on Capitol Hill Ramps up While action on Capitol Hill continues to pick up steam over Puerto Rico’s fiscal crisis, the Alejandro García Padilla administration is putting the final touches on a revised voluntary debt-restructuring proposal about to be presented to creditors.

some of the affected creditor groups under the government’s proposal, which covers roughly $49 billion of Puerto Rico debt, including general obligations (GOs) and the Sales Tax Financing Corp. (Cofina by its Spanish acronym). With each group fighting

‘Honey, We Shrunk the Middle Class’ Starring Puerto Rico’s Legislative Assembly

Did you love the 1980s? Well… if the answer is yes, go to your closet and dig up your LA Gear hi-tops and jogging suit and start getting in shape because that is where our economy is headed. But, if you think those years were not that hot…well, deal with it because Puerto Rico has returned to the 1980s and not even the much-maligned federal fiscal-control board will be able to send us forward to the 21st century. For the better part, if not for

all of the past decade (20062016), Puerto Rico has suffered the effects of the hardest and longest depression in its history. During the past 10 years, any economic advances Puerto Rico may have previously had were reversed or cancelled by a lessthan-zero growth rate of its gross national product (GNP), insufficient revenues, increasing public debt, new and higher taxes, increasing unemployment rate and the final phasing

out of Section 936 of the U.S. Internal Revenue Code, thus fiscally setting back the island not 10 or 20, but 30 years. “No one has received a more severe blow from this recession than the island’s middle class, which up to the turn of the century, used to be very strong,” said Eddy Sánchez, a planner working for the government on health-related issues.

GDB President Melba Acosta and Commonwealth Restructuring Adviser Jim Millstein But as one Puerto Rico bondholder adviser put it, there is perhaps a “perverse initiative to not reach a deal” with creditors at this moment—if the administration wants Congress to meet their demands. Any voluntary agreement at this stage would run counter to the government’s efforts on Capitol Hill, he added. For the past few weeks, advisers for all sides have been discussing the debt-restructuring offer the administration put forth last month. Counterproposals have been delivered by

tooth and nail to protect their respective claims, the commonwealth is reportedly looking to incorporate some of their feedback in the new proposal. Nevertheless, it is highly likely that reductions to principal across credits, or haircuts, and the priority list established under the government’s existing proposal—with GOs on top, followed by Cofina and so on with the rest of the affected credit claims—would remain.

Thursday, march 10, 2016

Contents

Editorial

cartoon of the week

By Philipe Schoene Roura EXECUTIVE EDITOR

One Giant Leap for Debt Restructuring Advertising Calendar............................................................................................54 Column.................................................................................................................19 Construction.........................................................................................................30 Economy.......................................................................................................... 12-13 Editorial..................................................................................................................2 Energy...................................................................................................................31 Federal Affairs................................................................................................ 22-23 Front Page....................................................................................................... 14-18 Law/Courts............................................................................................................20 Lead Stories........................................................................................................ 7-9 Marketing..............................................................................................................54 Opportunity Talks............................................................................................ 24-25 Politics............................................................................................................ 32-34 Poll........................................................................................................................21 Show Business......................................................................................................52 Smart Money................................................................................................... 26-27 Sin Comillas.................................................................................................... 12-13 Top Story........................................................................................................ 1, 4, 6 Tourism.................................................................................................................35

Financial Data: Stock Comment.....................................................................................................12 Winners & Losers..................................................................................................12

special features: Big Business Profiles: Auto Industry................................................................ 37-43 North American International Auto Show...............................................................53 Pharmaceutical & Contract Manufacturing.................................................... 45-50

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In the feral negotiations with 18 different creditor groups being corralled by the Commonwealth of Puerto Rico’s advisers, there are formidable challenges ahead in securing deals among competing claims. This frantic context is what makes the separate initiatives to transform the island’s utility companies so essential. Although the Puerto Rico Electric Power Authority managed to secure passage of the Revitalization Act, formidable challenges remain to achieve an investment-grade rating in the debt exchange contemplated in the Restructuring Support Agreement. And then, there is still the issue of bringing in the retail holdouts that comprise close to 30% of the creditors that AlixPartners is yet to bring into the fold. On the same level, there is the Puerto Rico Aqueduct & Sewer Authority (Prasa), the revitalization of which is of utmost importance, again, because it includes a securitization mechanism. As this newspaper was going to press, the Prasa Revitalization Act was scheduled to make its way to the House floor, where it was slated to undergo amendments. House Bill 2786 has been a bone of contention from the outset, as it became the target of competing views between the Legislature and the central government, namely the Government Development Bank (GDB). Popular Democratic Party Rep. Rafael Hernández, who co-authored the bill, is bound and determined to push the Prasa bill through with the securitization mechanism, while the GDB believes talks with creditors are essential in establishing a long-term plan to overhaul the utility. As it now stands, the Prasa bill would establish a new corporation with the sole purpose of issuing new debt for the utility, backed by new charges in customers’ water bills. The measure provides investors with security that they will be paid.

Without investment, Prasa is sunk. Although some 20 pages of amendments came down the pike as of presstime, Caribbean Business sources have said it is likely Prasa’s Revitalization Act will pass in the House. The biggest sticking points—to make certain there are no rate hikes until 2018 and to eliminate Prasa’s customers (We the People) as codebtors—have reportedly been ironed out. Once passed, the bill will make its way to the Senate. Who knows what will happen there. Because our debt has now gone beyond the stratosphere, Prasa’s revitalization would seem to be one small step for the cash-straped utility, but it is one giant leap for debt restructuring because it contains important securitization triggers that will help the utility gain access to capital markets as it continues to restructure. Let’s be honest—Prasa is yet one more financially battered public corporation that has some $4 billion in debt and has yet to pay some $150 million it owes to contractors—the shock waves sent through an economy spiraling out of control is devastating. The Prasa Revitalization Act could help deliver liquidity; suppliers would be paid and the capital improvements program commenced in 2015, which was put on hold, could then be completed. Most importantly, the securitization in the measure would help return the utility back to the market. This will ease Prasa’s revamping without putting additional pressure on the GDB to outlay some $180 million that it does not have on July 1. That will be significant in the grand scheme of things as Puerto Rico continues to restructure without having to dump every credit class into a trashbin of a deal that pretends to slash more than $49 billion in debt by some 45%. n

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Thursday, march 10, 2016

Top Story Creditor talks

Continued from cover

However, uncertainty over Capitol Hill action continues to loom large and many believe that absent certainty over the Republican-controlled Congress’ final say, talks between creditors and commonwealth advisers could be a pro-forma exercise. Meanwhile, the clock continues to tick amid a $2.5 billion debt-service wall beginning May 2, with $422 million owed by the financially battered Government Development Bank (GDB), followed by more than $1.5 billion due on July 1 that includes roughly $780 million on GOs. What’s more, the commonwealth finds itself running out of time to reach a deal with creditors on the summer debt payments—for which it has already warned there is not enough cash to meet in full—to avoid a cascade of defaults and stay of courts. Creditor talks Under the government’s existing proposal, holders

of about $49 billion of debt would exchange their paper for two new types of securities, one of which, the so-called “growth bonds,” would only be paid if Puerto Rico demonstrates long-term economic growth. These bonds essentially reflect initial haircuts, which would hover around 45%, depending on the credit. Not surprisingly, growth bonds are one of the proposal’s elements that creditor groups are not very happy about, a Wall Street source with knowledge of the negotiations recently told Caribbean Business. As expected, creditors seek to shield their credits as much as possible from haircuts. For instance, a group of Cofina senior bondholders, accounting for about $3.5 billion of Cofina’s $17 billion debt, made a counteroffer providing as much as $2 billion in short-term liquidity relief through lower debt service and a more flexible structure. But instead of taking a haircut, the proposal stretches maturities on existing bonds. It also affects subordinate

Creditors fight tooth and nail for their credits, as Puerto Rico seeks to accommodate competing interests

Cofina bondholders, who will be repaid after the senior bonds, although a liquidity facility would be established for them to cash out. After presenting their proposal to the point man for Puerto Rico’s restructuring brigades, Jim Millstein, a former U.S. Treasury chief restructuring officer, the Cofina group is on the record saying that it is open to accommodating aspects of the commonwealth’s offer. Still, protecting the Cofina structure is of the utmost importance for them— and that means not taking away its pledged property, a portion of the island’s

sales & use tax that goes directly to pay Cofina debt service. Nevertheless, the commonwealth still faces a steep road to achieve a voluntary deal with creditors, particularly within a complex web of competing interests among creditors, with no mechanism to bring everyone to the negotiation table. “The biggest challenge with the [commonwealth’s] proposal is that there is no mechanism to require participation,” said one creditor lobbyist on the Hill, who chose to remain anonymous. “[It] is all voluntary and to the extent that they rely on

voluntary participation in an offer that is not all that attractive for creditors, it is going to be very hard for them to get traction leading up to [the summer].” During a recent presentation to investors in Florida, Puerto Rico’s restructuring team talked about what they were asking of Washington, D.C.— to provide them with the necessary tools to restructure its debt and bind holdout creditors. One such tool to ensure broad participation in any restructuring deal is the use of a mechanism akin to collective action clauses (CACs). This would allow for any deal reached with a majority of creditors to become binding on holdouts, or minority creditors, which is precisely the reason the idea is picking up traction within the debtrestructuring discussion in Congress. Perhaps analysts need only to look at the fine print in the Cofina bonds for a glimpse at the shape of deals to come. The Cofina senior bondholders group’s recent counterproposal foreshadows the potential to bring holdouts

into the fold, by using mechanisms built into existing Cofina bond covenants that bind minority creditors, with a lower participation threshold than usual for CACs. Yet, even if that is the case with Cofina, the commonwealth still faces significant challenges across its other credit claims to bring holdouts onboard any comprehensive restructuring deal, and continue to lobby Congress to incorporate tools akin to CACs when drafting legislation. Congressional front “For anyone to say that he or she knows the details—no one knows. Even those who are drafting it don’t know,” former Gov. Luis Fortuño recently told Caribbean Business about how potential legislation from the Republican-led Congress would look. Expectations have centered on House Speaker Paul Ryan’s (R-Wis.) pledge to act on the Puerto Rico matter by March 31. While some GOP members Continues on page 6

Thursday, march 10, 2016

Top Story Creditor talks

Continued from page 4

have reaffirmed Ryan’s call for action and are already working on draft legislation, it is still unclear what exactly Congress would do at the end of the day. “My belief is that Speaker Ryan is truly committed to getting something out— pretty soon. The circumstances have evolved and changed in the last year and a half, in the sense that just a restructuring mechanism will not do it,” Fortuño noted. So far, the García Padilla administration and U.S. Treasury seek a broad, tailored debt-restructuring regime. Moreover, Treasury says strong fiscal oversight that respects Puerto Rico’s self-governance is also needed. What’s more, a two-pronged restructuring process, with an initial mediation phase, facilitated by short-term financing and a stay on litigation, is being proposed. If no deal were successfully reached with a majority of creditors, the process would move to court. If a deal is reached, the proposed structure would allow binding holdouts.

Resident Commissioner Pedro Pierluisi recently told Caribbean Business that Congress was looking into a federal fiscalcontrol board that could also have a role in the commonwealth’s debt restructuring, adding that it would oversee and mediate in the process. “It is the same as a CAC, but through a board, achieving an agreement reached with the majority, and then going to court to make it binding,” he said. For his part, Fortuño believes Congress’ response will comprise various elements, including “some kind of board. The devil is in the details as to how much control. The less transparency Puerto Rico shows, the more control the board will exert.” “Secondly, I believe there is going to be some sort of restructuring mechanism… [but] I cannot tell you whether it is one or the other…. And thirdly, there is something that is going to deal with economic development or assistance to Puerto Rico—not handouts,” he added. In all, the former governor believes it would be “a three-legged stool.” n

Lead

Prasa searches for funding to stay afloat

House Bill Would Allow Prasa to Sell Bonds Public Corporation Would Issue New Debt, Obtain Financing to Complete Capital Works BY EVA LLORÉNS VÉLEZ e.llorens@cb.pr

The Puerto Rico House of Representatives is expected to vote today (March 10) on legislation that would create a new public corporation that would allow the P.R. Aqueduct & Sewer Authority (Prasa) to sell its bonds, similar to the one the P.R. Electric Power Authority recently created. The vote on House Bill 2786 was postponed earlier this week because lawmakers submitted more than 20 pages of amendments to the legislation. House Speaker Jaime Perelló said lawmakers needed more time to analyze the final version of the bill, whose goal is to obtain muchneeded financing for the public corporation to engage in capital works. The proposed Prasa

Revitalization Act would create a new corporation that would issue new debt for the utility, backed by a portion of the water bills, which would be pledged to cover this new debt service. Prasa has about $4.5 billion in debt, and needs the legislation to pay for needed capital improvements. Popular Democratic Party Reps. Luis Vega Ramos and Luis Raúl Torres conditioned their support of the bill with an amendment that would prevent Prasa from raising utility rates for three years. Prasa Executive Director Alberto Lázaro agreed to another amendment that would allow money from the new bonds to pay for labor costs and debts to contractors. Prasa raised its tariffs in 2005 and again in 2012, in part to comply with requirements from the Environmental Protection

Agency and the Health Department. The hike was supposed to cover Prasa’s operational costs and debt service from 2014 to 2017. Prasa’s board in 2013 approved the utility’s capital-improvements program for 2013 to 2017, which was put at $396.8 million. After a series of events that included obtaining some $200 million from Oriental Bank and Banco Popular, Prasa planned to make a bond issue in October 2014 for about $750 million to cover capital projects, but the Government Development Bank informed the water utility that the bond issue had to be postponed because there were other priorities because of the fiscal crisis. While the banks had agreed to extend the deadlines for loans, Oriental in 2015 refused to grant Prasa more

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extensions to its loans, prompting the utility to establish a credit agreement with Banco Popular to pay some $75 million to Oriental, the bill says. After publication of the report “Puerto Rico: A Way Forward,” prepared by economists Anne O. Krueger, Ranjit S. Teja and Dr. Andrew Wolfe in June, several downgrades of the island’s credit rating were issued. Prasa resumed plans to go to the market in August 2015 but those efforts had to be postponed. Since then, Prasa has been forced to access its rate-stabilization account to pay debt to avoid a tariff increase. It also stopped $352 million in 55 projects that were under construction and delayed the start of 86 new projects worth $247 million. To make matters worse, Prasa has $140 million in debt with suppliers, according to the bill. Because the utility’s rate-stabilization account could be depleted by July 2016, Prasa may be forced to increase water rates unless it gets external funding. n

Thursday, MARCH 10, 2016

Lead

11.5% IVU extended until May 31, 2016

Treasury Secretary Delays Value-Added Tax Until June 1 BY EDUARDO SAN MIGUEL TIÓ e.sanmiguel@cb.pr

Puerto Rico Treasury Secretary Juan Zaragoza announced Monday, March 7, that he will exercise the power conferred in Section 6110.04 of the Internal Revenue Code of 2011, and will extend the duration of the 11.5% sales & use tax (IVU by its Spanish acronym) until May 31, 2016. Therefore, the 11.5% value-added tax (VAT, or IVA by its Spanish acronym) will come

into effect in Puerto Rico on June 1, 2016. “The Internal Revenue Code gives me the power to extend the term of the IVU for a period not exceeding 60 days, starting March 31, 2016. Following numerous complaints received by the department from merchants seeking to postpone the date the IVA would take effect, and in consideration of the proposals being considered by both the Executive [branch] and the Legislature to modify our current tax system, I believe it is

prudent to extend the effective date of the IVA until June 1, 2016,” Zaragoza said in a statement. “The Treasury Department is ready to start the IVA on April 1, 2016. However, we understand that the postponement until June 1, 2016, as established by law, is necessary to give space to a weighted analysis of the tax proposals under consideration or that will soon be submitted,” the secretary stated. Zaragoza explained he will revise the guidelines

for merchants with the new dates for the transition to IVA’s implementation, adding that the 4% tax on services between businesses and designated professional services, known as business-tobusiness, or B-to-B, is still in effect. On the possible effect on the estimated revenues of the IVU/IVA, due to the 60-day extension of the IVA’s introduction, the secretary indicated that a portion will be offset with current B-to-B revenue, “whose behavior has exceeded the monthly estimate.” “We hope to minimize this impact [on revenue] by expanding and intensifying the oversight

Puerto Rico Treasury Secretary Juan Zaragoza

strategies that have been taking place in recent months,” he said,

referring to the interventions conducted on taxevading businesses. n

THURSDAY, MARCH 10, 2016

Lead

Concerns about lack of educational campaign on new voting system

Lack of Aggressive Education on use of Electronic Vote BY ISMAEL TORRES i.torres@cb.pr

The State Elections Commission (CEE by its Spanish initials) is in a race against time to hold the general primaries in Puerto Rico on June 5, as scheduled. One of the most sensitive issues involved is getting the Oﬃce of Management & Budget (OMB) to comply with the timely allocation of funds to cover the cost of the primaries, estimated at $10 million. So far, the

OMB has delivered $7.1 million. “There [were] meetings scheduled for [last] week and we hope we can comply with the commission, and [OMB head] Luis Cruz Batista is committed to complying,” said CEE President Liza García Vélez. The SEC expects to receive in April the remaining 4,500 machines—out of a total of 6,000—that will be used as part of the electronic vote count, which will make its debut in Puerto Rico during the

oﬃcial electoral process. In addition, García Vélez said CEE commissioners have already approved the messages that will appear on the machines where voters will deposit their ballots, as well as the colors seen on the machines’ buttons. Meanwhile, electoral experts have warned about the eﬀect the lack of an aggressive education campaign on the electronic vote count and the use of new ballots may have on the primaries. For Eudaldo Báez,

Liza García Vélez, CEE president

former Popular Democratic Party (PDP) electoral commissioner and former senator, it is worrisome to see the absence of an aggressive education campaign to prepare voters on handling the new ballot and dealing with other changes associated with the electronic vote count that will be introduced in this year’s primaries. “The only problem I see is the use of the machines because, so far, there isn’t an aggressive voter education and guidance process regarding the use of this new ballot and the other changes they are bringing to the electronic vote count,” Báez Galib said. “Voters resist changes,

and I see no action to condition voters on the use of the new system,” he added. CEE GETTING READY CEE Secretary Walter Vélez said the institution is ready to handle the general primary process in which the PDP and New Progressive Party (NPP) will hold primaries for a number of positions ranging from governor to mayors. He said that as of March 23, the CEE must complete the evaluation of endorsements filed by those aspiring to elected positions and certify candidates who have complied with the Continues on next page

