Episode 3 - Fermin Fontanes Talks P3s in Puerto Rico

Join hosts Marshall Macomber and Mary Scott Nabers as they delve into the world of public-private partnerships (P3s) in Puerto Rico. In this episode, they're joined by Fermin Fontanes, Executive Director of the Puerto Rico Public-Private Partnerships Authority, to discuss the thriving economy of Puerto Rico, driven by manufacturing and tourism. Discover the exciting array of P3 projects, including airports, seaports, energy infrastructure, and more, offering lucrative opportunities for companies in the United States. Learn about the robust legal framework supporting P3 initiatives and how interested parties can get involved. Don't miss out on this insightful conversation on the future of infrastructure investment in Puerto Rico.

Transcript

Marshall Macomber (00:01.647)

Welcome back. Go ahead, Mary.

Mary Scott Nabers (00:05.247)

So I'm saying it wrong, that's what you're saying. Fountainize, thank you. I apologize, Fountainize. Okay.

Marshall Macomber (00:07.894)

Fontaness.

Fermin (00:09.543)

Funtaness.

Marshall Macomber (00:11.158)

Fontanez.

Fermin (00:13.739)

No problem.

Marshall Macomber (00:14.006)

All right, Adam, we started, Adam, we started. I'm going to do a countdown and then we're going to get going. Nope. There's okay. Five, four, three, two. Welcome back everyone to the connection of podcast of government market news. I'm your cohost Marshall McCumber of think P three in Washington DC. And I'm joined by my colleague and cohost Mary Scott neighbors, president CEO of strategic partnerships in Austin. Hi, Mary.

Mary Scott Nabers (00:43.899)

Marshall, you've got a good show to do.

Marshall Macomber (00:45.514)

Another, I think it's going to be a great show, another really exciting topic and a little bit different from those we've done in the past. Public private partnerships and Puerto Rico and joining us in studio today is one of the premier officials in Puerto Rico. Fermin Fontanes, who's the executive director of the Puerto Rico Public Private Partnerships Authority. Fermin is in charge of everything interesting, innovative.

and exciting going on in Puerto Rico. Fermin, welcome. Thanks for joining us.

Fermin (01:16.447)

Thank you, Marshall and thank you, Mary. And I'm glad to be here today. Thank you for the opportunity. I'm looking forward to having this conversation. Hello, everyone.

Marshall Macomber (01:25.93)

It's going to be a terrific, terrific conversation for me and for sure. So let's get right to it. Let's talk just a moment about Puerto Rico itself. How many people live there? What drives the economy and where do you see growth happening in Puerto Rico these days?

Fermin (01:41.147)

So there's about 3.2, 3.3 million people that live in Puerto Rico. I think the economy is mostly driven or the big pillar of the economy is manufacturing. We are one of the top pharmaceutical manufacturers for the US. I think about 10 or 12 of the most sold medicine in the US are produced in Puerto Rico. So our manufacturing sector is very robust.

and it carries more than 20% of our economy. We have tourism as well. Tourism has done stupendously in the last three years. We have been breaking records consistently the last three years. So this year, 2023, it's a record year as well. And not only in the amount of passengers, amount of flights, amount of people coming to the island. So we are picking.

right now in that sector. And obviously right now, there's a lot of construction and reconstruction related to the past hurricanes and earthquakes that we suffered in the last five years. We suffer a number of hurricanes actually and the earthquake. So there's a lot of construction that's out there, but really our main pillar is the manufacturing sector.

And we have done a lot of initiatives to try to continue bringing US companies to Puerto Rico. That it's an issue that peaked after the COVID-19 pandemic to make sure that we have a lot of manufacturing within the US territories for the future. So we're taking advantage of that. And we're pushing a lot in trying to bring also these industries back to US mainland.

Marshall Macomber (03:36.758)

Merry.

Mary Scott Nabers (03:36.991)

So for me, one of the reasons we wanted to have you on this program is because, and I know part of it was out of necessity, but you have established a really, really strong public-private partnership initiative there. And you've been very successful, and you are attracting companies from the United States. So we thought you would be able to share a lot of

good advice, information to companies that might be interested in what you've got coming up and how they get involved. And then also public officials here in the states who are just on the verge of launching maybe their first or second public-private partnership would be interested in your advice.

Fermin (04:27.279)

Definitely. I think really the keystone of our program is that we have a really good legal framework. It's the public policy of the government. Our Act 29 is a really strong law that provides us with all the tools that we need to carry out these processes. And we have an administration and a governor that supports the public-private partnerships and the...

