Puerto Rico's House of Representatives approved legislation Tuesday to allow for automatic adjustments to a tax on oil that would help ensure sufficient revenue to pay back a bond deal of as much as $2.95 billion expected by early April.
The measure was approved by the Senate last week and is expected to be enacted quickly by Gov. Alejandro Garcia Padilla.
Puerto Rico needs to sell the bonds to improve its liquidity position outside of financial markets for up to two years while it pushes fiscal and economic reforms.
Lawmakers agreed to ensure that investors in the deal would have sufficient coverage by including a clause to hike the oil tax if it failed to raise $325 million annually to make the bond payments. If oil tax revenue surpasses expectations, the tax rate could be adjusted downward.
The legislation calls for the Treasury secretary to certify the amount of money raised by the tax by March 31 of each year. The adjustment would then be made effective on the following fiscal year starting July 1. The first adjustment will take effect July 1, 2017, according to the bill.
Lawmakers inserted stronger "anti clawback" language protecting the oil tax revenue from being redirected for other uses. The legislation extends a general obligation constitutional guarantee for the bonds and allows investors to sue in New York state courts for any claim arising from the bond deal.
The 68 percent oil tax hike backing the deal raises the tax on a barrel of oil to $15.50 from $9.25 and takes effect on March 15.
It is unpopular and comes during an austerity drive this year that cut government spending by $1.4 billion. Most of the proceeds from the deal will be used to repay a $2.2 billion GDB loan to the Puerto Rico Highways &Transportation Authority (HTA).
The legislation aims to transfer the GDB's $2.2 billion loan to the HTA to the Puerto Rico Infrastructure Financing Authority, along with the means to pay for it via revenue produced by hikes in the petroleum tax. The oil tax hike would also be used to support HTA operations.
The legislation has been an uphill battle for the administration, with the governor calling a special session last December after lawmakers refused to approve the tax during the ordinary legislative session by a single vote in both chambers. (Editing by Edward Krudy and Ken Wills)
Puerto Rico's House clears way for $2.95 bln bond deal
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