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Thursday, MARCH 10, 2016

Lead Continued from previous page

electoral law’s terms. “We are in the process of planning and organizing the primaries and validating endorsement ballots to certify candidates,” Vélez said. After certifying candidates, the CEE will start working on the modifications that candidates want done on the ballot, including the photo and name they want featured. For this purpose, they have until April 6, as provided by law, he said. Another process that is being handled is the printing of ballots and hiring the companies that will handle this endeavor, which should begin on

“The only problem I see is the use of the machines because, so far, there isn’t an aggressive voter education and guidance process regarding the use of this new ballot and the other changes they are bringing to the electronic vote count.” Dominion vote tabulator

April 16. The CEE estimates that more voting centers will be open in this year’s general primaries than during the 2012 primaries

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when there were about 3,250 voting centers available, because Puerto Rico has to comply with a federal court order requiring that voters who

—Eudaldo Báez, former PDP electoral commissioner and former senator did not vote in the 2008 and 2012 elections must be reactivated, which in turn represents an increase of about 700,000

voters on the voter lists. The number of voting centers and where they will open is up to the PDP and the NPP, the two parties

that will hold primaries. The NPP has primaries for governor, with Ricardo Rosselló and Resident Commissioner Pedro Pierluisi vying for the nomination, and former Transportation & Public Works Secretary Carlos Pesquera and Rep. Jenniffer González competing for the resident commissioner slot. In addition, there are primaries for legislative and mayoral candidates. The PDP has no primary for governor, but there is one for the resident commissioner position, between former Rep. Héctor Ferrer and Sen. Ángel Rosa. There are also primaries for legislative and mayoral candidates. n

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THURSDAY, MARCH 10, 2016 OCIF report: GDB’s liquidity has fallen into ‘critical’ levels and its continued viability is questionable

Banking/Finance Liquidity Position of GDB Unknown Last Report Dated Sept. 30; Only Governor Can Request Receivership BY JOSÉ L. CARMONA j.carmona@cb.pr

While the Commonwealth of Puerto Rico continues to heed warnings about its precarious liquidity situation and the high probability of a partial or full government shutdown in the coming months, the real liquidity position of the Government Development Bank for Puerto Rico (GDB), the government’s fiscal agent, remains unknown. The last liquidity position report released by the GDB dates back to Sept. 30, 2015, when the bank revealed it had total net liquidity of $874.68 million. The figure does not include partial payments to pledged securities the GDB has made since. However, in other government reports, the figure is reportedly hovering around $600 million. Unlike troubled commercial banks, which can be closed by the Puerto Rico Financial Commissioner’s Oﬃce (OCIF by its Spanish acronym) using the Federal Deposit Insurance Corp. as the receiver, OCIF cannot shut down the GDB. HOW BAD IS THE GDB’S SITUATION? While the latest OCIF report on the GDB dates to November 2015, the document is classified as confidential and specifics of its content cannot be released.

However, some findings of the GDB report by OCIF were discussed last month during the court hearing in the dispute between WalMart Puerto Rico and the Commonwealth of Puerto Rico over a tax on transfer pricing. In a limited discussion of the report granted by Federal Judge José A. Fusté, it was revealed the GDB’s liquidity has fallen into “critical” levels and the continued viability of the bank was questionable. During her testimony, GDB President Melba Acosta strongly disagreed with the findings of the limited liquidity review, pointing to factual errors in the analysis, including an incorrect statement regarding the GDB’s November liquidity levels, the amount of taxrevenue anticipation notes due this year and other discrepancies regarding government revenue and revenue estimates. Upon analyzing Acosta’s objections to the report, Rafael Blanco, Puerto Rico Financial Institutions Commissioner, reiterated the conclusions of the limited liquidity review by his oﬃce. Furthermore, the government’s updated Fiscal & Economic Growth Plan increased the future budget-deficit estimates by $2 billion, noting that the commonwealth’s fiscal condition had worsened since Gov. Alejandro

García Padilla first announced last summer that the government could not pay its debt. OCIF AND THE GDB Technically speaking, OCIF is the local government entity in charge of supervising and examining the GDB as a financial institution. However, OCIF’s scope can only go as far as examining and evaluating the GDB’s operations, but it cannot close the bank. According to the GDB’s

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caribbeanbusiness.pr Volume 2, No. 9 Thursday, March 10, 2016 Publisher Miguel A. Ferrer

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THURSDAY, MARCH 10, 2016 Nissan Credit, Americas Leading Partners entered Puerto Rico market in late 2015

Banking/Finance

Oriental Auto Bets on 8% Growth Despite New Players Entering Market Surge in Used Vehicles Offsetting Sales Slump of New Units BY JOSÉ L. CARMONA j.carmona@cb.pr

While some 81,357 new vehicles were sold in 2015, down 7.8% from 2014—marking the third-straight year of negative sales—and newauto sales fell a whopping 12.1% in January, the worst January ever on record for the Puerto Rico auto industry, Oriental Auto remains positive, betting on 8% growth this year. According to Milagros Pérez, executive vice president of Oriental Auto, the financing of used vehicles is oﬀsetting the sales slump the industry has been suﬀering in sales of new units. “Despite the great efforts by auto distributors, which are trying to move sales of new units through incentives, bonuses, rebates, discounts and special events, and the prevailing low interest rates, even new entry-level models that start at $15,000 can be out of reach for many Puerto Rico consumers hurt by the island’s lingering economic situation,” Pérez told Caribbean Business in an exclusive interview. Auto repossessions by banks and auto finance companies on the island surged in 2013 and 2014, and even during 2015 there was still a good

inventory of relatively new, low-mileage, preowned repossessed vehicles with much lower prices than brand-new ones, she explained. “While the interest rate on a used vehicle is a tad higher than a used one, in our case, we give a discount to the dealer that acquires one of our repos, as well as to the customer who acquires it, who also gets a better interest rate,” the top Oriental Auto executive said.

Milagros Pérez, executive vice president of Oriental Auto

In her view, the surplus of repossessed vehicles in the local market is quickly being depleted and many dealers are complaining of not having enough used vehicles to sell. With the dramatic drop in the cost of gasoline, the Oriental Auto executive said local consumers are once again interested in buying larger and more expensive sport utility

vehicles, or SUVs, which now come with technology that saves gas, such as the Eco mode and cylinder deactivation. NEW MARKET PLAYERS Late last year, two new players entered the Puerto Rico auto finance market: Nissan Credit (catering to buyers of new Nissans and Infinitis) and Americas Leading Partners, dedicated exclusively to the financing of used vehicles for subprime customers. In addition, local savings & loan co-ops have become very aggressive in promoting their auto finance oﬀers. Dealers send the paperwork directly to Nissan Credit in the mainland U.S., as the firm does not have a local oﬃce. Meanwhile, Americas Leading Partners tends to those subprime customers usually rejected by the banks and auto finance companies, Pérez indicated. The financing rates of these auto loans range between 18% and 25% a year, she added. “We have many strategic plans to implement our business,” she said. “One of Oriental Auto’s advantages is its team of professionals, of whom many have been in the business for more than 20 years, and our availability and communication with dealers.” 䡲

THURSDAY, MARCH 10, 2016

WINNERS & LOSERS WEEKLY PERFORMANCE OF PUERTO RICO STOCKS

Sin Comillas is a Spanish-language digital media website that specializes in business news in such areas as economics, banking, planning and tourism. Sin Comillas was founded in 2010 by economist and journalist Luisa García Pelatti.

WINNERS FOR THE WEEK

STOCK Evertec Inc. OFG Bancorp Popular Inc. First BanCorp

SYMBOL EVTC OFG BPOP FBP

52-wk LOW 11.27 4.56 22.40 2.06

52-wk HIGH 23.12 17.61 35.83 6.76

PRICE 2/26 11.85 5.83 26.69 2.56

PRICE 3/4 13.48 6.84 27.64 2.88

CHANGE 1.63 1.01 0.95 0.32

Cooperatives: Government’s Proposed Restructuring Harms Traditional Investors

LOSERS FOR THE WEEK STOCK Triple-S Management Corp.

SYMBOL GTS

52-wk LOW 17.34

52-wk HIGH 27.23

PRICE 2/26 25.98

PRICE 3/4 CHANGE 25.81 -0.17

Weekly Comment on Puerto Rico Stocks Strong U.S. employment data for February helped Wall Street end higher last Friday, pulling oﬀ the first four-day winning streak since last October. The better-than-expected jobs report put to rest investors’ concerns about a slowing economy, but bolstered fears of an imminent interest-rate hike by the Federal Reserve. It was also the first time since January that the Dow Jones Industrial Average rose above the 17,000 mark. Meanwhile, the S&P 500 ended shy of the 2,000 level that traders label as psychologically important. The U.S. Labor Department’s Bureau of Labor Statistics said that nonfarm payrolls increased by 242,000 jobs last month. However, lower wages and hours kept a lid on inflation, a key factor as the Federal Reserve weighs the timing of its next interest-rate hike, believed to be in June. Last Friday, seven of the 10 S&P sectors were up, led by a 1.18% rise in the materials sector. Apple shares rose 1.49% to $103.01, the strongest positive influence in the S&P. For the week, the Dow rose 2.2% to 17,006.77. The S&P 500 added 2.7% to 1,999.99, while the Nasdaq Composite Index increased 2.8% to 4,717.02. Propelled by Wall Street’s rally, the Government Development Bank’s Puerto Rico Stock Index (PRSI) managed to close in the black last Friday for the third week in a row, with only one component reporting a weekly loss. For the week, the PRSI added 99.85, or 6.5%, to close at 1,636.27. Topping last week’s list of gainers was OFG Bancorp, which gained $1.01, or 17.32%, to close at $6.84. It was followed by Evertec Inc., which edged up $1.63, or 13.76%, to close at $13.48. Shares of First BanCorp jumped 32 cents, or 12.50%, to close at $2.88. Popular Inc. advanced 95 cents, or 3.56%, to close at $27.64. Last week’s sole nongainer was Triple-S Management Corp., which lost 17 cents, or 0.65%, to close at $25.81. BY JOSÉ L. CARMONA SENIOR REPORTER, BANKING/FINANCE CARIBBEAN BUSINESS

BY LUISA GARCÍA PELATTI SIN COMILLAS

Restructuring Puerto Rico’s $70 billion public debt would be fairer for traditional investors if the debt swap proposed by the government did not include a debt reduction and was done using the price at which the bonds were originally purchased (“Entry Point”). That is what the credit unions in Puerto Rico are proposing, according to a document addressed to the Committee on Natural Resources in Congress. Credit unions explain that the government’s proposal favors speculative investors and is detrimental for traditional investors or the people who

bought at the original price and therefore, they are proposing a fairer pricing structure. In the 10-page document, dated Feb. 25, 2016, credit unions are not opposed to seeing Puerto Rico’s government gain access to Chapter 9 bankruptcy protection, but they believe it should be a last recourse after all other options have run out. Regarding the creation of a federal fiscal-control board, they believe this entity must respect the Constitution of Puerto Rico. Credit unions understand that the government’s proposal, which includes a voluntary exchange of existing bonds for two types of bonds—a “base bond” with a fixed-interest

rate and a “growth bond” to be paid only if government revenues exceed certain levels—will cause heavy losses among Puerto Rican investors, which would be proportionally greater than U.S. investors’ losses. Speculative investors who bought the bonds at lower prices should not be treated on the same terms as investors who bought the bonds at their original price. They believe that the government’s proposal would result in a 57% loss on the par value of the bonds held by Puerto Rican investors, which would generate a capital loss of $7.7 billion Continues on next page

THURSDAY, MARCH 10, 2016 Continues from previous page

for the economy. This capital loss would be added to what has been lost over the past 10 years of economic recession, estimated at $60 billion to $70 billion. The document was prepared by the law firm of Sosa Lloréns Cruz Neris Asociaciones, which represents 25 of Puerto Rico’s leading credit unions. These credit unions have 539,287 members and more than $4.8 billion in assets—which represent 56% of the assets in the island’s financial system. The Puerto Rico government made public last month its revised debt-restructuring plan—a voluntary exchange oﬀer to creditors that would reduce the commonwealth’s debt by roughly $22 billion while providing debt-service relief during the next few years. In all, the Puerto Rico government seeks to exchange $49.2 billion worth of debt for $26.5 billion of commonwealth-guaranteed base bonds and $22.7 billion in growth bonds.

Banking Defaults Improve BY LUISA GARCÍA PELATTI SIN COMILLAS

Default rates on loans granted by banks in Puerto Rico dropped to 8.7% during fourth quarter 2015, the lowest since

2008, according to Federal Deposit Insurance Corp. (FDIC) data. The defaults on the island reached double digits between 2009 and 2012. In 2006—before Puerto Rico’s

economic crisis—defaults barely reached 2%. Between 2010 and 2011, however, they exceeded 13%. As of 2013, the rate has remained below 10%. The total value of dubious loans decreased to $1.955 billion, $70.1 million less than in the previous quarter. The

—Editor Rosario Fajardo contributed to this story.

Integrated Tax Reform Necessary to Eliminate Income-Tax Returns BY SIN COMILLAS STAFF

Eliminating income-tax returns is not as easy as it may sound, according to the president of the Society of Certified Public Accountants in Puerto Rico. “We all wish to eliminate the filing of income-tax returns. But this is only a component for an integrated tax reform, and it would be feasible as long as it is substituted by a system that contemplates other options of income sources. In other words, we would have to define how the government would substitute revenue collection from income-tax returns,” said Zulmarie Urrutia Vélez, president of the Society of CPAs, in reaction to comments made last week by Gov. Alejandro García

Padilla during his State of the Commonwealth address about eliminating income-tax forms. The CPAs Society supports justice for the salaried middle class, which suﬀers the major tax burden in Puerto Rico, by substantially reducing income-tax returns. Most economists agree that the consumption tax, in this case known as the value-added tax (VAT, or IVA by its Spanish acronym), enables the implementation of substantial incometax reductions, and at the same time, captures the underground economy. Puerto Rico will be transitioning from an 11.5% sales & use tax to an 11.5% VAT on April 1. As part of this process, the governor has called for revisiting his failed tax reform, which would involve increasing the soon-

value of overdue loans reached $7.7 billion in late 2010. The biggest problems in Puerto Rico still lie in the construction and development loan portfolios, in which three of every 10 loans are overdue. Overdue developers’ loans increased slightly in the fourth quarter to $30.3 million. In 2009, this figure amounted to $2.834 billion. Mortgage defaults continue to decrease and stand at 11%— the lowest level since 2008. Credit-card defaults, one of the lowest, are at 1.62%. Scotiabank has the highest default rate per financial institution, at 22.4%, slightly above its previous quarter’s numbers. In terms of mortgages, Scotiabank has a 25.3% default rate, and its construction and development loans have the highest default rate at 67.9%. Santander has the lowest default rate at 5%, but this number is among its highest over the past four years. 䡲

to-be implemented VAT to 14.5% with no income taxes for roughly 90% of Puerto Rico taxpayers. If a tax-reform project were to be presented, the CPAs Society suggests the following measures be considered: • A reduction in income-tax contributions; • Include economic-development measures; • Reduce government expenditures; • Reorganize the Treasury Department to attend to the implementation of the VAT and improve supervision of all taxes under its administration to achieve a better capture rate; and • Consider the elimination of property taxes on business inventories. 䡲

—Editor Rosario Fajardo contributed to this story.

Zulmarie Urrutia Vélez, president of the Society of CPAs

THURSDAY, MARCH 10, 2016

Puerto Rico’s Lost Decade PART II IN A SERIES

Middle Class in Puerto Rico Hit Hard by the Lost Decade

BY JUAN A. HERNÁNDEZ j.hernandez@cb.pr

id you love the 1980s? Well…if the answer is yes, go to your closet and dig up your LA Gear hi-tops

and jogging suit and start getting in shape because that is where our economy is headed. But, if you think those years were not that hot…well, deal with it because Puerto Rico has returned to the

1980s and not even the much-maligned federal fiscal-control board will be able to send us forward to the 21st century. For the better part, if not for all of the past decade (2006-2016), Puerto

Rico has suﬀered the effects of the hardest and longest depression in its history. During the past 10 years, any economic advances Puerto Rico may have previously had were

reversed or cancelled by a less-than-zero growth rate of its gross national product (GNP), insuﬃcient revenues, increasing public debt, new and higher taxes, increasing unemployment rate and

the final phasing out of Section 936 of the U.S. Internal Revenue Code, thus fiscally setting back the island not 10 or 20, but 30 years. Continues on next page

THURSDAY, MARCH 10, 2016

Continues from previous page

“No one has received a more severe blow from this recession than the island’s middle class, which up to the turn of the century, used to be

With a negative growth outlook for Puerto Rico’s GNP, the island’s economy keeps getting deeper and deeper into a 20th century scenario, the now-dreaded 1980s, from which not even the resourceful duo of Doc Brown and Marty McFly could send us back to the future.

very strong,” said Eddy Sánchez, a planner working for the government on health-related issues. He defined the middle class as those households earning between $40,000 and $100,000 a year.

Economists have classified the middle class (individuals and/or households) in three diﬀerent groups; medium-low, average and upper. The lowest income bracket for each group being: $30,000 a year for the medium-low class; $50,000 a year for the average middle class; and $80,000 a year for the upper-middle class. Puerto Rico’s middle class, which was formed with the island’s industrialization initiative under Operation Bootstrap, derived its income from the manufacturing and services industries, but mainly from the former. “The manufacturing industry has never paid minimum wages. By 2006, the salary of any production-line employee could have been some $40,000 a year, or even more, depending on how much overtime he or she could manage to clock-in…. And we’re not talking about highly specialized production workers. These were the average line workers. And guess what…that is what an entry-level lawyer made at [the law firm of] McConnell Valdés, or at any other major law firm for that matter,” Sánchez said to Caribbean Business. In more specific terms, back in 2006, a person

working anywhere in the manufacturing industry averaged a weekly salary of $611.38, or about $31,791 a year. Going fastforward to 2014, the same person working in the manufacturing industry was averaging $740.92 a week, for a diﬀerence of $129.54. This translates to roughly $38,527 a year. Such a salary rise in the manufacturing business was not very significant, but from the worker’s perspective “a rise, nonetheless,” Sánchez noted. But while there was an increase in the average weekly salary in the manufacturing industry, it would be wrong to assume the industry was not hit very hard by the recession. If we use the table for average weekly salaries (by industry) prepared by the P.R. Labor Department and look at the total average salaries paid by the manufacturing industry for 2006 ($3.5 billion) and 2014 ($2.8 billion), there is a diﬀerence of $700 million. How could manufacturers have paid less if individual workers are getting more money each week? Simple, they paid more or less the same salaries to fewer workers, thus the average salary was higher. From 1997

to 2012, an estimated 80,000 jobs were lost in manufacturing in Puerto Rico, according to the 2012 Economic Census of the U.S. Census Bureau. Interestingly, the total weekly salaries paid for all industries in Puerto Rico for 2006 and 20014 was almost the same, $24.56 billion. There was a diﬀerence of a little less than half a million dollars ($438,843) in paid salaries registered in 2014.