The transparency and the robustness of our process has been key for us to be able to reach out to the markets and have people compete. I think obviously we have a track record that helps us and the fact that we have continued effectively to do procurements, go through the entire process and award the contracts helps us in the next process. So to all the public officials, I think...

my recommendation would be that the most important thing is to have a long frame or really good legal framework that allows the market to feel comfortable that they're going to be supported, that they have the tools for the process, that the entity is able to manage the process. I think in particular what Puerto Rico has that's

different from any jurisdiction is that our office, the Puerto Rico Public-Private Partnerships, is a different entity that essentially acts as a boutique procurement office for the entire government. So we do public-private partnership procurements for the transportation sector, for the energy sector, for from airports, ports, roads, ferries, generation.

transmission and distribution, renewables. So the legal framework that we have created has allowed us to establish an expertise within the government on P3s. So we have our office that are experts on managing P3s. And when, for example, the Department of Transportation is looking at a potential project, they come to us.

Fermin (06:44.815)

and we take it from them and we deliver the project. And that gives us an advantage, I would say with other government entities in the states where the different departments are venturing into public-private partnerships on their own and learning as they go along.

Mary Scott Nabers (07:04.291)

Marshall, I'll ask one real quick short question and then let you jump in here. How do people in the states here, how do we find out about what's coming up, what you have that they might want to compete for?

Fermin (07:18.435)

website is the key. It's p3.pr.gov. We have all the information on all of our existing procurements and what we have done in the past. Part of the transparency that our process requires is that everything that we do is public and it's on our website and it's available for all other...

government entities to look at. So when we complete a procurement process, all the documents related to that process are made public. So we have everything there from the request for proposals, the request for qualifications, the questions that were provided, the proposals, the public, the partnership report that summarizes everything. Everything is there available.

for the public to see. And on the projects that we continue to administer as an entity, everything related to those projects is also available. So you can go into our website. And if you're interested in the energy sector, you can go to the energy section of our website and look at the projects that we have done. And you can see and use what we have done in the past as examples. So.

All of that is there, but most importantly, if you register, once we come out with new projects and new procurements, everything, you know, you'll receive the notice. The other important tool that our law provides is that we do accept unsolicited proposals. So to those private entities that may be interested in looking at Puerto Rico as a potential market, once you browse through our website,

and go through our law and our regulations and process, you can look at the unsolicited proposal mechanism as a potential to come into Puerto Rico and present a proposal on a future project that you may be interested. Obviously, we at the agency, we provide all the necessary information. We guide proponents as to how to come up with an unsolicited proposal.

Fermin (09:38.139)

that can be successful with our partnering entities.

Marshall Macomber (09:42.286)

For me, I'm going to build on your comments. I do think Puerto Rico's P3 enabling legislation and authority and your political construct is unique. And I do think it offers a good, a strong degree of stability for the market, for the government and for the private sector partners in all of this. Kind of two questions. It's well known some of the fiscal challenges of recent years and of course the devastating hurricanes and it seems to me that Puerto Rico is moving past some of those initial challenging times.

I think two questions. Tell us the role of the US federal government. They made significant investments and are continuing. Hundreds, million more in rooftop solar, I think, across the island to try to build resiliency. So you've got a very, very strong US federal government partner, at least from my read, as well as on the other side, you've got a strong political support there locally. Together, those seem to work well. You've got

Fermin (10:23.612)

Yes.

Marshall Macomber (10:38.87)

recent announcement of the toll roads concession, you have the energy concession, of course, the airport, fabulous and has been operating now for many years as a P3. What about those roles? It seems to me that provides a strong political and policy framework for companies to enter the market that may not have done so before.

Fermin (10:53.956)

Yes.

Fermin (10:57.743)

No, I totally agree. I think it's the stability that's tied to the continuation of having that, I would say as an independent agency or entity that's continuing those processes. We have been able to structure our transactions to benefit from that availability of funds that's coming. So since the...

the all the natural disasters, we continue to improve on how we develop our transactions to be able to work together with the federal government and they have been key. When we look at the energy sector as an example that you have given to us, when we first went out there with the procurement process, we were considering different types of structures of different types of concessions. But all of a sudden, we...

We saw the opportunity to work together with the federal government to avail ourselves of that federal funding that was coming and structure our transactions in a way that the private entity can benefit from those federal funds to help us rebuild and maintain like a stable like rate for the rate payers that are paying for those improvements. So we are working together with FEMA, we are working together with HUD.

