Puerto Rican Rum and Revenue Flowing Again at Bacardi DistilleryBy and
Spirit tax generates 3 percent of island’s total tax revenue
Devastation didn’t touch barrels or distillation equipment
After Hurricane Maria, Puerto Rico’s physical destruction multiplied its financial crisis. But at least one revenue generator is up and running: rum.
On the western edge of San Juan Bay in a small town called Catano, a Bacardi Ltd. distillery produces some of world’s most famous rum. The spirit made at Bacardi and competitors like Destileria Serralles and Edmundo B. Fernandez Inc. provides fully 3 percent of Puerto Rico’s tax receipts.
The world’s top producer of international rum brands, Bacardi got its facilities functioning less than two weeks after the Sept. 20 storm left many without food, clean water, electricity or communications. The Bermuda-based company exported its first post-storm rum shipment last week. That’s a relief for the island, which counts Bacardi as one of its highest-profile companies and a pillar of the economy.
The Catano distillery sits between two power plants. It includes distillation towers, warehouses to stash aging barrels, and storage tanks for molasses, water and diesel.
When Jose Class, Bacardi Puerto Rico’s plant director, first arrived after Maria struck, entry was impossible. Overturned fences, branches and power lines littered the grounds. Gigantic palm trees lay uprooted. A concrete wall of one warehouse had collapsed. Pieces of the metal roof were scattered in and around the building.
The rum and distillation equipment was safe.
“I was so lucky that it was empty of barrels -- I only had some cars in there,” Class said. “I can get a car today. My rum? It has to be aged at least for a year.”
The plant’s engineering, maintenance and fire brigade were unable to start clearing Maria’s mess until five days after the storm’s eye passed. A week later, Bacardi filled its first 40,000-gallon batch.
Rum has long been a Caribbean staple. It is distilled from molasses, which was a byproduct of the vast sugar industry enabled by colonialism and slavery. Its popularity was spread by sailors plying those trade routes.
It’s such a steady revenue generator that Puerto Rico and the U.S. Virgin Islands have sold bonds with rum tax revenue as collateral. The Puerto Rico Infrastructure Financing Authority has done so since 1988; current owners of the $1.8 billion in securities include OppenheimerFunds Inc., Franklin Advisers Inc. and UBS Asset Managers of Puerto Rico, according to data compiled by Bloomberg. But the debt is tied up in the commonwealth’s record $74 billion bankruptcy.
The nearby U.S. Virgin Islands, where rum is the second-largest industry after tourism, has issued $1.2 billion of rum bonds. The storm will have no impact on payments since the bonds are prepaid through 2018 and there is an additional year of reserves, said Lonnie Soury, spokesman for the U.S. Virgin Islands Public Finance Authority. Still, he said, “In light of the difficulties and the challenge we have moving forward, it’s very important that the rum distilleries are in production or have not been damaged severely.”
In the case of Bacardi’s Puerto Rico distillery, the quick turnaround required a mutually beneficial agreement between the company and the government.
Bacardi had generators on hand but needed more to get the plant running. With ports jammed, it was a logistical nightmare to deliver them from Bacardi’s bottling plant in Jacksonville, Florida. The government needed generators, too, for something more essential than liquor: clean water. So authorities expedited the company’s port access.
“If we could re-establish power at the plant, we could supply them with all the water needs that they had in the communities around us,” said Ignacio del Valle, Bacardi’s regional president of Latin America and the Caribbean.
In addition to the generators, the company brought first aid, medical supplies, food and 125,000 gallons of purified water from Jacksonville. And it pledged $2 million to help fund three relief centers that will provide meals for community members, entertainment and electricity.
Some factories on the island have struggled to operate because employees have been unable to get to work. So the rum maker set up its own mini gas station inside the plant for its 180-odd workers. At its offices, there’s a room filled with jerry cans, divided by company division. Each department has an assigned day for when its members can pick up fuel.
Nelson Candelario, who builds and repairs rum barrels, now has a 2 1/2-hour commute to the plant, double what it was pre-Maria.
“It wasn’t only that everything was blocked -- gasoline was limited, too” said Candelario, who was the last Bacardi worker accounted for after the hurricane hit. Emergency response crews didn’t arrive in his village until Oct. 2.
Class said the company’s health is tied up with that of the commonwealth.
“We wanted to send the message to Bacardi and to my employees and to Puerto Rico that we’re back in business,” he said.
— With assistance by Tiffany Kary, and Rebecca Spalding