LABOR-FORCE PARTICIPATION RATE ABYSMALLY LOW Fewer people employed means they have less money to spend, which in turn means increasing inventories, decreasing imports and decreasing revenues, both for local businesses and the commonwealth government. As of June 2015 (the end of fiscal 2015), the employment rate in Puerto Rico was 34.7%, referring to the island’s labor-force participation rate. This means that fewer than 35 people, out of every 100 capable of working, were employed. When compared to 2006, when the rate was 42.1%, there is a diﬀerence of 7.4%. This means there were fewer people working in Puerto Rico nine years later. At the same time, the

island’s unemployment rate has been quite high, hovering at more than 16% around its peak; in December 2015, the unemployment rate was pegged at 12.2%. The earlier part of this decade also coincided with the final phasing out of Section 936 of the U.S. Internal Revenue Code, which in turn became the preamble to the massive layoﬀs of government workers during the administration of former Gov. Luis Fortuño. If the GNP numbers for 2006 ($7.35 billion) are compared with those of 2014 ($6.39 billion)—the closest year to 2016 for which there are statistics available—the diﬀerence is almost $1 billion. The last time Puerto Rico had a similar GNP was 1999. So, after that eight-year period of economic stagnation in Puerto Rico, the island’s situation was similar to that of 15 years earlier. The local economy not only came to a grinding halt, but it also hit reverse and the value of all services and finished goods produced on the island was the same as that of 1999. The Puerto Rico Planning Board, the government agency in charge Continues on page 16

THURSDAY, MARCH 10, 2016

Continues from page 15

of estimating GNP and other economic indicators, has estimated the GNP for 2015 will be significantly lower than that of 2014. With a negative growth outlook for Puerto Rico’s GNP, the island’s economy keeps getting deeper and deeper into a 20th century scenario, the now-dreaded 1980s, from which not even the resourceful duo of Doc Brown and Marty McFly could send us back to the future. “Right now, the [island’s] economy is almost at the same level as it was in the mid-1990s. It is entirely possibly that it could reach 1980s levels by 2020,” Sánchez said.

Source: Commissioner for Financial Institutions

BUYING POWER

DIMINISHED After the loss of thousands of well-paid jobs that the manufacturing sector used to provide and the ripple eﬀect this has had on other areas of the economy, such as construction and autos, the consequences came

After the loss of income and the establishment of a sales & use tax in 2006, many middle-class individuals and families saw their buying power significantly diminished. quickly. With the loss of income and the establishment of a sales & use tax in 2006, many middle-class individuals and families saw their buying power significantly

diminished. The whole situation coincided with the crisis in the banking industry (subprime mortgages), the federal bailout to banks and the global recession. Families not

only saw their incomes drop and in many cases disappear, but they also saw how their savings, in the form of property values (for most Puerto Ricans their homes are their biggest and only asset) were reduced by 30%, or even more. Many saw their equity vanish and were stuck paying mortgages for homes that had been significantly devalued. As a result, many middle-class households made budget cuts in such areas as entertainment, summer and Christmas vacations, dining out, going to the movies and Continues on next page

THURSDAY, MARCH 10, 2016

Continued from previous page

even family outings on weekends. Many families were also forced to send their children to public instead of private schools. But in many cases, these budget cuts have not been enough, as thousands of families have also lost their homes. Another area of the economy that has suffered a severe blow is car sales. Statistics show there is more than one car per household in Puerto Rico, but with less money to spend, families had to sell their extra vehicles,

sold this year in Puerto Rico. This will put 2016 on par with 2009, the year with the lowest sales on record (76,477).

WHEN THERE IS NOTHING ELSE LEFT TO CUT The number of foreclosed mortgages on residential units reached 4,453 in 2015, with a consolidated book value of $648.3 million, according to the Financial Institutions Commissioner’s Office (OCIF by its Spanish acronym). In short, the number of foreclosures had almost doubled from

“This is what’s happening now... professionals in Puerto Rico changing careers to get good jobs in the U.S.” —Eddy Sánchez, planner forfeit on their loans and leases, delay buying new vehicles or purchase used cars. The United Group of Automotive Importers (GUIA by its Spanish acronym) reports that the number of new cars sold in Puerto Rico dropped from 117,838 in 2006 to 81,353 in 2015. That is a loss of more than 30% in a decade. Ricardo García, president of GUIA, told Caribbean Business that the island’s shrinking population, increasing sales of used cars and uncertainty over its economic and fiscal woes have had a negative eﬀect on new-car sales, which will likely continue to have a negative impact on sales this year. García estimated only 77,000 new cars will be

2008 (2,357 residential units), the earliest date for which OCIF oﬀered data. Thus far, Alejandro García Padilla, who took over from Fortuño with a promise to reactivate the island’s economy, has not been able to jumpstart it despite following his predecessor’s initiative of turning Puerto Rico into a tax haven for millionaire investors willing to take up residence on the island and an investment incentive program, among other initiatives.

MOVING NORTH As happened some 70 years ago, the need for jobs has prompted several hundred thousand people to move north to the mainland U.S., searching for a means of livelihood

for their families. Those leaving the island included untrained and lowereducated workers as well as college-educated professionals. According to the U.S. Census Bureau, Puerto Rico’s population has diminished from 3.8 million in 2004 to 3.5 million in 2015, or a 9.2% drop in the past 11 years. New population estimates will be reported by the Census Bureau later this year, but practically no

demographer expects a change in the population’s tendency to decrease. U.S. institutions and companies have always come to the island to recruit new professionals, particularly teachers, nurses, engineers and law enforcement oﬃcers, to attend to their increasingly diversified communities. Because they are already trained and licensed, require little additional training and many are bilingual, these

professionals usually receive entry-level salaries far superior to those they would get on the island. This fact seems to have given way to a new trend that appears to be gaining momentum: professionals in Puerto Rico changing careers to get good jobs in the U.S. “This is what’s happening now. I recently learned about an experienced demographer looking to complete a degree in nursing in one of those

for-profit colleges that resembles a diploma production line, to get a job as a nurse somewhere in the U.S.,” Sánchez recalled. According to the planner, a nurse could have an entry salary of $40,000 a year in the U.S., whereas “it will take a demographer some time before reaching that bracket here in Puerto Rico, if he or she is lucky enough to get a job.” Continues on page 18

Continues from page 17

Rafael (last name withheld), a recent law school graduate, had landed a job with one of the island’s biggest and most prestigious law firms. Before becoming a lawyer, he was a schoolteacher, hoping law school would help him provide better living conditions for his family. But less than a year after he started working at the law firm, Rafael resigned his position and was in the process of moving to Florida.

THURSDAY, MARCH 10, 2016

“I had to do it. You can’t just sit down and wait for things to turn your way. When you have kids, you have to act…. Anyway, I’ll be better oﬀ as a teacher in Florida than as a lawyer here,” Rafael said.

CAN WE GET BACK TO THE FUTURE? The Economic Analysis Division of the Government Development Bank (GDB) estimates there will be a modest increment of 0.5% in employment for July 2016 and an additional 1.5% by December, for a 2% total estimated increase.

Thus far, Alejandro García Padilla, who took over from Fortuño with a promise to reactivate the island’s economy, has not been able to jumpstart it. Meanwhile, the GDB’s Economic Activity Index (EAI) for 2007 was at 154.7 points, but by 2015, this had dropped to 127.4, representing a drop of 27.3 points during an eight-

year period. The last time the EAI had reached a similar mark was during the mid-1990s. According to the GDB, the EAI “summarizes the behavior of four major

monthly economic indicators,” those indicators being: total nonfarm payroll employment, cement sales, gasoline consumption and electric power consumption. As of Ap ri l 2012, the electric powerconsumption variable was replaced by the electric power-generation variable as the fourth indicator. Before that, the government had “reset” the EAI in 1980 to make that year the index’s new “base year.” The 1980 mark for the year is 100, which

figuratively speaking is equal to zero. This means, since resetting the EAI’s base year, that the Puerto Rico economy had grown 154.7 points by 2007, but by 2015, had lost about half, or 50%, of the registered growth since 1980. While some have questioned the government’s optimistic estimations and assumptions, recent economic indicators show a downward curve that is still pushing the island’s economy back into lastcentury levels. 䡲

Thursday, march 10, 2016

From the Web Check out our ‘Question of the Week’ at cb.pr starting today.

Will the Puerto Rico GOP Primary Results Influence the Florida Primary?

Puerto Rico’s Lost Decade Dear Editors: Puerto Rico’s economy cannot ever recover on its own so long as it persists in maintaining so huge a bloated government employee payroll and such generous retirement benefits for such early retiring government employees. Supporting so many unproductive people is too heavy a burden on an economy. Those barely working government employees must be cast off into the economy where they must take jobs and actually be productive. So long as they remain employed by the government, they will never contribute to the economy. And so long as the burden of keeping them on the government payroll is so great, the private sector will not invest because it simply cannot afford to carry that burden and still be profitable. Wal-Mart is a good example. If the taxes imposed on Wal-Mart continue at [the] current level, it is likely that Wal-Mart may cease doing business in Puerto Rico since it essentially cannot earn more than a trivial profit even when sales are good. —“Errol” One of the problems with reducing the government payroll is that those people

would then go directly onto the welfare and unemployment rolls, which also causes a drain on the financial resources of the government. Reducing the payroll as part of the plan to return to fiscal viability is essential, but it would be a losing battle if jobs in the private sector are not created to absorb those people. The Puerto Rican government should have developed its own tax incentives to retain the tech industries on the island as well as pursuing federal incentives. Even the idea of a Research & Development technology corridor on the west coast of the island would have been good 10 to 15 years ago. Even so, the Puerto Rico government is so slow in evaluating and approving the incentives that smaller tech companies could not hold out long enough and manufacturing R&D went elsewhere. “Government as usual” is not a local problem, but is also evident stateside. Getting academics and politicians involved in creating alternate plans also has its own set of problems since they do not always have the practical experience in the day-to-day economics of Research & Development or manufacturing. The Puerto Rico Manufacturers Association was not able to convince the government that action was needed, again due to politicians not being able to understand the ramifications of their decisions. Hindsight is perfect, but useless, if it does not educate those who need to exhibit foresight. —William Rapien

Editor’s Note: This exchange between readers is in response to Caribbean Business’ editorial, “Time to Rebound from the Lost Decade,” published on Feb. 18, 2016.

Column President Tr(i)ump(h) the Insult Comic Dog? BY CLARENCE PAGE

“You can’t insult your way to the White House,” Jeb Bush told Donald Trump in an early Republican presidential debate. Oh, really? Trump has since seized a commanding lead as the party’s frontrunner. Jeb Bush, who entered the race with the biggest war chest outside of Trump’s pocket change, has dropped out. Two of his remaining competitors, Sens. Marco Rubio of Florida and Ted Cruz of Texas, belatedly are trying to bully the Donald. That’s a tough battle. History may well remember Trump’s campaign as an ongoing imitation of his near-namesake, the foul-mouthed, cigar-chomping puppet Triumph the Insult Comic Dog. It works because, despite his lack of experience in public office—or, for that matter, public service—Trump has studied the political scene closely over the past two decades as he contemplated and repeatedly backed away from the presidential run he finally is making now. Why now? Why not? As the world can see, the Republicans have been limping through an odd state of disarray for years. They control most of the state governments and both houses of Congress, but they’ve lost the popular vote in five of the past six presidential races. National leaders in the Grand Old Party urge outreach to women and minorities. Trump has taken an alternative path urged by numerous hard-core rightwingers: Beat the bushes to roust out conservatives who have stayed home on Election Day out of dismay and outright anger with a Washington that they feel has sold them out. That’s why the Donald has carved out what amounts to a third party in the making: tougher on illegal immigration and foreign trade deals, for example, than the conservative think-tank establishment but also more protective of Social Security, Medicare and other entitlements. But before Trump could sell his agenda to the public he had to get our attention. That’s where his insult-dog act came in. He astonished us with his affronts to Fox News’ Megyn Kelly, a disabled New York

Times reporter, Sen. John McCain (RAriz.) and other POWs and a growing list of other targets. “Trump is what the psychologists call the ‘empathic bully,’” said best-selling human-behavior author Malcolm Gladwell on “The Nightly Show with Larry Wilmore” the night after Super Tuesday. It sounds odd to put “bully” together with “empathy.” But as Gladwell explained, the ability to understand what and how others feel is very helpful to the bully who wants to read your weaknesses and exploit them to make you feel that much worse. “The best bullies are people who are brilliant at reading your weaknesses and exploiting them,” Gladwell said. “When [Trump] makes fun of the other candidates, it’s not some bad crude insult. It’s actually an insult that cuts into the quick of who they are.” We should have seen this coming. Trump loves professional wrestling. He has co-sponsored “Wrestlemania” events and even performed, playing— who else?—himself. And it works for the same reason that the Wharton-educated billionaire often talks like a lunch bucket-carrying bluecollar worker from Queens, N.Y. When he recently said, “I love the poorly educated,” he sounded like he meant it. Of course, Bush, Rubio and Cruz have tried belatedly to return fire. But the insult is not a game for the squeamish or ill-prepared. Trump’s skills come from decades of his strategic obnoxiousness. And when Mitt Romney courageously stood up and denounced Trump as a “phony,” “a fraud” and a danger to democracy, Trump pointedly called Romney a “stiff” and a “choke artist” who “failed horribly” in his 2012 election bid “that he should have won.” But Mitt did the right thing. Good people need to speak up against Trump’s put-downs. Otherwise, if he really does insult his way to the White House, brace yourself. Every future presidential debate will sound like Wrestlemania.

THURSDAY, MARCH 10, 2016

Law/Courts

Groups say Recovery Act will wreak havoc on municipal market

More Organizations Urge U.S. Supreme Court to Uphold Recovery Act’s Unconstitutionality BY EVA LLORÉNS VÉLEZ e.llorens@cb.pr

Scotiabank de Puerto Rico, the Association of Financial Guaranty Insurers (AFGI) and the U.S. Chamber of Commerce are urging the U.S. Su•preme Court to uphold the illegality of the Puerto Rico Debt Compliance and Recovery Act. On March 22, the top court will hear arguments •in favor and against the Debt Recovery Act, a P.R. statute that allows •for debt restructuring of some of the island’s pub•lic corporations, which was found to be unconstitutional. The local government contends that because Puerto Rico’s public corporations cannot declare bankruptcy under federal law, it use its own bankruptcy law to fill in the gap.

Scotiabank, in a friend of the court brief filed after the bank and other bondholders reached a restructuring agreement with the Puerto Rico Electric Power Authority (Prepa), said local banks in the fuel-line syndicate that pays for the utility’s oil, play a vital role in the island’s economy and support initiatives to address local fiscal problems. “But the Recovery Act, moreover, is so unfavorable to creditors—and so much less protective of creditors’ rights than the federal Bankruptcy Code—that it will inevitably aﬀect the financing available to Puerto Rico,” Scotiabank warned. Scotiabank is part of the group of banks that has extended about $550 million in credit to Prepa, including Oriental Bank and FirstBank Puerto Rico.

When the local banks agreed to extend credit to finance Prepa’s operations, Scotiabank said the bank assumed the risk that Congress could potentially enact bankruptcy legislation that would apply to Prepa but the Canadian financial institution never contemplated that Puerto Rico would be able to enact its own bankruptcy statute, which is significantly less protective of creditors’ rights than the federal Bankruptcy Code. The bank said Puerto Rico has other alternatives to deal with the debt. In Prepa’s case, Scotiabank noted that for more than a year, the electric utility and its creditors, including the local banks, have worked tirelessly to negotiate a consensual restructuring of Prepa’s debt. The bank also says Prepa has not collected overdue

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utility bills from agencies or cities. The power authority also has never adjusted its rates to ensure it could meet its obligations. Indeed, since 1989, Prepa has not raised the “base rate” that it uses to charge customers to cover debt service and expenses besides fuel—even though it is required to do so not only because of its loan agreements but also under Puerto Rico law. The “base rate” charged to customers has instead remained constant, even as overall rates paid by customers have decreased significantly due to recent declines in oil prices. “Although Prepa asserts in its amicus brief that the Recovery Act spurred negotiations for a consensual restructuring, the opposite is true. The Recovery Act reduced Prepa’s incentive to negotiate, and little progress was made before the district court struck down the act Feb. 6, 2015. “Only after that decision—on June 1, 2015—did Prepa deliver a proposed recovery plan to creditors, as required by its forbearance agreements. And only then could Prepa and its creditors begin to negotiate in earnest on a consensual restructuring,” the bank said. AFGI, the national trade association of the leading

insurers and reinsurers of municipal bonds and asset-backed securities, said that through the Recovery Act, Puerto Rico unilaterally sought to restructure or abrogate statutory and contractual terms of municipal bonds and their governing documents— terms to which the commonwealth and its public corporations agreed when they obtained billions of dollars of financing. “Much of this financing has been guaranteed by AFGI members, which, at the request of the commonwealth and in reliance on, and subject to, those contractual terms, provided the commonwealth’s bondholders with insurance policies for their bonds,” the organization said. AFGI’s interest in the outcome of this case also extends well beyond the debt issued by Puerto Rico and its municipalities. “The prospect of states or territories enacting their own municipal bankruptcy laws would have grave consequences on the monoline insurance industry, as well as on the municipal bond market as a whole. Upholding the Recovery Act would establish, and signal to monoline insurers and other creditors, that contractual terms with municipalities could be altered

in unpredictable, inconsistent and self-serving ways. This would create a chilling eﬀect on credit markets and increase the cost of financing to municipal borrowers [and, therefore, to taxpayers],” the organization said. The AFGI said the government has painted a grossly inaccurate picture of the purported catastrophes that supposedly await Puerto Rican residents without the Recovery Act. “This false portrayal of the potential impact of applying existing federal and commonwealth laws to the bond contracts at issue is an attempt to shift focus from the “straightforward” issue of federal preemption here and from the dramatic negative eﬀects that permitting laws like the Recovery Act would have on the nationwide municipal securities market,” the group said. The Chamber of Commerce, which represents 300,000 members and the interests of more than three million companies and professional organizations, said there could be no bankruptcy uniformity if states and territories could break contracts for the special benefit of distressed municipalities. The result would be a municipal-bond market with reduced access to the low-cost capital the investor class has always supplied. “In enacting Chapter 9 bankruptcy protection, Congress recognized that credit markets, especially the market for municipal bonds whose issuers can be fickle political entities, depend on a stable and predictable bankruptcy system.” 䡲