We have an excellent relationship with the Department of Energy that works with us, not only on those existing P3s, but on future projects. And the credibility that we have been able to obtain working with this stable framework with those entities has led us to continue to make improvements. So right now, the Department of Energy is investing over a billion dollars

Renewable Energy in Puerto Rico. And we work together with them to try to deploy those funds. And they work together with us to try to push the reconstruction as well. And moving into that new era. But it's a continuation Marshall. It's a continuation of having the same people, the same team working together through all this process and having that knowledge of how all these processes work.

Marshall Macomber (13:21.866)

Mary, I'm going to ask you a question to build on Fermin's answer right there, if you don't mind. I think, Fermin, what you're saying is what I'd like to think is you are differentiating yourself as a marketplace. Now, Mary, you work with clients and governments across the country, don't you? What is your thought when it comes to differentiation? It sounds to me like Fermin and his crew and his team is doing good things to do that. Do you agree that's important when we're trying to attract?

companies and private investment to a particular project.

Mary Scott Nabers (13:53.031)

Yes, absolutely. And maybe I would say it more simplistically. I think what I heard you say, it is the structure that a public entity creates that makes the private sector comfortable to come in. They know that they're going to get the support, they're going to have the stability, they're going to have the legal aspect covered, it's going to be transparent, and the competition will be fair and above board.

Fermin (14:17.019)

Yes.

Mary Scott Nabers (14:22.479)

And we have some states that are very, very aggressively rolling out all kinds of P3s. And we have other states that have yet to roll out the first one. And I know that I came from government, so I know it's a little bit frightening to launch the first very, very large, maybe a billion dollar project under a new delivery method.

But there are all kinds of assistance and guidelines and people standing ready to help. And I just think you're a great model for us. So we appreciate that.

Fermin (15:07.955)

I would add that the track record that we have with all the different P3s continues to help us as we move forward because when you look at the airport, when you look at the first toll roads, those P3s have been stable through hurricanes, through changes in administrations, through earthquakes and our procurement processes as well. So when we were...

conducting our procurement processes. We went through changes in government. We went through three hurricanes. We went through earthquakes and we kept our eye on the price and we continue pushing forward. And I think that gives comfort to the market that you know what, if I'm going to Puerto Rico and I'm gonna participate in a P3 process, I know that I'm spending money that in the end it's gonna result in a competitive transaction.

And, you know, it's going to be awarded. I'm not wasting my time. And I'm going to have a solid partner in the government of Puerto Rico that's going to remain stable no matter what happens throughout the term of the concession. And I think the airport and the original turtles have been here for more than 10 years. So they've seen changes in administration. They've seen their surge of disasters. And the government has been a partner to them.

And they have been a partner to us, working together through all of these challenges. And I think that gives comfort to the market. And that's why every time we go out with different projects, we continue to see not only US companies, we continue to see a lot of international participation looking at Puerto Rico as a place to invest and feeling comfortable that if we are selected, we have a long-term partner and the total rose transaction that you're mentioning.

It's a huge transaction. We have, it's a $2.85 billion.

Fermin (17:13.403)

a initial fee, but it's a more than $5.3 billion investment. And not only that, we have banks from all over the world, from Japan to Europe to the US to local banks, all the local banks are investing on this. So we have gained that credibility from all reaches in the world that are willing to invest hundreds of millions of dollars in Puerto Rico to infrastructure.

because they know that the legal framework is there and that the government is a willing partner.

Mary Scott Nabers (17:47.283)

So, you know, Marshall and I have talked many times about the fact that two years ago, Congress allocated more than a trillion dollars to infrastructure projects. And all of that spending has to be utilized and committed before 2026. And yet we still have $492 billion. That is $492 billion.

waiting in the government coffers for public-private partnerships and infrastructure projects in the United States. So we are hopeful that public officials are going to get very, very busy and launch lots of projects because there's a lot of needs. Martha, we'll be right back to you.

Fermin (18:34.363)

Yeah, and-

Marshall Macomber (18:37.942)

Well, I would just build on that. And you know, we talk about roads and bridges and broadband funding and so forth. But for me, and you touched on this as well, energy, it's extraordinary the amount of investments we're seeing from the Inflation Reduction Act. Again, I know Department of Energy, as you had mentioned, has its own fund just for Puerto Rico. Astounding. I think a billion dollars for me, right, as you had mentioned. But truly, when you're looking at trying to build out, when you're trying to achieve net zero.

