Puerto Rico's Desperate. China Can Help.
Last weekend, officials in Puerto Rico announced that they're pulling the plug on a controversial $300 million contract to rebuild the island's electrical grid after Hurricane Maria. The previous contractor, Whitefish Energy Holdings LLC, a Montana company with just two full-time employees prior to the award, will leave the island within 30 days, while officials try to find an alternative plan.
With no resolution in sight, and roughly 70 percent of the island's residents still without power, Puerto Rico should turn to companies with real expertise in repairing power grids in developing regions. Of these, none would be a better fit than State Grid Corp. of China. The mere idea might raise national-security alarms in Washington. But it's worth asking: What would it look like if China's biggest power company were given the chance to rebuild Puerto Rico's grid?
It's a question that should have been asked long before Hurricane Maria. A 2016 independent assessment of the Puerto Rico Electric Power Authority, the island's electric utility, noted that its "transmission and distribution systems are falling apart quite literally" and that it is "failing at the basic mandate of an electric utility, which is to safely and reliably supply electricity to its customers." Making matters worse, fossil fuels, all imported, account for 98 percent of electricity generation, leaving the utility vulnerable to physical and market disruptions. In 2017, PREPA filed for bankruptcy.
Thanks to Maria, PREPA is now in the unfortunate position of having to both restore power and create a modern grid that delivers reliable energy. Funding for the former task has been secured; it's unclear who will pay for the latter. But in all likelihood, Puerto Rico will need to privatize its electric grid and hand the upgrade and operations to an outside contractor.
If that happens, State Grid would be a good fit. Formed in 2002, it's now the dominant electrical utility in China, serving one in seven people on the planet. Much of that growth has been achieved by building in some of the world's most inaccessible terrain. In 2014, State Grid began work on a $1 billion, 945-mile transmission line in a mountainous area between Tibet and Sichuan Province that required workers to labor at 12,500 feet, on average. Puerto Rico's terrain -- though difficult -- is comparatively simple (and low-altitude).
State Grid also works fast. The Tibet line was completed in less than a year, well ahead of schedule. Last year, China announced a $107 billion program to upgrade its rural grid over four years. That project will serve hundreds of millions of people. Puerto Rico, with a population of 3.4 million, doesn't even have a timeframe for its upgrade; State Grid could undoubtedly make it happen quickly.
More crucially, it would be able to do it well. Over the past 20 years, State Grid has become one of the world's leading developers of renewable energy generation and transmission technologies. Both will be crucial if Puerto Rico is going to wean itself from its financially and environmentally ruinous dependence on imported fossil fuels. Meanwhile, State Grid has been an eager adopter of "smart grid" technologies that can adjust power flows for efficiency and safety, which could go a long way toward preventing or mitigating future disasters.
But perhaps most important, State Grid has the money and the desire to do the job. It generates nearly as much revenue in a year as Boeing Co. and Apple Inc. combined. Since 2009, it has officially "gone global" with investments in Brazil, Portugal, Australia, Italy and the Philippines, where it runs the national grid. Given the chance for a similar concession in Puerto Rico -- with the potential for both profit and prestige -- there's little question that it would say yes.
To be sure, there would be some national-security concerns about such a deal. China could, for instance, threaten to shut down the grid in a theoretical confrontation with the U.S. But many of these concerns could be allayed beforehand -- for instance, by requiring that the actual operation of the concession be restricted to locals and U.S. citizens, and that the technology involved be subjected to regular security audits.
These don't seem like insurmountable obstacles. And from the perspective of Puerto Ricans going on a second month without electricity, there isn't much left to lose.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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Timothy Lavin at email@example.com