THURSDAY, MARCH 10, 2016 P.R.’s economic crisis, higher ticket prices affecting sales

Poll

Nearly Half of P.R. Residents Do Not Visit Movie Theaters Most Moviegoers are Young Adults, Prefer Action Flicks BY ROSARIO FAJARDO r.fajardo@cb.pr

Despite recent blockbuster hits such as “The Revenant” and “Star Wars: Episode VII–The Force Awakens,” it seems the average Puerto Rico resident is not a regular moviegoer, according to this week’s Gaither International survey. A total of 49% of the local population surveyed during 2015 stated they do not visit movie theaters, Gaither reported, and of those who said they do visit movie theaters, 21% said they went “more than three months ago” and only 9% said they went during “the last month.” “Factors that could contribute to this [trend] could be the economic crisis of Puerto Rico, and with the higher prices of movie tickets, people seem to be less motivated to visit movie theaters; we must also keep in mind the prices of theater snacks and drinks, which could add to the total cost of a movie theater visit,” said Melanie Dederick, a client service associate at Gaither International. Another factor to take into consideration is the fact that it is the island’s younger population who frequently visits movie theaters, she indicated. “These younger groups are decreasing in size and therefore, there are fewer of them left on the island

to patronize this business. The age group with the highest visit incidence is that of 18 to 24-year-olds, with a total of 48% stating they visited a movie theater in the past week,” Dederick added. This group of young adults was followed by the teenage group of 12 to 18- year-olds with a 24% visit incidence, 35 to 54-year-olds with 21% and lastly, the 55-plus age group with a mere 7% visit incidence. The people who mostly frequent movie theaters belong to the middle (38%) and middle-low (36%) lifestyle tiers, which pertain to socioeconomic indicators such as education and salary levels. These two groups were followed by those in the high lifestyle tier (22%), while the low lifestyle tier reported only a 7% movie-theater visit incidence. Among the preferred movie genres in Puerto Rico in 2015, people reported having seen action movies (52%), comedies (21%) and children’s films (20%) during the past month. In terms of most visit incidence by regions, the region with the highest incidence reported in 2015 was Caguas (21%), followed by the Ponce and San Juan Metro regions (19%), San Juan subregion (17%), Mayagüez (16%) and finally, Arecibo reporting the lowest with only 6%.

The results are from Gaither International’s Media Brand Profiles tracking survey, which interviews more than 80 people daily from among a representative sample of Puerto Rico’s population 12 years and older. The rise of videostreaming services such as Netflix, Amazon Prime and Hulu in the U.S. has hit traditional movie theaters hard, but that is apparently not the case in Puerto Rico. “According to a more recent survey conducted in January 2016, 82% [of local respondents] claim they don’t watch Netflix, Hulu or any other streaming service,” Dederick said. “Among those who do use these online streaming services, 35% said they watch it two to three times a week, 25% said they watch it on a daily basis and 16% said they watch it on a weekly basis. The other 24% stated they don’t watch it very frequently.” The incidence of online streaming services in Puerto Rico “is not a large enough factor to be a main cause of the decrease in movie-theater visits, but it is definitely a factor that could make a significant impact in the future,” she added. 䡲

Polling is conducted by Gaither International and the results are reported exclusively by Caribbean Business.

The people who mostly frequent movie theaters belong to the middle (38%) and middle-low (36%) lifestyle tiers, which pertain to socioeconomic indicators such as education and salary levels.

THURSDAY, MARCH 10, 2016

Federal Affairs

Apple and FBI ﬁght: Why people should be concerned.

Congressional Commission Seeks to Reconcile National Security Interests With Need to Keep the Public’s Digital Information Private BY EVA LLORÉNS VÉLEZ e.llorens@cb.pr

The wave of terror attacks last year, including in Paris and San Bernardino, Calif., have brought to light that terrorists are using the same secure digital communications that regular people use to shop or speak to their families online, to disguise their illicit activities. This situation has raised the challenge of how to reconcile citizens’ right to privacy and security, and law enforcement’s obligation to protect national security. The Federal Bureau of Investigation, or FBI, recently, compelled Apple to assist in unlocking an iPhone belonging to Syed Farook, one of the shooters in the San Bernardino workplace violence incident that left 14 dead. The FBI has described Farook and his wife as terrorists, and says it needs access to the device to pursue leads in the case. Apple is fighting a court order requiring the company to assist in the case, arguing that it would have to create special software it calls “Government OS” or GovtOS, to cooperate with the FBI. Apple would also need to create an onsite FBI forensics lab, which Apple says could likely be used to unlock iPhones in the future since law enforcement oﬃcials have already

indicated they would do so. In a motion, Apple says the FBI wants to greatly expand the use of the All Writs Act to force companies like Apple to weaken their security systems to facilitate the government’s access to private individuals’ information. The company says the All Writs Act does not support such sweeping use of judicial power, and the First and

Fifth Amendments to the U.S. Constitution forbid it. “The [federal government’s] demand violates Apple’s First Amendment rights against compelled speech and viewpoint discrimination. Apple wrote code for its operating system that reflects Apple’s strong view about consumer security and privacy. By forcing Apple to write software that would undermine those values, the government seeks to compel Apple’s speech and to force Apple to express the government’s viewpoint on security and privacy instead of its own…. The government’s demand

also violates Apple’s Fifth Amendment right to be free from arbitrary deprivation of its liberties in that it would conscript Apple to develop software that undermines the security mechanisms of its own products,” the technology company said in a motion filed in California. Several other technology and communication companies are backing Apple’s claims. A hearing on the matter is slated for later this month. A federal judge in Brooklyn already ruled that the U.S. government could not force Apple to unlock an iPhone in a New York drug case. COMMISSION ON SECURITY & TECHNOLOGICAL CHALLENGES In response to the challenge, House Homeland Security Committee Chairman Michael McCaul (RTexas) and Sen. Mark Warner (D-Va.), a member of the Senate Intelligence Committee, introduced legislation on Feb. 29 to create a national commission on security and technology challenges in the digital age. The purpose of the commission is to collectively address the larger issue of protecting national and digital security, without letting encrypted communications become a safe haven for terrorists. Continues on next page

THURSDAY, MARCH 10, 2016

Federal Affairs Continued from previous page

“This commission brings together the most capable experts and stakeholders from law enforcement, the technology industry, the intelligence community, and privacy and civil liberties communities to discuss the challenges and advise policymakers on this complex issue,” they said in a statement. Critics of the commission say there is no way to reconcile encryption with what law enforcement wants and that the FBI is in eﬀect asking for a “back door” that would undermine security. In response, McCaul said that while a simple solution could be to legislate such a back door, he noted that networks are diﬀerent and there is the need to find a collaborative solution. “The FBI does not have the capability to crack the device…. If they did, they would not be asking for help,” Warner said during a recent forum titled “Shedding Light on ‘Going Dark’: Practical Approaches to the Encryption Challenge,” by the Bipartisan Policy Center. While there are other ways law enforcement can get the information because phone companies have copies of text and there is “metadata,” or data that provides information about other data, that can reveal the identities of the persons the terrorists contacted, McCaul said the case is not that easy. He said the terrorists responsible for the Paris attacks used “point to point” encryption that prevents law enforcement from seeing the communication

that took place. As for the terrorists in San Bernardino, he said the FBI has some of the shooters’ communications, because they were backed up by the cloud, but oﬃcials cannot have access to the communications made after “the cloud was turned oﬀ.” That information is in the shooter’s iPhone hardware, which law enforcement has been unable to crack. EXPERTS LIKE THE IDEA Experts who participated in the forum agreed on the need for a commission. Former deputy director of the National Security Agency, Chris Inglis, said there are interests in conflict with law enforcement, such as the privacy of the individual, the “collection of individuals,” or associations, and the need for companies to keep their economic vitality in the digital age. “We need to define security in the digital age,” he said. Michael German, fellow at the Brennan Center for Justice’s Liberty & National Security Program at New York University School of

Law, said the government has a huge amount of information on citizens, so “the idea that there is data out there that the government cannot get” is not true. He noted that the President’s Review Group for Intelligence Activity noted there is a need to have a free and open internet for economic growth, that the government must provide support to create encryption standards and should not weaken commercial encryption used for data in transit. Jim Lewis, the director & senior fellow with the Strategic Technologies Program in the Center for Strategic & International Studies, said he believes the problem is not unsolvable, but “we need to find a mechanism to get to it.” Solutions oﬀered by other countries are not usually appropriate. He said that in China, if a person uses point-to-point communication, it is automatically flagged as a government target and “they will come and arrest you.” For that reason, the U.S. should lead by providing the best practices. 䡲

“The demand violates Apple’s First Amendment rights against compelled speech and viewpoint discrimination. Apple wrote code for its operating system that reflects Apple’s strong view about consumer security and privacy,” Apple says.

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Opportunity Talks

Science Trust’s strategies to promote R&D culture

Science Trust Head: Researchers Must Patent Ideas to Push P.R.’s Economic Development In the ﬁrst installment in a monthly series, Lucy Crespo discusses huge opportunities in R&D BY EVA LLORÉNS VÉLEZ e.llorens@cb.pr

The Science, Research & Development Trust (Trust) is working hard to “change the island’s culture” to raise awareness about R&D’s importance for bringing investment and revenues to Puerto Rico’s economy and the job creation that results from innovation. For every dollar spent on R&D, about five direct and indirect jobs are created, according to the book “The New Geography of Jobs,” by Enrico Moretti. Established in 2004 under Act 214, the Trust seeks to stimulate innovation, technology commercialization, as well as the creation of high-technology jobs. In 2013, estimated gross expenditures on R&D totaled $449.3 million or 0.44% of Puerto Rico’s gross domestic product. This is an increase of 3.3% from 2009. The Trust’s CEO Lucy Crespo says the entity is busy with a strategic plan that extends until 2022, which seeks to turn Puerto Rico into a world-class innovation center with the ability to develop, attract and retain scientists, technology and innovations that can help raise the island’s competitiveness. What is the status of

the plan? Crespo said the Trust is focusing on development in the areas of innovation businesses, science and technology development and functioning industrial-based

studies at Universidad Central del Caribe; Salvatore Casale, director of the Oﬃce of Technology Transfer & Innovation at University of Puerto Rico’s Molecular Sciences

David Gulley, a technology transfer professional with 30 years’ experience in technology-based economic development. Until recently, he led the establishment of 20 technology transfer oﬃces at universities in Chile. For 25 years, he provided leadership for the University of Illinois system and its Chicago campus as an associate vice president and assistant vice chancellor, leading academic-industry collaborations, technology

Research Building; Ángel González, director of the Plasma Engineering Laboratory at Universidad Politécnica; Luis García, associate vice president of Sistema Universitario Ana G. Méndez; and Jorge Silva-Puras, director of Neeuko Collaborative Innovation at Universidad del Sagrado Corazón. The Technology Transfer Oﬃce is headed by

up to $195,000 for income generated from eligible research conducted at a local university, or a $250,000 tax exemption if the research activity is conducted within Puerto Rico’s so-called Science District. Act 214 of 2004 created the Trust, which receives funds from the law that imposes a 4% tax on foreign-controlled corporations. Act 73 of 2008, known as the Industrial Incentives Law, and Act 20 of

Lucy Crespo, CEO of the Science, Research & Development Trust

Science City rendering

businesses so they can expand. The Trust’s Technology Transfer Oﬃce is now fully operational to help promote the commercialization of intellectual property, after establishing liaisons with Kenira Thompson, dean for research at Ponce School of Medicine; Luis Ángel Cubano, associate dean of research & graduate

InnovationQ, which helps organizations optimize and monetize their “intellectual property, researchers and scientists can make a disclosure that will help them determine if their discovery or innovation can be patented. Other protection mechanisms can be achieved through copyright, trademark protections.” “There is a provisional one-year patent that allows for the evaluation to determine if the discovery has a unique feature

transfers, incubation and research park initiatives. Puerto Rico has 1,046 patents under its belt, which were obtained from 1960 to 2014, but the Trust wants to double that amount over five years. The island receives little to no money for the commercialization of its intellectual property. Crespo said that through a platform known as

to it,” she said. The Trust is a nonprofit private entity that is using around five diﬀerent incentive laws to help attract and retain scientists and researchers as it strives to turn the island into a world-class innovation center. These incentives are Act 101 of 2008, which allows qualified researchers to seek tax exemptions for

2012, which grants incentives to companies that promote exports, and Act 22 of 2012, which helps attract millionaire investors, are also important tools promoting R&D. Act 20, for instance, provides a 3% to 4% tax rate and partial exemptions on property and municipal taxes to R&D Continues on next page

THURSDAY, MARCH 10, 2016

Opportunity Talks Continued from previous page

activities, and a 100% exemption on the distribution of company earnings and profits. Act 22 also provides tax exemptions to its beneficiaries. IMPORTANCE OF R&D INVESTMENT Why is R&D spending important? Because it will help Puerto Rico obtain revenues from local innovations and discoveries, which right now is nonexistent. In 2014, the U.S. received $128 billion in revenues from intellectual property, while in the European Union it was $122 billion; Japan $33 billion; Switzerland $21 billion; and Israel more than $1 billion. â&#x20AC;&#x153;We have to have intellectual propertyâ&#x20AC;Ś. We have to create the discipline and culture for people to register their ideas,â&#x20AC;? she said. The Trust is also developing Science City on 68 acres in San Juan. Science City is a state-of-the-art, mixed-use, transit-oriented, sciences, technology and research community with supporting residential, retail and lodging uses. Scientists and companies operating from Science City will receive special tax incentives for R&D. The site will feature an environmental research laboratory from

the Environmental Quality Board. Crespo said the Trust identified an anchor tenant, a renowned biotechnology laboratory, which she declined to identify because negotiations are still ongoing. What have been the Trustâ&#x20AC;&#x2122;s eďŹ&#x20AC;orts to attract scientists? Crespo said the Trust asked universities to identify top-notch investigators, especially in the areas of neurobiology, oncology, infectious diseases and diabetes, and cardiopulmonary diseases. It has already attracted some 34 researchers. It is also expanding into the area of clinical

turned to the startup ecosystem with the December launch of Parallel18, an economic-development initiative that aims to attract and create high-impact startups that can reach Puerto Rico to global communities beyond the island, including the U.S. mainland, Latin America and Europe. Up to 40 tech-based startups will participate in a training and acceleration program taught by global technology and business experts. Each company will receive equity-free seed money ($40,000 delivered in two sets of $20,000) with an

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research and established an alliance with Yale University Center for Clinical Research, which is collaborating with the Trustâ&#x20AC;&#x2122;s Consortium for Clinical Investigation, headed by Kosmas Kretsos. As a contributing solution to Puerto Ricoâ&#x20AC;&#x2122;s economic crisis, the Trust

opportunity for equitybased follow-up funds if they choose to keep their business in Puerto Rico. In exchange, these companies will engage with local universities to teach and mentor students on a regular basis while participating in other volunteer eďŹ&#x20AC;orts.

â&#x20AC;&#x153;The Trust is using around five diďŹ&#x20AC;erent incentive laws to help attract and retain scientists and researchers as it strives to turn the island into a world-class innovation center.â&#x20AC;? \ â&#x20AC;&#x201D;Lucy Crespo, CEO of the Science, Research & Development Trust

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THURSDAY, MARCH 10, 2016

Smart Money My Personal Story as Part of the Acts 20/22 Community When I was first asked to write for a new section of Caribbean Business relating to the Acts 20/22 Community, I was obviously honored and excited. However, I was a little nervous as well. Most new ventures cause some trepidation, and this is no exception

Act Society can provide a woman’s perspective (and as a former English teacher in her past life, she is a much better writer than I). She has been instrumental in allowing our relocation here to even occur. There will also be commentary from some of the experts in tax compliance who navigate diﬃcult waters

and it really felt isolating. I was the oddball gringo who just moved to Dorado Beach who was not part of the typical multinational pharma company. Nobody understood locally what this was about, and none of my associates stateside believed it was real. How was it possible that the greatest tax incentive

assist me in investigating a similar program in the U.S. Virgin Islands (USVI) called the EDC program that at the time, was the only one in existence for Americans. It seemed rather onerous, requiring us to employ 10 local workers and involving lots of bureaucracy including public hearings, mandatory charitable contributions of $50,000 per year, requirements to make purchases through preferred vendors and a very lackadaisical attitude toward getting things

considering how the program has grown before my very own eyes. The idea of this column is to share with others, not only my experience in the Acts 20/22 Community largely from my point of view as the founder of The 20/22 Act Society, but also the experience of others in the Acts 20/22 Community. My wife, Tara, who is co-founder of The 20/22

with us to try to ensure proper compliance, including the Society’s own CPA, Jorge Kulian, who speaks to members and potential recipients every day. When I first came here in 2012, even though the laws had been on the books for over six months, almost nobody knew about them. My private equity firm was one of the first 10 to actually move under the program,

program for an American had hardly any traction? All of that changed only a few months after I moved due to a Bloomberg article profiling John Paulson’s investments in Puerto Rico, which ignited quite a spark. But let me back up and tell my personal story about how I first discovered Puerto Rico. In late 2011, I tasked my management team to

done, including your grant in a timely manner. They also had a fast-track program called the Research Park, which did not have the employment requirement, but did require you to make a “contribution” to the park that actually did not exist yet, and to turn over a small piece of company equity. The negotiations started poorly when they required us to

BY ROBB RILL

submit financials ahead of negotiations. The check they wanted was in the six figures, which I was not thrilled about, but for pragmatic purposes, it was still financially feasible. However, the biggest issue I had was the requirement for a small piece of equity. This was a big sticking point for me as I don’t just give away equity, and no prudent business person I know likes the idea of building a firm for 15 years and then giving away equity in exchange for a piece

we actually consummated a deal, even after multiple conference calls and visits to St. Thomas, which involved picking out our new home, meeting several EDC residents, forming our company there, sourcing oﬃce space and making numerous attempts to finalize a deal so we could actually make the move by Jan. 1, 2013.

of paper. The individual who was in charge of negotiations was so much on “island time” that he missed more than one conference call (even after regular communication from the most well-known attorney on the island, whom we had retained) and had a very blasé attitude about the whole process. It seemed he could not care less if

would lead to a life changing decision I could not have foreseen. It was on a Friday in late October 2012. It was an amazingly beautiful day, looking out from our home on the 48th floor in downtown Vancouver, Canada, where we spend our summers, watching the cruiseships passing by, the sea planes flying below me

A LIFE CHANGING DECISION I remember my last call with him vividly because it

Continues on next page

Thursday, MARCH 10, 2016 The founder of Act 20/22 Society touts the benefits of impressive incentives.