Fermin (18:41.575)

Thanks for watching!

Fermin (18:59.27)

Yes.

Marshall Macomber (19:07.21)

and one is trying to decarbonize an economy. To Mary's point, this moment in time right now is the time that we have never seen in, Mary, I mean, decades, maybe since the launch of the interstate highway system, it's extraordinary.

Fermin (19:21.51)

Yes.

Mary Scott Nabers (19:24.699)

it is and I would just one more minute let me just point this out. So I said there's 492 billion dollars left in the infrastructure bill that doesn't even include ARPA, the ARPA funding, the American Rescue Act money. There's still billions there and then we get to the Inflation Reduction Act and most of that money has never been touched yet.

Fermin (19:24.994)

And.

Mary Scott Nabers (19:53.608)

It's waiting to start forming in 2024. So we will never, in our lifetime, we'll never see this much money again available.

Fermin (20:03.155)

I agree and I can tell you that one of the hidden benefits, I guess, of having gone through so many disasters before is that we have the structure to manage all those federal funds. So for example, when you look at Puerto Rico and the way they have been able to deploy ARPA funding, we are in the nation in terms of deployment and use of those funds.

because we have the framework, we have the structure, because we have used it for FEMA funding, for disaster funding, so we know how to do that deployment. And when you look at bringing in private entities to help us doing that, I think the energy sector for us in Puerto Rico is a huge example. I mean, it took us probably like a year and a half or close to two years to complete the transmission and distribution system.

P3 transaction, but since then, the amount of projects that the private partner has been able to take out to the market to complete through the FEMA process has been...

like 10 times faster than what the governmental entity was doing. So you see that as a government entity, it's worth spending your time running a robust procurement to bring in a private partner as the entity that will help you reach those milestones in, and you know, that speed of execution, that expertise that you bring in to carry.

to carry that flag to the end of the race. I think this is what we're doing and this is what we've been able to do. And I think the proof is out there when you look at our numbers and what we have done with the reconstruction, the difference between what we had before and what we have under the P3 model is outstanding. Outstanding.

Marshall Macomber (22:07.23)

I'm going to build, I've got to build on this point here. I'm going to squarely put my P3 hat on here. And when I think public private partnerships, I always think leverage. Mary's right. We're all right. Hundreds of billions, if not trillions of dollars out there, but listen, for all of our listeners on the podcast, you've got to hear me clearly there are hundreds of billions, if not an additional trillion or more in private infrastructure, investment capital available. And again, one of the great things about.

The P3 model, it's not perfect, it's not right for every project as Fermi knows. You pick the model and the methodology to meet the needs of a particular project. However, all of this funding can be and many of it is getting leveraged with private investment itself, not just a contractor coming in, but dollars coming in to expand these projects in size, scope, and complexity.

Fermin (22:45.592)

Yes.

Marshall Macomber (23:04.478)

And that's where a lot of the, I think a lot of the magic really happens in these procurements because you've got investors who are coming at risk and are helping government deliver on those projects and sharing those risks appropriately over 10, 20, 30 years. So the next hurricane will come for me. It will come. But I think to bring those partners to the table and to bring their capital to bear, I've got to think, is going to make a...

Fermin (23:24.515)

Yeah, no, I agree.

Mary Scott Nabers (23:25.748)

Yeah.

Marshall Macomber (23:33.831)

Certainly more interesting risk-adjusted project, Mary. Yeah.

Fermin (23:36.891)

Capital, innovation, expertise, all of those.

Mary Scott Nabers (23:37.36)

Yeah.

Marshall Macomber (23:41.173)

Yeah, Mary.

Mary Scott Nabers (23:42.355)

So yeah, I just wanted to say, you know, Marshall, you know this, and for me, you probably do too, but for our listeners, I wanna say that the public-private collaborative initiatives are going to be our future. Like it or not, that's going to be our future. There's not enough public money to fund all of the infrastructure projects. And when I say infrastructure, I'm talking about everything, from water to airports to...

security to even technology, there's not enough public funding, nor will there be 10 years from now. So the quicker we learn to have successful public-private partnerships and collaborative initiatives, the more globally competitive we'll be, the better quality of life all our citizens will have. So you're gonna hear us talking a lot about this.

But I want to say one more time, there is no, there's nothing as good as private sector expertise when it can be given to government for all the people. And the only thing we have to do is manage these projects successfully. So Marshall and I are gonna be talking a whole lot on these podcasts about how you guarantee success on these collaborative initiatives.

