Puerto Rico's governor courts new investors to rebuild the power grid despite defaulting on past promises

Key Points
  • Gov. Ricardo Rossello says Puerto Rico needs new money to rebuild the hurricane-damaged "1950s energy grid."
  • At the same time, Puerto Rico is tangled in a $70 billion bankruptcy-like fight in federal court over defaulted bonds.
  • The governor says he opposes new cuts being demanded by the island's federally appointed financial oversight board.
Puerto Rico governor on the island's long road back to recovery

Puerto Rico Gov. Ricardo Rossello wants to turn the devastation left by Hurricane Maria seven months ago into an opportunity for residents of the U.S. territory.

While trying to restructure past financial troubles that were only exacerbated by the damaging storm, Rossello told CNBC on Wednesday he needs investment from public and private sources to help rebuild the island and update its "1950s energy grid."

Maria wiped out power to all of Puerto Rico on Sept. 20, 2017. It's taken months to get most of the island back online, but the grid remains vulnerable.

"Right now, we're putting the energy grid back up. We're about 98 percent of clients with energy," Rossello said on "Squawk Box," one week after a power line failure had plunged the entire island into darkness again. The governor has said he plans to privatize the bankrupt Puerto Rican Electric Power Authority, known as PREPA.

"Puerto Rico already had antiquated energy systems. When the biggest devastating event in the modern history of the United States hit our island, we could anticipate that is was going to be a major disaster," he said. "We think we have a great opportunity to leapfrog into energy 2.0."

Residents of the El Salto neighbourhood share a meal during New Year's Eve after Hurricane Maria damaged the electrical grid in September, in Morovis, Puerto Rico December 31, 2017. Picture taken December 31, 2017.
Alvin Baez | Reuters

However, new investment to overhaul the power grid might be hard to come by as potential investors look at the $70 billion bankruptcy-like fight in federal court in New York over which parties should be paid first on defaulted Puerto Rico bonds.

Puerto Rico first defaulted on its general obligation bonds in July 2016, when it failed to pay roughly $1 billion owed to its creditors, and hasn't made any payments since.

"We're engaging with the stakeholders," Rossello said.

To potential investors, he said, "This is a once in a lifetime opportunity. We have essentially a blank canvas to do an energy grid that's a model for the world and for a lot of investment to come."

"The first step is to make the laws applicable to that in Puerto Rico. Secondly, we have an oversight board in Puerto Rico which limits our capability of going to ask for money," he said.

The governor said he opposes new cuts being demanded by the island's federally appointed financial oversight board, which unveiled last week a push for pension cuts and labor reforms. The oversight board was established in 2016 to help Puerto Rico restructure its debt.

"We're making the biggest cuts in the modern history of the United States in government right-sizing. When we see they add more austerity cuts, we feel that it's going to impact negatively the economy," Rossello said.

— Reuters contributed to this report.