Continued from previous page

and the lush green mountains forming a backdrop for it all. Contrast that with my call to this RT Park representative. I am pacing back and forth glancing at the amazing scenery to avoid popping a vein. The call lasted all of 15 minutes and involved ever increasing numbers from what I had been led to believe would allow us to finalize the deal. The person said: “Robb, we have seen your financials, and even though you think it’s unreasonable, you know you will reap immediate benefits, and if you don’t like it, then that’s fine because we have a limited number of companies we can accept into the program, and I need to maximize the benefit for the RT Park.” I replied, “Steve, I don’t think that’s going to work for me,” and hung up. I was unsure of my next step. After all this planning and with basically only two months left in the year, I had to decide if I was going to abandon the USVI plan that my in-house legal team had worked on for almost an entire year. I

turned to my wife and told her that she might get her wish to stay in Florida after all and not be forced to follow her Captain Ahab on my chase for the still elusive Moby Dick. Feeling pity for me, she tried to be helpful and said, “Isn’t there another territory like the USVI such as Puerto Rico that might have a similar economic program?” Being an individual who prides himself on due diligence and wanting to pat my wife on the head like a little girl who was trying to be helpful to her dad, but was really just frustrating me further, I said, “If it existed, honey, I would know about it.” And just to prove my point, I Googled something innocuous like “Puerto Rico economic incentives,” to which nothing about Puerto Rico came up. However, what did come up was a press release from the USVI governor’s office stating that in response to Puerto Rico’s new economic program, they would now reduce their employee requirement from 10 employees to five. I sat staring at the screen in shock, and a few clicks later I found the Economic Development

“Seemingly innocuous events will take you to places that you could have never foreseen.” I had no idea that was what literally was about to happen for us, but I’m sure glad it did. & Commerce Department website that explained their barely six month old incentives program, which would change our life. Puerto Rico’s many offerings We both furiously started searching online to see what Puerto Rico had that

the USVI did not. Does it have Target? No, but it has over 30 Walmarts. Does it have a real mall? Yes, it has the largest mall in the Caribbean, including almost every major store one can think of, including Victoria’s Secret, because underwear is important. Does it have recognizable

chain restaurants? Yes, it has a PF Chang’s and a Cheesecake Factory. The island even had Costco, which we didn’t even have where we lived in Florida. Even if there were a Mercedes-Benz dealership in the USVI (which there wasn’t) we were advised to buy nothing nicer than a Jeep due to crime and kidnappings, specifically. This was not what my wife wanted to hear. Amazon delivered to Puerto Rico, not everything, but most things under Amazon Prime, which was not available in the USVI. Netflix was also available, which for reasons unknown was not available in the USVI. Boy, did this beat having just Kmart, which was the only major chain in the USVI, aside from Office and Home Depot, because we all know from the movie “Rainman” that “Kmart sucks.” Puerto Rico is a real place with 3.2 million people and lots of activity. And the best part? The Act 20 application had no employee requirement and was literally all of two pages. I could have filled it out in about an hour. The price of admission to play?

It was not hundreds of thousands of dollars, but rather less than it cost our $450 per hour attorney in the USVI to form the company there. Not only did we dodge a bullet, but thanks to the arrogant position of the opposing side, we also found what was the beginning of a movement that showed all the promise of opportunity and a new chapter in our lives, which we could have never foreseen. I have a favorite saying: “Seemingly innocuous events will take you to places that you could have never foreseen.” I had no idea that was what literally was about to happen for us, but I’m sure glad it did. In my next column, I will discuss what led to the formation of the Society, which came more from necessity rather than desire, and how I ended up with an entirely new job that takes a lot of my time and is a pro bono position that is my contribution to the community. n

—Rob Rill is the managing director of The Strategic Group PR and is the cofounder of The 20/22 Act Society.

THURSDAY, MARCH 10, 2016

Construction

Construction industry leader muses on what went wrong

Builders Association Readjusts in Face of Construction’s Ongoing Crisis Association President Ricardo Álvarez-Díaz Talks About Industry’s Need to Refocus BY DENNIS COSTA d.costa@cb.pr

Last November, during the annual convention of the Puerto Rico Homebuilders Association, exiting president Roberto Trápaga dropped a bombshell: the organization would eliminate the word “home” from its moniker. During the assembly, the renamed Puerto Rico Builders Association (PRBA) also broke precedent when it elected Ricardo Álvarez-Díaz as its new president, the first time an architect was elected to the position. Such changes indicate a readjustment for the PRBA and the construction sector itself, which is going through its roughest period in decades, perhaps ever. For instance, investment in construction went down to $4.3 billion in

2015 from $6.6 billion in 2004. Public investment has become almost nonexistent, in light of severe fiscal shortfalls, while a bevy of construction and development firms have gone under since the Great Recession hit the island in 2008. Now at the helm of the PRBA, Álvarez-Díaz—who alongside his wife Cristina Villalón heads San Juanbased architectural firm Álvarez-Díaz & Villalón— has chosen to take the optimistic, yet nevertheless realistic, approach in dealing with the industry’s travails. “During the past couple of years, the construction sector sort of became irrelevant,” Álvarez-Díaz said. “For a while, people thought nothing more needed to be built, but that’s looking at things the wrong way.” “We dropped ‘home’

from our name to better reflect the industry’s current reality,” Álvarez-Díaz noted. “The organization has represented developers since its foundation 64 years ago, and for decades, developers focused on houses for sale, mostly single-family homes. After 2008, that all changed, and the developers who have been able to survive have had to diversify, as Interlink and PRISA Group have done in developing tourism projects.” Although the seeds for Puerto Rico’s economic depression were planted as far back as 2006, at least, the global financial meltdown prompted by the housing market bubble in 2008 exacerbated matters on the island. Before the housing bubble burst, median home prices on the island had skyrocketed to $220,000,

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“During the past couple of years, the construction sector sort of became irrelevant. The mentality of ‘if you build it, they will come,’ ceased to exist eight years ago.” — Ricardo Álvarez-Díaz, president of the Puerto Rico Builders Association beyond the reach of most potential buyers. In turn, this has created a sort of gap between the market, as it now stands, and the type of demand out there, according to the PRBA president. “The U.S. federal government stated in a report that Puerto Rico needs about 35,000 housing units during the next five years. Out of that total, about 30,000 need to be ‘aﬀordable housing,’ meaning they must cost $100,000 or less,” Álvarez-Díaz explained. “Right now, there are

about 3,000 new housing units for sale, a number that has gone down significantly in recent years. However, only around 300 of those homes classify as aﬀordable housing.” Another aspect of the problem is home foreclosures, which in Puerto Rico reached a record high of 4,000 units in 2015. Currently, around 18,000 housing properties have foreclosed in Puerto Rico, according to the Financial Institutions Commissioner’s Oﬃce. “We need to make an analysis about which

properties are being repossessed, but that information currently doesn’t exist,” Álvarez-Díaz said. “For example, if some of the repossessed properties were built between 2004 and 2008, it would prove that all those units had inflated prices.” In the view of the PRBA president, this dynamic shows that it is not about stopping all construction, but about building only what is needed. “One of the main missions the board of directors has adopted is to educate the general public, as well as PRBA members,” he said. “If some members are building a certain type of project and it turns out that this type is among the properties that have been the most repossessed, they should stop and refocus. The mentality of ‘if you build it, they will come,’ ceased to exist eight years ago.”

THURSDAY, MARCH 10, 2016

Energy

Subsidies total $80 million to $100 million a year

Legislation That Would Limit Energy and Water Subsidies is Closer to Being Law Bill Would Affect Subsidies to Businesses, Gov’t Aid Recipients and Nonproﬁts BY EVA LLORÉNS VÉLEZ e.llorens@cb.pr

Legislation that would limit or phase out after a few years the $80 million to $100 million a year in energy and water subsidies awarded by the Puerto Rico government to hotels, industries, government aid recipients, churches and nonprofit groups, is now closer to becoming law. Senate Bill 1256, an amended version of which was approved by the House and must now go back to the upper chamber for Senate approval, states that energy and water subsidies worsen the fiscal state of governments, promote the excessive use of energy, contribute to social inequality and help incentivize certain business sectors that do not use the subsidies to create jobs. The measure, for instance, contends that the local hotel industry enjoys generous subsidies, but instead of saving energy, is using more. The bill also questions the fairness of public housing residents having water and energy subsidies that people living in slums and poor communities do not have. Public housing project residents currently have a total $75 million in utility debt, an amount that went from

$18.5 million to $29.5 million in 2009 after the subsidies became law. The proposed law contends that the credit, subsidy or special tariﬀ in water or electric power will be revoked if the client fails to pay for two consecutive months, unless the client has formally objected to the bills. Clients or businesses that engage in criminal activity or provided false information to obtain the subsidies will lose the benefits. The measure would limit the credit for investing in R&D in clinical, toxicology, infrastructure and renewable energy. The credit for the investment will be allowed in two installments and up to 50% of the credit can be taken in the year the investment was made. The limitation will not be applicable when it is related to the costs for utilities or sewer systems of the exempted business. The legislation also seeks to eventually eliminate such credits by preventing the approval of new ones. AMENDS LAW ON CREDITS TO PRTCQUALIFIED HOTELS The legislation amends a 1985 law to authorize a credit in the utility bill to hotels qualified by the Puerto Rico Tourism Co. (PRTC). Hotels, condo-

hotels and paradores (small inns) that already have the credit, will continue to enjoy the benefit, but only for a period of 10 years. Hotels, condo-hotels and paradores that have not started operations yet will get a credit from the Puerto Rico Electric Power Authority (Prepa) in their monthly bills for 60 months, which will vary according to their kilowatt usage of electricity. Once the period ends, these businesses will pay for power at a regular price. The credit will be only for hotels and its subsidiaries such as restaurants, dancing halls, casinos and retail stores that are not bigger than 1,000 square feet. In the case of condohotels, the credit will be only for the portion of the facility used as hotel. All hotels that enjoy the subsidy will not be allowed to charge customers for power consumption. All hotels and lodges that have the subsidy will be required to submit to the Energy Public Policy Oﬃce their long-term plans for energy conservation. If the oﬃce, upon an evaluation, concludes that the hotel or lodging facility has violated its conservation plan, it can ask Prepa to repeal the subsidy. The proposed law states

that churches and other nonprofit organizations will continue to enjoy an energy subsidy, but it will be the equivalent of the residential rate. The subsidy also will be given only to the place of worship or the area used to provide social services. The water, power or sewer system subsidy will not benefit the commercial areas of the nonprofit facility or church such as schools, libraries, television stations, radio stations or antennas. Every year, these facilities must present a certificate of good standing from the Treasury Department to Prepa to maintain the subsidy. PAN, LOW-INCOME HOUSING RECIPIENTS ALSO AFFECTED Regarding the subsidies granted to Nutritional Assistance Program (PAN by its Spanish acronym) and low-income housing beneficiaries, the legislation states that the Socioeconomic Development of the Family Administration must turn over to Prepa the funds from the Low Income Home Energy Assistance Program. The bill states that Prepa must establish a fixed tariﬀ for residents in public housing projects, which will be subject to periodic revision. Clients who have altered meters, stolen utility services or who submit false information to get the benefit will not get the subsidies. Residents in public housing projects who are behind in their payments will be allowed to have a payment plan with either Prepa or the Puerto Rico Aqueduct & Sewer

PDP Sen. Ramón Luis Nieves, author of Senate Bill 1256

Authority (Prasa). The bill states that under the payment plan, the resident will have to pay at least $10 a month. The client who does not comply with the payment plan for two consecutive months will lose it and will have their utilities disconnected. “The Public Housing Authority can initiate the process to end the lease of a public housing resident who does not have the power or water service in a legal fashion, has not complied with payment plans or whose utility services have been disconnected,” the bill states. How will the subsidy

for public housing project residents be funded? The Public Housing Authority will have to transfer to Prepa and Prasa the federal money it gets from utility allowances. On the other hand, the legislation maintains the credits in the utility bills given to households that have equipment needed to sustain the life of its residents. The beneficiaries, in the case of the Prepa subsidy, cannot use more than 400 kilowatt-hours per month. The customer must submit annual reports certifying that he or she needs the life-saving equipment. 䡲

“The Public Housing Authority can initiate the process to end the lease of a public housing resident who does not have the power or water service in a legal fashion, has not complied with payment plans or whose utility services have been disconnected.” —Text of Senate Bill 1256

THURSDAY, MARCH 10, 2016

Politics Pedro Pierluisi: Ready to Govern Now BY ISMAEL TORRES i.torres@cb.pr

The resident commissioner in Washington, D.C., Pedro Pierluisi, said he is ready to govern Puerto Rico today, if necessary. “I feel more than ready physically, mentally and emotionally to take on this responsibility, and I’ll be able to boost Puerto Rico with the support of its people.” About the island that he aspires to govern, Pierluisi confessed: “I see that people are scared, worried, anxious, pessimistic, negative and upset with the political class in general. I’m seeing very negative feelings out there, and I do not blame them. It is a product of the circumstances we are going through. I am convinced this can be reversed. The first thing we must do is restore the credibility of the government of Puerto Rico before the global financial community.” In personal and professional terms, he said he has good private-sector experience as a lawyer in Washington, D.C., as well as in Puerto Rico’s public-service sector, where he has been secretary of Justice (19931996) and served almost two four-year terms as resident commissioner in the nation’s capitol (2008-2012 & 2012-2016). Had he not been active in politics or studied law, he would have been an architect because he always liked design and planning, as well as the liberal arts.

“And since I like to study, I may have also been in academia,” he said. Pierluisi believes the experience of being resident commissioner has been instrumental in his statehood proposal since he has experienced receiving unequal treatment in political and economic terms because he is unable to vote on measures aﬀecting Puerto Rico. “We would have to see how different it would be if Puerto Rico had two U.S. senators and seven members of Congress instead of a delegate who has no voice or vote,” he pointed out. Pierluisi said that politicians, such as Aníbal Acevedo Vilá after his experience as resident commissioner in Congress, have changed their attitude toward the current relationship between Puerto Rico and the U.S. He said that in former Gov. Acevedo Vilá’s case, that change of attitude led him to speak in favor of changes in the San JuanWashington political relations because he saw what it means to be in Congress without having full powers to take action. Pierluisi, 56 (he has been a lawyer for 24 years), is the son of Jorge Pierluisi, a businessman and former secretary of Housing. He believes in public service and confesses that he has a vocation of service. “I already have a lifetime that I have dedicated to serving the people and representing others, both in my work as a lawyer and when I was secretary of Justice,

and now in my position as resident commissioner. I am convinced our people will be better oﬀ with equal rights as American citizens,” he said. He believes Puerto Rico’s situation, at social and economic levels, is very precarious and believes statehood will provide Puerto Rico with a firm process to resolve its problems in such areas as education, health, housing, economic development and political development. He provides as examples states like Alaska and Hawaii— the last two to join the nation—which improved their precarious economic situations once their respective processes to become U.S. states got started. NO DOUBTS STATEHOOD WILL PREVAIL Pierluisi confesses he has no doubt that in Puerto Rico, once the incorporation process as a state formally begins, we will see the same results as in Alaska and Hawaii, and the island will begin to see better days because the U.S. will begin to treat us like peers. Therefore, for Pierluisi, the struggle for statehood goes hand-in-hand with equality. “Statehood is more than federal funds,” he said. He believes statehood is not something that happens overnight, and in this presidential primary process, he said Republicans are more open and more flexible toward the

“We would have to see how diﬀerent it would be if P.R. had two U.S. senators and seven members of Congress instead of a delegate who has no voice or vote.” —Pedro Pierluisi, resident commissioner in Washington, D.C. Puerto Rico statehood movement. Pierluisi believes that to advance statehood, you need to look for executive and legislative branches controlled by the same party, as well as a party in Puerto Rico that is willing to support statehood. He said that in 2012, Puerto Rico approved a referendum—in which statehood was the oﬃcial winner— but many believe the real winner was the Popular Democratic Party, which did not support the outcome. “That alone sent a confusing message [to Washington] and that’s how they [Congress] see it over there and take no action,” he said. In economic terms, Pierluisi believes there are federal programs, along with legislation in Puerto Rico, that would help

the island emerge from its economic stagnation, but it requires excellence in public administration, cleanliness [transparency] and tidiness in managing its finances. He also believes that intensive use of technology in the administration of public affairs is fundamental. He said that technologically speaking, the government is far behind because many of the systems in operation are disconnected from each other, which makes things even more difficult and inoperative. “My plan is to incorporate more modern and efficient technology so processes and services provided to the public are fast and efficient,” he said. GOV’T SHOULD BE A FACILITATOR He believes the government should be a

facilitator of economic activity rather than an obstacle. “Therefore, we will encourage the creation of new costeﬀective concepts, including cooperatives at farms and agribusinesses that will more adequately supply the people’s nutritional needs and encourage their export abilities,” Pierluisi said. He says he is active in politics because he likes public service and believes there is room within the U.S. political scenario toward the idea of granting statehood to Puerto Rico, even under its diﬃcult economic situation. He regards political figures like Luis Muñoz Marín and Luis A. Ferré and their qualities as leaders to emulate in public life because they left an important Continues on next page

Thursday, MARCH 10, 2016 Pierluisi believes the government should be a facilitator of economic activity rather than an obstacle

Continued from previous page

legacy and served as role models during their respective lifetimes. He believes there has been a sharp deterioration in Puerto Rican politics, but insists he can put the island back on track. “I have been getting ready and statehood is the way to make it happen. It is not something unique to Puerto Rico. Look at the level of the Republican Party’s campaign, so you can see what we are talking about, the debate is low-quality,” he said. He does not believe modifications to the current commonwealth, via

legislative bills in Congress, will help solve Puerto Rico’s problems— and independence would do so even less. Unlike other leaders of the island’s pro-statehood movement, such as Rafael Martínez Nadal, who said that if not given statehood they would opt for independence, Pierluisi argues that in his case, he would continue to fight for statehood until successful. “I don’t know when we will achieve it, but I am sure we will achieve it,” he said. He points out that Puerto Rico has to make better use of the federal and local funds it receives and, in

Politics his opinion, “There is no possible justification for not having a centralized personnel operation with a technological system that supports the entire government.” Regarding his ability to prevail as the gubernatorial candidate for the New Progressive Party (NPP) primary, and then win the race for governor, he says his candidacy has continued to progress as the June 5 primary approaches: “This is something that I have already internalized; I see it coming and it’s something I have been preparing for [over the past] several years, with God’s favor.” n

Bio Data National chairman of the Democratic Congressional Campaign Committee Alma mater: Tulane University; George Washington University Law School

Name: Pedro R. Pierluisi Urrutia Date of birth: April 26, 1959 (age 56) in Puerto Rico Political party affiliation: President of the New Progressive Party Puerto Rico co-chairman of Barack Obama Presidential Campaign;

Professional experience: Pierluisi is an attorney with 24 years of legal experience in the public and private sectors. He began his career in Washington, D.C., working for six years as a litigator with an internationally recognized law firm. Member of the 1992 Government Transitional Committee. From 1993 to 1996, Pierluisi served as attorney general of Puerto Rico. In that role, he supervised more than 500 attorneys and argued two landmark constitutional law cases before the P.R. Supreme

Court. He was active in the National Association of Attorneys General and served as chairman of its Eastern Region in 1996. After more than 10 successful years in private law practice, Pierluisi decided to return to public service, running for the position of resident commissioner. Congressman Pierluisi has been Puerto Rico’s sole member of Congress, known as the resident commissioner, since January 2009. He represents 3.5 million U.S. citizens, the most of any member of the U.S. House of Representatives, serving in the current 114th Congress (2015-2016). He is a member of two committees: The U.S. House Judiciary and Natural Resources committees.