Marshall Macomber (25:08.63)

For me, we've got about five minutes left here in the podcast, I think, and I want to start closing on some key themes here. Give us your wish list here. What types of companies and expertise would you like to attract next to Puerto Rico in the next five, ten years that you maybe haven't seen in the previous five to ten years?

Fermin (25:32.539)

So.

Mary Scott Nabers (25:32.803)

or maybe within that next five months. Oh, what if I can't.

Marshall Macomber (25:35.935)

Or the next five to six months.

Fermin (25:36.763)

Sure, sure, sure. I, you know, obviously we're still looking for more, for energy generation, so renewable energy generation. We need more of that and we continue to push on that. We have a procurement now for an LNG to hydrogen plant that's going on, but we're going to need more. So we probably will launch more renewables or more generation within the next year.

Mary Scott Nabers (25:38.412)

Well, what do you think right now?

Fermin (26:06.971)

for us and I think Marshall, you probably heard me talking about this before, but solid waste management to me is something that we need in Puerto Rico. We need innovation in that field and it may be tied to energy as well. Broadband, it's another one that's important, but social infrastructure. I think that at least from my point of view.

That's one that we would like to tackle. It's the schools, the health system, and try to tackle those fronts as well. But there's a lot of opportunity in waste management, solid waste, energy, broadband, and even asset recycling. I mean, we have a lot of ideas out there that we're trying to narrow, and I think that's why the unsolicited proposal process.

Marshall Macomber (26:54.474)

Merry night.

Fermin (27:03.083)

is key for us. And I'll say one last thing before I turn it to Mary. Our maritime port transportation, like the cruise terminal P3, comes from an unsolicited proposal. So we have a successful P3 process that went to the market based on unsolicited proposal. So that's also having its market tested and it has worked successfully. So we encourage all private entities to look at Puerto Rico and come up with ideas and we'll work with them.

Marshall Macomber (27:35.066)

Mary, any closing comments here for Fermin?

Mary Scott Nabers (27:38.483)

Thank you for me and we appreciate you joining us today and I know we're out of time Marshall, so I'll toss it back to you.

Marshall Macomber (27:46.538)

It's exciting times. Puerto Rico is beautiful. If you haven't visited, do so. I encourage you as Puerto Rico Tourism Authority here speaking. It's, it's beautiful. It's lovely. Uh, but most importantly, it's exciting place to invest for infrastructure and for interesting things that government is doing, uh, for, uh, you know, a lot, for me, it's a lot due to your leadership and then your bosses above and around you that I think we're seeing a lot of success.

Fermin (27:52.261)

Yes.

Marshall Macomber (28:10.694)

So much is happening. Mary, we're gonna talk about schools as infrastructure in a future podcast. I know Fermin's exactly right. The social or vertical infrastructure, the community infrastructure. Gosh, it is a huge opportunity for companies to come and help our school systems solve so much of the problems because at the end of the day, just in one example.

Fermin (28:21.869)

Yes.

Marshall Macomber (28:33.11)

Does the school district really need to worry so much about the school? No, the point is to educate our students and have the teachers be able to do their jobs and not worrying about whether the roof's leaking or if the school is safe. So.

Fermin (28:38.926)

Yes.

Mary Scott Nabers (28:45.927)

or if the technology has been modernized. So, yeah.

Marshall Macomber (28:50.28)

Exactly. So much opportunity there. For me closing comments from you here.

Fermin (28:50.361)

Yes.

Fermin (28:54.447)

No, thank you, and I try to cover a lot. But there's a lot that we can discuss, but I think in some, Puerto Rico is a great place to do business. I think this is really the moment for Puerto Rico. We have a lot of opportunities. The economy in Puerto Rico is doing great, and unemployment is at an all-time low. So you have a great partner with us.

take a look, a serious look to Puerto Rico as a place to invest and reach out to us, to all of those who either want to come and invest or those other public officials that want us, want help from us to guide you through, from our experience, what we have done. I think there's a lot of opportunities for everybody, so we're open to helping anybody.

Marshall Macomber (29:48.022)

Take a look at the Puerto Rico Public-Private Partnerships Authority. We've had today as our guest in the studio, Fermin Fontané, the Executive Director of the Authority. Fermin, thanks so much for being here. We'll look forward to seeing you on a podcast in the near future.

Fermin (29:57.767)

Thank you all.

Take care. Bye.

Fermin (30:10.599)

Thank you.