THURSDAY, MARCH 10, 2016

Politics

Florida senator still trailing far behind Trump and Cruz

Rubio Easily Wins Puerto Rico Republican Primary BY PHILIPE SCHOENE ROURA & ISMAEL TORRES p.schoene@cb.pr; i.torres@cb.pr

Sen. Marco Rubio’s decisive victory in the GOP Puerto Rico primary, with a record 71.02% of the 38,699 votes cast, gave a slight boost to the fledgling presidential hopeful’s campaign leading up to the March 15 primary in his home state of Florida that looms large as a crucial contest for his candidacy. Local Republican Party oﬃcials said despite the low voter turnout, they

“We have accomplished inserting ourselves in the national Republican Party’s agenda, and there is real commitment with the candidates about the issue of statehood and other Puerto Rican issues, mainly with the handling of the public debt,” said Puerto Rico Republican Chairwoman Jenniﬀer González after the results were announced. Meanwhile, National Republican Committeeman ex-Gov. Luis Fortuño and local Republican Committeewoman Zoraida Fonalledas stressed

Puerto Ricans. She also said that with these results, Rubio should get better numbers in the upcoming primaries, such as Florida’s, where Trump is ahead in the polls. “With these results, I can see the triumph of statehood,” she commented. Despite having won only one other primary in Minnesota, many superdelegates consider Rubio the candidate who would fare best in a general election against Democratic frontrunner Hillary Clinton. With 23 delegates, Puerto

Luis Fortuño, former P.R. governor, who was an aggressive campaigner for the GOP in the 2004, 2008 and 2012 elections stateside, sees the possibility of a brokered Republican National Convention in the fight for the party’s presidential candidacy.

had achieved their principal goals, which included an expectation of 25,000 to 30,000 votes cast, inserting Puerto Rico issues in the national Republican agenda and boosting the Rubio candidacy in preparation for the Florida primary, where 99 delegates are at stake.

that the results of this primary will encourage more Puerto Ricans living in the States to participate in those primaries. Fonalledas stressed that this victory was important because it better positions Rubio for the Florida primary, where there are one million

Rico has more delegates for the GOP national convention than nine states and as many as two others. Rubio will collect all 23 delegates, but is still far behind rivals Ted Cruz and especially Donald Trump for the Republican National Convention in Cleveland on July 18-21.

Sen. Marco Rubio (center), a Republican candidate for U.S. president, along with P.R. Rep. Jenniﬀer González (left), NPP minority leader & chairwoman of the Puerto Rico Republican Party, and former Gov. Luis Fortuño.

TRUMP ‘A LOSING PROPOSITION IN THE END’ “We should have a message that is of optimism; that we are an exceptional nation,” said Fortuño during an exclusive interview with Caribbean Business. “We can accomplish many things regardless of ethnic background, race, religion or what have you. And that is not the message coming from the Trump camp. It is concern first, because I don’t feel it is positive for the country. And secondly, because as a Republican, it is a losing proposition in the end.” Fortuño, who was an aggressive campaigner for the GOP in the 2004, 2008 and 2012 elections stateside, sees the possibility of a brokered Republican National Convention in the fight for the party’s presidential candidate. “If, between now and March 15, the diﬀerent candidates who are still in the race win a few of those states including Ohio and

Florida—the answer is ‘yes.’ If, for some reason, there is one candidate who sweeps everything, including Ohio and Florida, the answer is ‘no,’” he said. As of Monday, the overall race for delegates was Trump with 384, Cruz with 300, Rubio with 151, including 23 from Puerto Rico, and Kasich with 37. It takes 1,237 delegates to win the Republican nomination for president. All counted, Trump got 13.05% of the votes in Puerto Rico, Cruz collected 8.63% and in a distant fourth place came John Kasich with 1.33%. The votes that some 6,000 inmates in Puerto Rico cast on Friday reportedly will not be available until Wednesday. González said the overwhelming trend in favor of Rubio had been evident locally. She also stressed that the results help Puerto Rico in asking for the candidates’ support for statehood. “This has the eﬀect of putting Puerto Rico’s aﬀairs

in the national agenda and that’s important,” González said. Fonalledas also said she was pleased with the participation of 38,699 voters, which paled in comparison to the estimated 126,000 who voted in the 2012 primary because this one only had 110 polling stations, compared with the 3,226 schools used back in 2012. Other local Republicans also stressed the importance of the island’s primary. “This is an important event because [presidential] hopefuls express their commitments to Puerto Rico,” New Progressive Party Sen. Thomas Rivera Schatz said after voting at the Medardo Carazo School in Trujillo Alto. “This is a great victory,” José Fuentes Agostini, Rubio’s campaign president in Puerto Rico, told the Associated Press. “It is here in Puerto Rico that we are going to change the course of this presidential election for the entire nation.” 䡲

THURSDAY, MARCH 10, 2016

Tourism

Casino Metro gets creative and thrives despite challenges

San Juan-Based Casino Bucks the Trend Amid Collapsing Sector Casino Metro in Sheraton Hotel Brings New Machines, Diversiﬁes Entertainment Options BY DENNIS COSTA d.costa@cb.pr

To say that Puerto Rico casinos have had a rough time in recent years would be putting it mildly. The ongoing economic crisis on the island, coupled with challenges unique to casinos such as the proliferation of noncasino gaming machines, has clearly hobbled the sector. Several casinos have closed their doors permanently in recent years, including those at the Old San Juan Sheraton, Dorado Embassy Suites, Radisson Ambassador Plaza Hotel and Condado Plaza Hilton; and that’s just scratching the surface. It was under such dire circumstances industrywide that Miguel Vega, who had worked for nearly 20 years as CFO at the Radisson Ambassador, was appointed casino manager of the Sheraton Convention Center Hotel two years ago. “Times called for not only thinking outside the box, but also destroying the box completely,” he told Caribbean Business. Today, Casino Metro at the Sheraton is one of the few bright spots in an embattled casino segment, boasting a healthy patronage of gamers as well as a revolving schedule of special entertainment events and games

that are exclusive to the venue. During a time in which most casinos have scaled back their expenditures or have closed altogether due to razorthin profit margins, Casino Metro has brought in newer gaming machines and, more importantly, increased its workforce

actually spurred interest in the actual roulette game at the casino,” said Vega, who credited the Puerto Rico Tourism Co. (PRTC) for helping bring the game to the island. “Through it, a lot of clients have worked up the nerve to go to the real thing.”

that are linked in a network that spans several casinos, in this case 13 of the 19 casinos that are left on the island. The gaming machines, which were installed last December, sport graphics and themes inspired by Puerto Rico landmarks, and start with a jackpot of $20,000. “One aspect that has attracted many gamers is that the jackpot must go to a winner before it hits $30,000,” Vega explained. “Since they were installed, the jackpot has already been awarded five times. People also like that the minimum bet required to participate

Casino Metro Manager Ismael Vega

by about 25%, currently employing around 140 people, Vega said. Among the most recent games to make their way to the Casino Metro floor is an electronic roulette table, the first of its kind on the island. “Contrary to what some may think, electronic roulette has

Another game that was installed in close partnership with the PRTC is the so-called “Jackpot del Encanto,” a play on Puerto Rico’s nickname, “the Island of Enchantment.” The game, described as a multisite progressive jackpot, consists of 84 gaming slot machines

in the jackpot is only 36 cents.” This is not the first time a multisite progressive jackpot has been implemented on the island. In December 2014, a similar network of gaming machines was installed featuring themes inspired by superheroes Batman

and Superman. However, while the jackpot in those machines was much larger than that of the Jackpot del Encanto, it was only set to be awarded once a year. In addition, minimum bets were $2.50, which did not sit well with most local gamers. The games were quietly retired late in 2015, and the PRTC’s contract with the machines’ supplier, Aristocrat Leisure Ltd., was not renewed. When it comes to “the pit,” meaning the tables in which games such as blackjack and poker are played, the Casino Metro expanded the area and installed a “high-limit” area for larger bets, in a bid to attract high-rollers. “We’ve expanded hours at the pit because of that, particularly on the

weekends, and likewise we’ve expanded hours at the casino itself, operating 24 hours Thursday to Saturday,” said Vega, who is a former chairman of the Puerto Rico Hotel & Tourism Association. Alongside the new gaming options, the casino has diversified its live entertainment component, recently featuring acts such El Gran Combo and coming up with comedy stand-up and trova (a traditional Puerto Rican folk song) competitions. “We have also been very aggressive on the promotional side, having collaborated with taxi operators to have Casino Metro’s name wrapped on 13 taxi cabs operating in the Old San Juan and Condado areas [of San Juan],” he said. 䡲

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SPECIAL FEATURE MARCH 10, 2016 PAGES 37-43

S P E C I A L

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AUTO INDUSTRY BY JOSÉ L. CARMONA

Having experienced a rollercoaster ride—from a record high of 144,400 new units sold in 2005 to a record low of just 76,477 new units moved in 2009—followed by four-consecutive years of positive sales between 2010 and 2013, the Puerto Rico auto industry is once again suﬀering the eﬀects of a decade-long economic downturn, but still remains a vital component of Puerto Rico’s economy. New-auto sales in 2014 amounted to 88,200 units, down 12.29% from the 100,559 new vehicles moved by local distributors in 2013. Last year, some 81,357 new units were sold, down 7.8%—marking the thirdstraight year of negative sales. In January, new-auto sales fell a whopping 12.1%, the worst January ever on record for the local auto industry. BIG CONTRIBUTOR Based on the 2016 Caribbean Business Book of Lists, the top 10 automobile companies in the

Top 400 produced $1.27 billion in revenue during fiscal year 2015. The automobile sector accounted for 6.62% of the total revenue of companies on the Top 400 list. The 25 automobile companies in the Top 400 produced $1.65 billion in revenue in 2014. According to the United Automobile Importers Group (GUIA by its Spanish acronym), some 32,000 people work directly or indirectly in the local auto industry. In addition, the auto industry collected nearly $300 million in excise taxes and another $2.3 million in vehicle-license fees for the government in fiscal 2015, which ended June 30, 2015. The industry’s contributions also include millions of dollars in sales & use tax related to parts & service, plus municipal franchise fees collected by the municipalities from auto dealers, in addition to the millions these busineses pay in real property taxes. Nevertheless, the automotive industry is considered one of the island’s most taxed sectors. Between 13% and 40% in excise

THURSDAY, MARCH 10, 2016

Despite Slump, Automotive Industry Remains a Vital Part of Puerto Rico’s Economy Industry Players Concerned About Negative Sales Trends taxes—20% on average—are paid on new vehicles entering Puerto Rico. WORRISOME SALES TREND For GUIA President Ricardo García, the worrisome negativesales trend experienced by the industry during the first month of 2016 is worse than the sales slump experienced by the industry during all of 2015. “The situation is grave. Until now, we had not experienced a January as bad as this one. It represents the 24th month out of the past 26 months that we have experienced a sales contraction versus the same month the year prior,” García commented. For 2016, he said GUIA is still forecasting the sale of 77,000 new-auto units for 2016, a number similar to the industry’s worst year on record, set in 2009. “The 2016 forecast was calculated based on a drop in sales of 7.8% against 2015. Now we have had the worst month of January on record,” García added.

UNCERTAINTY IMPACTING MARKET In his view, the shift from the 11.5% sales & use tax (IVU by its Spanish acronym) to an 11.5% value-added tax (VAT) slated for April 1, will be a complete change to what consumers and merchants have been used to, which will create more uncertainty. Although the VAT does not impact vehicles (these are levied through an excise tax that varies depending on sale price), consumers are postponing the purchase of new vehicles and considering a more economical model or a used one instead. “When there’s uncertainty in the market, there’s no trust in what is being done, as the rules of the game are not yet clear, and that’s going to aﬀect the performance of any industry,” the GUIA president asserted. “There’s a shakeup in consumer confidence.” The central government’s fiscal situation has aﬀected consumers’ pockets, and as a result, they are now more cautious about their

spending. A direct eﬀect of that has been an increase in the sale of preowned, or used, vehicles on the island in recent years. “Certainly, the sale of used vehicles has increased. In addition, consumers have moved to entry-level B- and C-segment vehicles, which are less costly, but provide thinner profit margins to dealers. The lower the profit margins, the less money dealers have to reinvest,” García said. Population loss through migration has also compounded the situation, as there are fewer viable autobuyers in the local market, he noted, adding there’s concern that with the number of dealers operating on the island, they could begin to cannibalize each other for fewer sales leads.䡲

SOME 32,000 PEOPLE WORK DIRECTLY OR INDIRECTLY IN THE PUERTO RICO AUTO INDUSTRY

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AUTO INDUSTRY

Universal Insurance Provides Peace of Mind to Car Owners BY MARIO BELAVAL DÍAZ

There is no question that in Puerto Rico a car is a necessity. From getting to work and taking the kids to school, to running everyday errands or just taking a nice drive around the island, a car provides people the mobility and flexibility to literally reach wherever they want or need to be. In other words, a car allows people to go on the road of life. However, one essential, if not the most essential, aspect of owning a car is insurance. While it is true that no one wants to think they could be in an accident or that their car will be stolen, as long as there is the possibility, having one’s car insured is the responsible thing to do. Far from an expense, car insurance could be considered an investment in peace of mind and safety. With more than 20 years’ experience in the market, Universal Insurance Co. has the knowledge, experience and dedicated team of professionals who have made it a leader in the industry, and allowed the company to provide the most relevant and innovative services and products to clients. Universal Insurance has a unique approach when it comes to the auto insurance-related services it provides, which is based on getting the client back on the road as eﬃciently and quickly as possible.

“An affordable policy is only as good as the speed with which it gets a driver back on the road,” said Monique Miranda, president of Universal Insurance. “That fact and the diverse product offerings and financial stability our company offers are essential in our growth and ability to develop services and products that fit every clients’ specific needs.” Founded in 1992, and with headquarters at the Universal Building in Metro Office Park in Guaynabo, the company has Customer Service Centers located in Bayamón, Caguas, Canóvanas, Hatillo, Hato Rey, Mayagüez and Ponce. Universal Insurance’s commitment to the automotive industry, its knowledge obtained through experience over the past 20 years and its staff’s commitment are some of the reasons Universal Insurance is a strong leader in the industry, with a sizeable share of the island’s automotive market. “Since the beginning, we have been committed to offering great customer service, and our Customer Service Centers around the island have been pioneers in bringing our services closer to our clients, in modern facilities equipped with the necessary resources to resolve clients’ claims,” Miranda said. The company, she added, has the biggest and most efficient Claims Division that provides personalized service to every

“An aﬀordable policy is only as good as the speed with which it gets a driver back on the road.” —Monique Miranda, president of Universal Insurance

client by phone, web or at the client’s home or oﬃce. In fact, the company is a pioneer in the live, 24/7 customer service with representatives who can be reached in a chat on the website or by calling 787641-7171 (San Juan-metro area) or 1-877-641-7171. Thus, this provides clients independence and convenience by being able to file claims at any time, any day through Universal’s Mobile Application, website, by phone or by visiting any Customer Service Center conveniently located throughout the island. Reiterating its role as a pioneer in the industry, Universal

scores another first in the market with its Universal Special Services Unit (USSU), which has become an instant success with clients and agents. The USSU monitors every transaction and visit to Customer Service Centers to ensure a high level of quality geared to exceed clients’ expectations of their relationship with their insurance claim. “This latest service is right in tune with our mission and commitment to develop and provide quality and innovative insurance products and services that anticipate the market’s needs at a fair price,” Miranda

said. “We are constantly adapting to technological evolutions and anticipating what can be helpful to return clients back to normal in the shortest time possible.” Universal’s reach extends beyond Puerto Rico’s shores with operations that provide services and products to individuals and small businesses in 17 states across the U.S., including Arizona, California, Connecticut, Delaware, Florida, Hawaii, Maryland, Nevada, New Jersey, New York, Oregon, Pennsylvania, North Carolina, South Carolina, Texas and Virginia and Washington.䡲

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Centros de Servicio Universal GUAYNABO: Metro Office Park Calle 1 Lote 10 Guaynabo, P.R. Tel. (787) 793-7202

CANÓVANAS: Carr #3 Km 16.8 Canóvanas, P.R. Tel. (787) 706-7338

HATO REY: Calle Mejico #16 Hato Rey, P.R. Tel. (787) 792-7202

HATILLO: Marginal Carr #2 Barrio Carrizales Hatillo, P.R. Tel. (787) 544-1100

BAYAMÓN: Reparto Industrial Correa Carr #2 Marginal, Lote 1 Bayamón, P.R. Tel. (787) 706-7332

PONCE: Carr #2 Ponce By-Pass Ponce, P.R. (Al lado de El Mesón) Tel. (787) 651-4200

AUTO INDUSTRY

Type of business: Insurance Name of company: Universal Insurance Co. Top executive: Monique Miranda, President

CAGUAS: Carr 156 Km 56.6 Barrio Cañabón Caguas, P.R. Tel. (787) 653-5333

MAYAGÜEZ: Carr #2 Calle Santa Lucia Marginal Barrio Sábalos Mayagüez, P.R. Tel. (787) 831-1668

Year founded: 1992 Headquarters: Guaynabo Number of employees: 565 in Puerto Rico; 194 in continental U.S. Company website: www.miuniversalpr.com

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AUTO INDUSTRY

Point Guard Makes Compulsory Auto Insurance Convenient and Affordable BY B.G. DOYLE

Given that compulsory autoliability insurance is a legal requirement in Puerto Rico, vehicle owners want solid coverage and service at an affordable price. When Point Guard Insurance Co. was established in 2011, it not only became the first local specialized insurance company exclusively dedicated to compulsory auto-liability insurance, but it also took this insurance niche to a whole new level. “For the first time, a compulsory auto-insurance client doesn’t have to visit an adjustment center in the case of an accident,” said José Medina, president of Point Guard Insurance Co. “Now, they can receive a visit at their home or workplace, and this is just one of the many features that vehicle owners will be pleased to find when they choose us.” Having become part of the Universal group of companies in Puerto Rico in 2015, Point Guard Insurance has been able to enhance its offerings by personalizing its claims procedures to fulfill client needs. This includes innovations such as 24/7 availability, prompt claims payment and scheduled visits to an insured’s office or home during office hours. Currently, the company has

more than 20 customer-service centers conveniently located around the island, including metro office at the Buchanan Office Center in Guaynabo, as well as locations in Carolina, Caguas, Humacao, Ponce, Aguada, Morovis, Arecibo, Moca and Yauco. Universal Group’s eight centers also serve Point Guard customers, with locations in Bayamón, Caguas, Guaynabo (at Metro Office Park), Canóvanas, Hatillo, Hato Rey, Mayagüez and Ponce. Offering a number of options and features, Medina explained that in addition to the standard Point Guard policy, which only pays for damage to the other vehicle if the insured caused the accident, Point Guard Premier complements this insurance offering with an endorsement that also covers damage to the policyholder’s vehicle. “For an additional $89 a year, policyholders can receive coverage of up to $4,000 in damage to their own vehicle (if they caused the accident), with a reduced deductible of $200 per occurrence,” he said, adding that this additional coverage can be purchased up to 30 days after one’s vehicle registration, or marbete, is renewed. Given the constant evolution of the insurance market, with insurance companies

continuously looking for better ways to serve their customers, Point Guard has leveraged its ties with Universal Group to provide a number of innovative services and features. For example, policyholders can download special apps into their Android devices or iPhones to snap a photo of the accident

sent right away. Users can also check the status of their claims just by entering their plate number or directly contact a service representative and get directions to the nearest service center through these devices. For those who do not have one of these mobile devices, Point Guard’s Virtual Service Center

Point Guard’s mobile service units also take some of the stress out of an accident, in that policyholders do not necessarily have to go to an adjustment center following an accident. Instead, they can coordinate for a representative go to their homes or oﬃces and individually interview those involved in

“For the first time, a compulsory auto-insurance client doesn’t have to visit an adjustment center in the case of an accident.” —José Medina, president of Point Guard Insurance Co.

damage and send it directly to Point Guard’s claims people. If a driver needs roadside assistance after an accident, the device’s GPS feature can notify Point Guard of the vehicle’s exact location, so that a tow truck or other form of help can be

at www.yoquieropointguard. com allows policyholders to obtain information, file a claim or access the status of a claim already filed. Additional information and vehicle safety tips are available on Point Guard’s Facebook page as well.

the accident. “The convenience and security of these services, means you can have guaranteed access and assistance at any time and from anywhere, and all at a very reasonable price,” Medina noted. 䡲

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Centros de Servicio Point Guard METRO: Buchannan Oﬃce Center – Suite 110 Road 165 No. 40 Guaynabo, P.R. (Frente a El Nuevo Día) Tel. (787) 523-3300

AGUADA: Carr. 417 KM 2.9 Aguada, P.R. (Luego del Centro de Inspección Ramos) Tel. (787) 589-0280

CAROLINA: Carolina Food Court C arr. #3 KM. 10.5 Lote 3 Ave. 65 de Infantería Carolina, PR (Frente a Carolina Shopping Court) Tel. (787) 523-5566

MOROVIS: Rolón Services Station Carr. #155 K.M 48.8 BO. Buena Vista Morovis, P.R. Tel. (787) 369-0204

CAGUAS: Carr. #1 KM 33.7 Local 4 Caguas, P.R. (Detrás de la Casa de los Tornillos) Tel. (787) 653-8616 HUMACAO: Carr. #908 KM 0.9 Edif. Oriental Center Humacao, P.R. Tel. (787) 523-0436 primer piso PONCE: Edificio Centro Caribe # 2053 Oficina 207 Ponce, P.R. (Frente a Plaza del Caribe) Tel. (787) 651-8100

ARECIBO: Galería del Norte 2 Carr. #2 K.M 81.6 Hatillo, P.R. Tel. (787) 544-0563 MOCA: Bo. Capa, Sector Bosques de Moca Carr. #111 Km. 12.6 Moca P.R. Tel. (787) 551-0226 YAUCO: Yauco Gallery Bo. Susua Baja Carr. #128 Km. 2.2 Suite 108 (Al lado del Cuartel de la Policía) Tel: (787) 992-0000

AUTO INDUSTRY

Oﬃcial name of the business as incorporated: Point Guard Insurance Co. Type of Business/Primary Business Description: Compulsory auto-liability insurance provider Executive Director/President/CEO: José Medina, President Headquarters: Guaynabo Year the company was founded: 2011 Number of employees: 164 Company Website: www.yoquieropointguard.com

PHARMACEUTICAL & CONTRACT MANUFACTURING Special Feature March 10, 2016 Pages 45-50

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Thursday, march 10, 2016

New Developments in CMOs BY LUIS VALLDEJULI

Contract Manufacturing Organizations (CMOs) serve the pharmaceutical industry and provide clients with comprehensive services from drug development through manufacture. Services offered by CMOs include, but are not limited to: pre-formulation, formulation development, stability studies, method development, preclinical and Phase I clinical trial materials, late-stage clinical trial materials, formal stability, scale-up, registration batches and commercial production. Outsourcing to a CMO allows the pharmaceutical client to expand its technical resources without increased overhead. The client can then manage its internal resources and costs by focusing on core competencies and high-value projects while reducing or not adding infrastructure or technical staff. Virtual and specialty pharmaceutical companies are particularly wellsuited to Contract Development & Manufacturing Organization (CDMO) partnerships, and big pharmaceutical companies are beginning to view relationships with CDMOs as strategic rather than tactical.

Working with a CMO also limits a clientâ&#x20AC;&#x2122;s upfront capital investment for drug development, thus minimizing a projectâ&#x20AC;&#x2122;s cost. By concentrating resources with a single-source provider, the outsourcing client can minimize technical transfers of projects or products, thereby reducing unforeseen costs and potentially speeding new products to market. Strategic Allegiance Between CMO and Pharma Next-generation drugs will require agile manufacturing processes and packaging solutions. The companies will focus on pharmaceutical manufacturing and packaging technologies, specifically in four key areas: testing new pre-sterilized container and nested closure systems for parenteral medicines; ensuring component compatibility between different members, as well as driving industry awareness of those solutions and educating the industry on new medicine packaging solutions. Ultimately, agile filling solutions make it easier for a CMO to bring on a new project. With a predefined container system, pharmaceutical companies can

greatly reduce the amount of time it takes to get a new product to market. New Developments in the Market A recent report by Visiongain predicts that the overall revenue for the vaccine contractmanufacturing market will reach $1.047.3 billion in 2019 (the market generated revenues of $712.5 million in 2014), according to Outsourcing-Pharma.com. As the population ages and the demand for therapeutic vaccines grows, this positive growth in revenues will continue through 2026.

Opportunities for growth At present, pharmaceuticals engage CMOs through tactical outsourcing and by outsourcing to preferred providers at similar rates. However, change is expected within the next three years as more biologic manufacturing projects will be outsourced to preferred providers and fewer projects will be outsourced on a tactical basis. As outsourcing demands shift, a pharmaceutical companyâ&#x20AC;&#x2122;s needs and outsourcing methods will vary based on the type of project outsourced: small molecule, biologic or fill finish.

While these companies may now use CMOs for small moleculemanufacturing services, they are at the same time looking to increase their internally manufactured supply. The future of CMOs is clearly steered toward creating an even closer bond with pharmaceutical companies. The shift from secondary manufacturing to internal drug-product manufacturing is a sign that the allegiance will require a closer familiarity between the two, and the two must evolve hand-inhand through development and productivity to meet the shifts in the new markets. n

THURSDAY, MARCH 10, 2016

Servimetal Keeps Pharma Clients in the Flow BY MARIO BELAVAL DÍAZ

When pharmaceutical companies in Puerto Rico want to reach a perfect state of flow, they go to Servimetal, the Caribbean’s largest processor, distributor and manufacturer of flat-metal, roll-forming and flow-control products. Servimetal’s flow control division features a wide array of products that fit the needs and requirements of clients in the pharma sector, which include pipes, tubes, fittings, pumps, valves, filters, meters and heat exchangers, and an inventory with the most extensive stainless-steel product line in Puerto Rico, among other products. Besides the pharma industry, Servimetal’s flow-control division serves clients of all sizes in the food & beverage, oil & gas and water-related industries. “Our experience, combined with topof-the-line products, have allowed for the success of our flow-control division, which in turn means adding value to our clients’ operations in the pharma industry,” said Emilio M. Ortiz, president & CEO of Servimetal. The flow-control division is one of the company’s three main operational units, along with flat-roll and roll-forming divisions. Together, the three divisions allow Servimetal to also provide clients such services as flat-rolled products to original equipment manufacturers (OEMs) and roll-forming products to the construction industry. Servimetal operates a 120,000-squarefoot, state-of-the-art plant and has an impressive roster of clients that includes construction companies, warehouses, multinational original-equipment manufacturers, pharmaceutical plants, sheet-metal fabricators, steel-building erectors, fabricators and food, beverage & spirits distributors. Servimetal’s roll-forming division is renowned for Galvalume-based panels, which are rustproof and durable, and allow air to circulate throughout the structure while protecting from heat and preventing water leakage. The panels are

ideal for producing types E and R color siding and roofing panels. Servimetal also oﬀers galvanized structural type-B decking panels, together with types C and Z galvanized structural purlins (beams), which are ideally suited for use as beam members for lightweight roofs or floors. The company also carries its own Zimcor line of commercial, industrial and residential panels. The roll-forming division can also manufacture related accessories and miscellaneous components such as custom-built trims, aluminum front and side fascia, flashing and color screw accessories, ridge caps, panel sealers, types E and R inner closure strips, rake and corner trims, gutters, aluminum hinges and double-sided caulking tape. Meanwhile, Servimetal’s flat-rolled division sells hot-rolled, pickled & oiled, cold-rolled, galvanized steel, galvannealed (process of galvanizing and annealing to produce specialized sheets of steel), stainless steel, aluminum coils, strips, sheets and blanks, as well as such services as slitting, cut to length and blanking. The company has a fleet of tractortrailers as well as heavy-duty and lightcargo trucks, all of which allow Servimetal to oﬀer just-in-time deliveries around the clock to multinational conglomerates and smaller local enterprises. According to the 2015 Caribbean Business Book of Lists, Servimetal is among Puerto Rico’s top-400 locally owned companies, largest construction-material suppliers and top local manufacturers. Servimetal is a member of the Metal Service Center Institute, International Society of Pharmaceutical Engineering, P.R. Chamber of Commerce as well as the P.R. Manufacturers; Fabricators & Manufacturers; and Mechanical Contractors associations. As a wholly owned Puerto Rican company, Servimetal is sponsored by the P.R. Industrial Development Co. and is a certified member of the National Minority Suppliers Development Council.䡲

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Where Quality & Service are our standards!

FLAT ROLL DIVISION • Hot Rolled Sheets - Dry, Pickled & Oiled • Cold Rolled Sheets & Coils – All tempers • Galvanized G90 Structural & Forming Steel Sheets & Coils • Galvannealed & Galvalume Sheets & Coils • Pre-painted Galvalume & Aluminium Sheets & Coils • Stainless Steel Sheets & Coils

ROLL FORMING DIVISION • Roofing & Siding – Types E and R In 24 & 26 Ga. in variety of • Metal Decking – Type B in 22, 20 & 18 Ga. • Galvanized C & Z Purlins – from 4” to 12” in 16, 14 & 12 Ga. with and without punches • Custom Built Trims & Flashings • Screws & Accessories

FLOW CONTROL DIVISION • Heat Exchangers, Meters & Strainers • Sanitary Hoses (assembled in our Crimp Shop) • Sanitary Diaphragm Valves • Sanitary Fittings & Gaskets • PVC & CPVC Pipes & Fittings • Industrial Valves & Actuators • Valves for Instrumentation • Stainless Steel -Angles, Channels & Flat bars -Square, Round & Hexagonal bars -Pipes Schedule 10 & 40 -Fittings, Flanges & Elbows -Ornamental Tubing -Tanks & Pumps

www.servimetal.com PO BOX 9147 Caguas, P.R. 00726-9147 • V: 787-747-7766 • F. 787-747-9611

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THURSDAY, MARCH 10, 2016

Empire Gas Fuels Pharma With Clean, Safe and Cost-Effective LPG BY MARIO BELAVAL DÍAZ

Few companies in Puerto Rico can claim to fuel change and progress, but Empire Gas does both. As the largest liquefied propane gas (LPG) wholesaler in Puerto Rico, Empire Gas provides solutions that are clean, safe and cost-effective to all main segments of the local economy, including pharmaceuticals. In fact, this sector is probably the most significant component of Empire Gas’ impressive roster of industrial clients, which includes the major players in the local pharma industry. “Even in the pharma segment, each client is different, but we seek to offer solutions that fit their needs, with the best quality, least maintenance and less cost, that not only help our clients run efficient operations, but also help keep them in Puerto Rico,” said Ramón González Simounet, vice president of Empire Gas. “Besides having helped convert client operations to LPG, and providing them with the fuel and related services, we have also worked with companies that have set up shop on the island, so we not only want to help keep

those companies in Puerto Rico, but also help attract more companies to the island.” Since 2005, Empire’s experienced engineers and technicians have helped many local companies in the pharmaceutical and manufacturing sectors convert their operations to LPG. Previously, these companies may have fueled their operations with die-

the company’s operational and maintenance costs. “Not only are our LPG solutions clean and safe, but they also require less maintenance while extending the life of their equipment, thus representing economic advantages to clients,” said González Simounet, who added that using LPG to fuel their operations also helps clients in

“Not only are our LPG solutions clean and safe, but they also require less maintenance while extending the life of their equipment, thus representing economic advantages to clients.” —González Simounet vice president of Empire Gas.

sel and what is known as bunker fuel, as well as the gas produced by processing the waste from their own operations. All these fuels were far from friendly to the environment, let alone to

their compliance with requisites and regulations of the federal Environmental Protection Agency and the local Environmental Quality Board. The company works with

From left, Ramón González Cordero, President, Ramón González Simounet,Vice-president

supplying the LPG needs of major pharmaceutical operations in Puerto Rico such as Pfizer, Bristol-Myers, Lilly and Amgen. Among companies that Empire Gas has helped set up operations in Puerto Rico are Blue Caribe in Dorado and Neopharma in Caguas, and currently is working with another company in Barceloneta. When it comes to working with pharmaceutical companies that are setting up on the island, González Simounet said Empire Gas conducts an assessment, at no initial cost to the client, and then proceeds to develop solutions that cater to the needs and requirements of that operation. “We put at their disposal close to 50 years of being pioneers

Want to be more efficient, resilient and competitive in the pharmaceutical processes? Switch to propane it’s the answer! From commercial and industrial applications to cleaner fuel conversion systems, Empire Gas has the best energy efficiency solution for your business! Call us today and let us provide a free energy efficiency assessment for your company. Empire Gas... contributing to an efficient pharmaceutical industry.

Phone: 787-751-5725 /787-786-1230 Fax: 787-282-0437 Email: empire@prtc.net www.empiregaspr.com

and innovators in the market,” González Simounet said. “The latest technology and equipment, and our experienced and knowledgeable personnel, as well as the best resources in terms of the contractors and service providers, we work with.” And when it comes LPG, Empire Gas literally has tons of it. The company has a 24,000-metric-ton-capacity terminal in Peñuelas, the largest in Puerto Rico and the Caribbean; a 6,000-metric-ton terminal in Guayanilla; and a 5,000-metric-ton facility in San Juan; as well as more than 50 bottling plants with storage capacity of more than 30,000 gallons each. 䡲

Thursday, march 10, 2016

As Ranked by

PUERTO RICO’S LARGEST VALIDATION & REGULATORY COMPLIANCE SERVICES COMPANIES (Listed According to 2015 Revenue from Validation & Regulatory Compliance Services in P.R.) Current/ Previous Ranking

Company Name Telephone/Fax Internet Address

Physical Address

2015 Revenue $ from Validation & Regulatory Compliance in P.R.

No. of Full-Time Employees

1/1

Mentor Technical Group Corp. (787) 743-0897 / (787) 743-0979 www.mentortg.com

2/2

Main Services Offered

Year Established in P.R.

Top Executive Title

Caguas Real 100 Alhambra Granada Blvd. Caguas 00726

32,500,000

554

Validation, regulatory compliance, calibration, project & construction management, mechanical services, instrumentation

2000

José Casellas President

Pharma-Bio Serv P.R. Inc. (787) 278-2709 / (787) 796-5139 www.pharmabioserv.com

Dorado Ind. Park 1st St., Lot 14 Dorado 00646

17,500,000*

290

Validation, regulatory compliance, software development, laboratory

1993

Elizabeth Plaza Chairwoman

3/3

Validation & Engineering Group Inc. (787) 622-0996 / (787) 622-0999 www.veg-group.com

Centro Intl. de Mercadeo 100 Rd. 165, Tower 1, Suite 703 Guaynabo 00968

12,900,000

139

Validation, regulatory compliance, equipment rental

1997

Ronald Pacheco Operations Director

4/4

Paciv Inc. (787) 721-5290 / (787) 721-5938 www.paciv.com

807 Fernández Juncos Ave. Hato Rey 00917

9,350,200

112

Validation, software development, industrial control systems integration, automation & instrumentation, regulatory compliance

1997

Jorge L. Rodríguez CEO/President

5/5

RCM Technologies Inc. (787) 725-9009 / (787) 725-9008 www.rcmt.com

Metro Office Park, Suite 320 14 Parkside Plaza Bldg., 2nd St. Guaynabo 00968

7,200,000

Validation, regulatory compliance, IT, engineering, software development

2004

Carlos Costas General Manager

6/7

JC Automation Corp. (787) 716-4872 / (787) 716-4871 www.jcapr.com

Los Maestros Urb. C-27 D St. Humacao 00791

3,800,000

Validation, regulatory compliance, automation, IT management, software development

1997

Juan M. Sénquiz General Manager

7/8

I ntegrated Services for Productivity & Validation Inc. (787) 789-4778 / (787) 789-4778 www.is-pv.com

Muñoz Rivera Urb. 3A Acuarela St., Suite C Guaynabo 00969

3,159,000

Validation, regulatory compliance, project management, operations management & productivity consulting, calibration

2007

Andrés A. Soto Partner

8/6

Alpharma Integrated Solutions Corp. (787) 903-2993 / (787) 855-6259 www.alpharmapr.com

Bo. Algarrobo 4 Rd. 687, Km. 0.7 Vega Baja 00693

3,000,000

Validation, regulatory compliance, engineering & technical solutions

2008

Sara P. Odeh Torres CEO

8/13

C omputer Integration of Quality Assurance Inc. (787) 892-0516 / (787) 892-0516 www.ciqa.net

Bo. Lavadero Hwy. 2, Km. 166.3 Hormigueros 00660

3,000,000

125

Validation, software development

1996

Ramón Cayuela President

8/9

GVS Inc. (787) 886-3863 / www.globalvalidationpr.com

Camarero Racetrack Hwy. 3, Km. 15.3 Canóvanas 00729

3,000,000

Validation, regulatory compliance, software development, engineering

2010

Pedro Avilés Nieves President

11/11

Escalate Sciences (787) 930-6535 / (787) 930-8880 www.escalatesciences.com

Sabanera Dorado Urb. 370 Camino de las Pomarosas Dorado 00646

2,700,000

Validation, regulatory compliance, research & development, statistical process evaluation, quality risk management

2010

Edgar Torres President

12/-

EB Validation Services (787) 745-0318 / (787) 745-0028 www.ebralser.com

107 Ingeprom Bldg. Rd.189, Km. 2.1 Caguas 00725

2,600,000

Validation & regulatory compliance

2002

Edgardo Bonilla Company Officer Continues on page 50

Celebrating 15 years of being the leading services provider to the life science industry in Puerto Rico. Recognized in 2015 as CORPORATE PLUS® by the National Minority Supplier Development Council (NMSDC). Validation and Compliance: C&Q for Facilities / Utilities / Systems, CSV, Cleaning, Process, Packaging, Regulatory Compliance, Project Management

Calibration and Metrology: Metrology Laboratory ISO 9001-2008 and ISO 17025 certified, Resident / On Demand Services, Standards Management, Instruments Repair / Replace, SOPs

Environmental Health and Safety: Training, Environmental technicians / Engineers, Safety Specialists, Industrial Hygiene, Ergonomics, EHS Assessments / Audits Life Science Integrated Facilities Management (LSIFM): Utilities Operation 24/7, Engineering, Supervision, Mechanical Services – On Demand: Corrective / Preventive Maintenance, HVAC, Energy, WWTP, Contractors Management, Maintenance, Refrigeration, Forklifts, Automatic Doors, Electrical Systems, Tool & Die CMMS, Compliance

Alhambra Granada Boulevard, Caguas P.R. 00725 T: 787-743-0897 F: 787-743-0979 www.mentortg.com

Thursday, march 10, 2016

As Ranked by

PUERTO RICO’S LARGEST VALIDATION & REGULATORY COMPLIANCE SERVICES COMPANIES (Listed According to 2015 Revenue from Validation & Regulatory Compliance Services in P.R.) Current/ Previous Ranking

Company Name Telephone/Fax Internet Address

Physical Address

2015 Revenue $ from Validation & Regulatory Compliance in P.R.

No. of Full-Time Employees

Main Services Offered

13/13

Regulatory Compliance Services Corp. (787) 300-6483 / (787) 300-6491 www.recomspr.com

AA Bldg. 1509 López Landrón Ave., PH San Juan 00911

2,000,000

Validation, regulatory compliance, calibration, software development

2003

Osvaldo Carlo Linares President

14/12

Vantage Consulting Group (787) 961-0999 / www.vantage-cg.com

Bo. Rincón Rd. 189, Km. 3.1 Gurabo 00778

1,568,483

Validation, regulatory compliance, automation engineering, information management, quality assurance & control

2009

Claribel Santos Director

15/16

LabChemS Corp. (787) 806-4001 / www.labchemscorp.com

Guanajibo Research & innnovation Park Rd. 114, Km. 1.3 Mayaguez 00682

1,500,000

Validation, regulatory compliance, microbiology & chemistry laboratory, engineering & outsourcing

2009

Efraín Rivera CEO/President

16/10

Skanska USA Building Inc. (787) 625-5050 / (787) 625-5100 www.usa.skanska.com

First Federal Bldg., Suite 1110 1519 Ponce de Léon Ave. Santurce 00909

1,300,000

Validation & regulatory compliance, program & project management

2003

Ramón L. Navia Project Executive

17/16

Quaoar Solutions Group Corp. (787) 884-6544 / (787) 854-4138 www.qsgcorp.com

Bo. Cotto Sur, La Grua Sector Rd. 670, Km. 2.7 Manatí 00674

1,200,000

Validation, regulatory compliance, general contracting, software development, construction

2002

Luis R. Centeno President

18/18

Rebexa Group Inc. (787) 265-7002 / www.rebexa.com

Bo. Algarrobos 605 Rd. 104 Mayagüez 00682

800,000

Regulatory compliance

2007

Arnaldo Hernández President

19/-

Pharma Consulting Corp. (787) 784-9599 / www.pharmapcc.com

HL 5 Amalia Paoli Ave. Secc. 7 Toa Baja 00949

500,000

Validation, design & installation of laboratory furniture

2003

Charil Pabón President

* CARIBBEAN BUSINESS estimate Number of full-time employees is for Puerto Rico only & includes part-time employees where applicable (every two part-time employees = one full-time employee). Revenue figure corresponds to validation & regulatory compliance related services. Companies may generate revenue from other sources. Unless otherwise noted, all information was provided by the companies.

Year Established in P.R.

Top Executive Title

YO NO ME QUITO. YO VOY PA’ LANTE. YO VOY A MÍ. POR LA FAMILIA, POR MI PAÍS.

THURSDAY, MARCH 10, 2016

Show Business

Experienced veteran lifts the veil on what makes the industry tick

Events Producer: A Tough Job That’s Far from Boring Osvaldo Rocafort Talks In-Depth About What it Takes to Succeed in the Events & Entertainment Industry BY DENNIS COSTA d.costa@cb.pr

At first glance, it may seem like the most glamorous job in the world: rubbing shoulders with the rich and famous, organizing blockbuster concerts starring the likes of Ricky Martin and Draco Rosa, and earning a hefty amount of money in the process. However, the few who excel in such a profession frequently face sleepless nights, an incredible amount of stress and uncertainty behind every corner. Yet despite this dynamic—even perhaps because of it—the role of events producer is also a lot of fun, judging by Caribbean Business’ interview with Osvaldo Rocafort, an events producer and manager with more than 20 years of experience in the business. A one-time employee of notable manager and producer Angelo Medina, Rocafort soon carved his own path with his events company, Lana Productions, as well as sister firms EOR management and OB Booking. Throughout his career, he has managed acts such as rock group VivaNativa and pop balladeer Millie Corretjer. As part of Medina’s staﬀ, he oversaw a series of Ricky Martin concerts in Las Vegas and other

high-profile events. Rocafort currently manages singer Melina León, and as an events producer, he is putting the finishing touches on upcoming concerts by Sin Bandera and Charlie Zaa. As it turns out, his development as a producer and manager came about in an almost roundabout way. “I was always involved in the entertain-

of acting silly in front of the camera, he recalled. “I worked with people like Amaury Nolasco and Roselyn Sánchez, but obviously they took the acting business much more seriously.” Soon enough, Rocafort came in close contact with casting directors and developed a more business-like mindset, eventually opening a tal-

“Nowadays, you have to study to become a producer to get a license or become an established producer’s protégé for two years.” —Osvaldo Rocafort ment business since I was little, but I was strictly working as on-camera talent,” Rocafort said. He participated in countless advertising campaigns and was frequently called because he was not afraid

ent agency. He continued his entrepreneurial streak through his early 20s, organizing rave parties and being among the first to introduce the concept of cigar bars to the island. Afterwards, he started

Events producer and manager Osvaldo Rocafort

managing VivaNativa, which brought him to the attention of Medina. When it comes to entering the business, Rocafort acknowledged that the road has become tougher, especially since the government began requiring producers to be licensed. Specifically, Act 113 of 2005 established a professional association and set up regulations regarding the profession. “Nowadays, you have to study to become a producer to get a license or become an established producer’s protégé for two years,” he noted. “However, that last part doesn’t quite make sense to me; why would I take someone in if the person is going to become my competition later on?” Before licensing came into eﬀect, practically anyone could become a producer, for good or bad. “Many people would set up an event and hire a photographer and sound

engineer; if ticket sales didn’t meet expectations, the workers wouldn’t be paid, and the producer would only shrug his shoulders,” Rocafort noted. “Today, it is much more structured. Producers have to be on top of their tax obligations, and for example, the Treasury Department collects the sales tax from ticket box oﬃce within three days after a concert.” In-between events producing projects, Rocafort supplements his income by managing musical acts. “Management commissions are usually 20% of what artists charge per gig,” he explained. “There is also the booker, or the person who closes the contract and looks for gig opportunities; he or she usually charges 10%; those who do both charge 30%.” In his business, Rocafort puts himself in the hybrid mold as events producer/manager. “Some managers usually

help carry an artist to the top of the charts and then they produce the artist’s concerts; that yields a much higher commission, frequently 50%, but this isn’t a steady thing.” Nowadays, such instances are rarer, with record labels taking on the role of manager, booker and events producer as well, adopting basically a 360-degree approach to the business. Finally, when it comes to promoting events, Rocafort has found that Facebook is his best friend. “Recently, I announced through Facebook that [Mexican pop duo] HaAsh was going to play on the island. That was on a Friday, and by Monday, I had sold 2,000 tickets,” Rocafort said. “Social media has become an extremely cost-eﬀective way of promoting events, although in big venues, traditional media, especially radio, is still a must.”

THURSDAY, MARCH 10, 2016 Four-door Bolt EV will offer 200-plus miles of range on a full charge

2017 Chevrolet Bolt EV General Motors’ Affordable Electric Vehicle for the Masses BY JOSÉ L. CARMONA j.carmona@cb.pr

General Motors (GM) unveiled the 2017 Chevrolet Bolt Electric Vehicle (EV) during the North American International Auto Show (NAIAS) in Detroit, fulfilling its promise to offer a long-range, affordable electric vehicle for the masses. GM says the four-door Bolt EV, which will go into production by the end of 2016, will offer more than 200 miles of range on a full charge, for around $30,000. It also features advanced connectivity technologies designed to enhance and personalize the driving experience. “It was less than a year ago that we revealed the Bolt EV concept and promised to deliver a long-range electric vehicle attainable by the masses,” said GM Chairman & CEO Mary Barra during the vehicle’s unveiling at the NAIAS. “The Bolt EV is capable of using the latest mobile app technology to enable car sharing, advanced GPS routing and gamification [i.e. applying game mechanics and design techniques], all designed to enhance the ownership experience, now and into the future.” CONNECTIVITY INNOVATIONS GM said the Bolt EV’s connectivity innovations will provide smart, personalized solutions for managing the driving experience. For example, in the future, an accurate drivingrange projection will be based on the time of day, typography, weather and the owner’s driving habits. Bluetooth low-energy—designed specifically for the Bolt EV to minimize energy draw— seamlessly connects a smartphone to the car while the owner approaches the vehicle. Many of the Bolt EV’s driver-focused technologies are supported by OnStar 4G LTE,

which turns the Bolt EV into a Wi-Fi hotspot, giving owners easier access to apps and services via a high-speed wireless connection. Other Bolt EV connectivity and infotainment features include a 10.2-inch MyLink color touch-screen display; Rear Camera Mirror (provides a wide-angle view behind the vehicle); Surround Vision (provides bird’s-eye view of what’s around the Bolt EV); and AllNew MyChevrolet Mobile App (combines important owner and vehicle information and functions). With the new app, the driver can access vehicle charge status, OnStar Map service, remote start, cabin pre-conditioning, owner’s manual information and dealer service scheduling; EV navigation mapping (EVspecific navigation capability that designs routes to maximize range and provide locations of nearby charging station locations); and gamification. For example, Bolt EV owners in the future will be able to “compete” by comparing driving styles to determine who is driving most eﬃciently. DRIVE UNIT AND BATTERY PACK GM claims the engineering team designed the Bolt EV’s single high-capacity electric motor to meet eﬃciency and performance targets. The motor, GM says, is capable of producing up to 266 pound-feet of torque and 200 horsepower. Bolt EV battery engineers and strategic partner LG Electronics developed an all-new 60-kilowatt battery pack, consisting of 288 lithium ion cells, divided into five sections of 10 modules of 96 cell groups and weighting 960 pounds. The Bolt EV will be built at GM’s Orion, Mich. assembly facility near Detroit. 䡲

GM Executive Vice President of Product Development D lo tM Mark kR Reuss and d GM P President id t & CEO Mary Barra address the media after revealing the 2017 Chevrolet Bolt EV during the NAIAS in Detroit in January.

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MARCH 17 COMPANIES IN MOTION Caribbean Business showcases Puerto Rico companies that have increased the value of their businesses by discovering tools to further their objectives, grow their market share and soar above the competition. What are their winning strategies and fresh approaches to continue moving forward? Read all about it in this supplement. TAXES & IRAS Caribbean Business provides its readers with everything they need to know about financial planning, with a special emphasis on the latest changes in this year’s tax form. In addition, we will include news on IRA products available in 2015 and other ways to financially prepare for your retirement. Advertise your financial-oriented product or service here! CLOSING DATE: MARCH 11

MARCH 24 BRAND-NEW COMPANIES Caribbean Business proudly presents the different companies that have ventured into the Puerto Rico business arena, creating jobs and contributing to grow the local economy. From small “mom-and-pop” stores to midsize businesses and even larger operations, meet Puerto Rico’s newest entrepreneurs! CLOSING DATE: MARCH 18

MARCH 31 WOMEN TO WATCH 2016 Caribbean Business salutes the drive and resolve of innate go-getters by reviewing the trajectories of remarkable businesswomen who are leaving their mark on all of the island’s business segments. This special feature will let you learn more about the women who are making a contribution to Puerto Rico’s economic development. BIG BUSINESS PROFILE: SECURITY What’s the latest news in the security industry? In this feature, Caribbean Business’ 100,000 weekly readers will learn more about the firms offering a wide range of products, services and expertise that add safety and continuity to many Puerto Rico businesses. From data/network and facilities’ protection, to security personnel and surveillance gadgets, this issue is the ideal showcase for your product or service! CLOSING DATE: MARCH 25

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THURSDAY, MARCH 10, 2016

Marketing

McDonald’s celebrates employees’ public engagement

McDonald’s Campaign Recognizes Special Employees BY MARIO BELAVAL DÍAZ m.belaval@cb.pr

Nowadays, it is not enough for brands just to be a brand. Consumers expect brands to not only provide them with the services or products they represent, but also to carry out initiatives through which brands can prove their engagement with the public goes beyond the cash register. McDonald’s in Puerto Rico recently launched two eﬀorts that aimed to showcase such engagement. The latest initiative, “Pay it forward,” searched among a chain of restaurants for employees who had a special need or were undergoing a challenging situation, and Arcos Dorados, the biggest franchisee of the company in Latin America and the Caribbean, which also oversees the company’s operations in Puerto Rico, set out to meet those needs, which varied from airplane tickets to see loved ones to special equipment for a family member with a disability. “We wanted to thank those employees who best represented the values of the company and stood out for their performance while they were also facing a challenging situation,” said Zahira Douez Sepúlveda, communications supervisor in Puerto Rico for Arcos Dorados. “We decided that February, the month of love and friendship, along with our campaign for the past year that has revolved around the concept of sharing love and kindness with others,

Ayecheis Figueroa, shift manager at a McDonald’s in Carolina, who has been with the company for 13 years, received a donation to acquire a chair for one of her four children who is disabled in McDonald’s local ‘Pay it forward’ campaign.

was a perfect moment to do this promotion.” Under that guise, the company filmed a training video where these employees were followed through their daily routines at the MacDonald’s restaurant where they were working. A week later, they would be surprised when company representatives, along with their co-workers, would let them know they would be recipients of the donation. The entire process was filmed and developed into three brief videos posted on social media such as Facebook and Twitter. While McDonald’s has its own advertising and public relations agencies, “Pay it forward” was a homegrown, in-

Creative Corner Agency/Company: Arcos Dorados, McDonald’s Puerto Rico Creative Director: José Javier Cruz Production House: Alejandro González Producer: Zahira Douez Sepúlveda Director: Zahira Douez Sepúlveda Editor: Paul Medina Media Used: Facebook, Twitter

house eﬀort developed by Douez Sepúlveda and José Javier Cruz, marketing supervisors and their teams. The decision to use social media to communicate “Pay it forward” was so they could reach both the age group of their own employees and the public in general who would then be able to share the videos with others. For “Pay it forward,” three employees were selected. Martites Borbes, an employee at a McDonald’s in Ponce, and originally from the Philippines, was presented with airline tickets to visit her family, which she had not seen in about 15 years. Ayecheis Figueroa, a shift manager at a McDonald’s in Los Colobos Shopping Center in Carolina, who has been with the company for 13 years, received a donation to acquire a chair for one of her four children who is disabled. Javier Riquelme, a shift manager at a McDonald’s in Cataño, who has been with the company for five years, also received a donation to help defray costs to run a household comprised of two brothers, after his mother passed away from cancer. 䡲