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After the Hurricanes, Puerto Rico Eyes a Future as a Tech Hub

March 9, 2018

Late on a Sunday evening in Puerto Rico several weeks ago, a breaker exploded at a power station. After a fraught five-month recovery effort following Hurricanes Irma and Maria, parts of the island were plunged once more into darkness.

A few days later, Governor Ricardo Rosselló Nevares stood onstage at a Puerto Rico economic forum in New York asking and answering his own rhetorical question: If he had known he’d have to deal with not one but two Category 4 hurricanes, would he still have taken the job?

Rosselló’s answer (obviously) was yes. Power has been restored to more than 79 percent of homes, and the governor had hoped to reach 90 percent by March. Unfortunately, outages continue to plague Puerto Rico, as the island’s overmatched energy company struggles to fix outdated infrastructure.

Financial challenges also remain: Puerto Rico asked for $94.4 billion from Congress to rebuild the island’s infrastructure. It got about $16 billion, with $6.8 billion in disaster relief aid split between Puerto Rico and the US Virgin Islands and another $2 billion toward Puerto Rico’s energy grid.

Restoring the electrical grid falls on the Puerto Rico Electric Power Authority (PREPA), which itself is bankrupt and struggling to get the lights back on for its almost 500,000 customers. Due to inefficient and outdated machinery, the governor said, PREPA currently spends around 60 percent of its budget maintaining inefficient generators and power plants. This includes the two on the north end of the island, where explosions and fires led to the fresh blackout. A federal judge recently approved a $300 million loan to keep PREPA afloat, but that’s more or less a Band-Aid. The governor’s office is hoping to reduce the energy debt and modernize the grid by reforming and privatizing the energy sector.

“You become a pseudo-expert on energy after going through a hurricane,” Rosselló said.

The island has also received around $37 billion in FEMA recovery dollars. Yet with fiascos such as the Whitefish Energy contract, the US territory’s massive pre-hurricane debt, and disparity between the aid given to both Florida and Texas, Rosselló addressed the elephant in the room: Puerto Rico has no voting power in Congress.

“If Maria and these disasters showed anything, it’s that the response to Puerto Rico and the actions that needed to be taken were always harder for us. Nothing was given. Nothing was assumed. Everything has to be battled through, and it’s because we don’t have political power,” said Rosselló. “Why is there a difference in program funding relative to the states and citizens? Puerto Rico is a remnant of a colonial world. We’re the oldest, most populated colonial territory in the world. How can you preach democracy if it’s not being addressed in your own backyard?”

That separation from US political influence may be a major funding disadvantage, but as Puerto Rico looks toward the future, it also affords the island the freedom to innovate. Puerto Rico’s power plants are outdated; the machinery is more than half a century old. Telecommunications and internet grids were wiped out along with power. How often is an entire populace forced to rebuild its infrastructure from scratch?

The infrastructure overhaul Puerto Rico faces is unprecedented, and so is its two-pronged economic and technological push to rebuild. Puerto Rico is working with companies including Tesla to build island-wide renewable energy grids, with AT&T and other telcos on IoT-enabled 5G networks and smart cities. San Juan is also becoming an attractive destination for startups, particularly in the blockchain and cryptocurrency space, and Puerto Rico is in the process of crafting a landmark regulatory bill to catalyze the industry.

PCMag spoke to Manuel Laboy, Puerto Rico’s Secretary of Economic Development and Commerce, and Omar Marrero, Executive Director of the Puerto Rico Public-Private Partnerships Authority (P3A), about rebuilding the island’s infrastructure and fostering economic growth. There are still massive challenges ahead, but Puerto Rico’s future is bright.

Building the Cities of the Future

The catastrophic damage wrought upon Puerto Rico by Irma and Maria resulted in the largest blackout in US history. Cellular networks were crippled as well. Once you lose power, the rest of the technologies powering modern civilization collapse.

 

“Energy had a domino effect across all infrastructure sectors. We didn’t have water, because we didn’t have energy. We didn’t have communication, because we didn’t have energy,” Marrero said. “When the next hurricane comes—and it will come—we have to make sure we are ready.”

Priority number one is getting the existing energy grid back up to 100 percent and running reliably. But looking forward, even the president of the US Federal Reserve said Puerto Rico should rebuild its energy infrastructure from scratch. For starters, that means turning Puerto Rico into a testbed for widespread renewable energy, given its equatorial location and high frequency of sunny days. On that front, it’s Tesla to the rescue.

This consequential Twitter exchange between Elon Musk and GovernerRosselló led to quick action: Tesla installed a pilot project of 500kW Powerpack batteries at the Hospital del Niño (children’s hospital) in San Juan, with enough solar panels to keep the array charged. Musk also donated his own money to recovery efforts and provided Powerpacks for free, but Tesla is angling to make things official and greatly expand its solar efforts on the island to power smart microgrids with renewable energy.

“[Tesla] submitted a proposal we are evaluating right now to build a a virtual plant across Puerto Rico with energy storage similar to what they’re doing in Australia,” said Marrero. “The virtual plant would help Puerto Rico to lower the cost not only from a resiliency perspective and to help us to comply with the max requirement for the EPA, but also to lower the cost of energy. This is a great opportunity not only to rebuild, but also to rebuild with the best partners that we can get.

“The hurricanes have put a spotlight in Puerto Rico, and companies like Google, Tesla, even Virgin Atlantic are talking about how they can revitalize locations like the Luis Muñoz airport and others all across Puerto Rico.”

Marrero said Puerto Rico is working on finalizing its Integrated Resources Plan. The government wants more than 30 percent of the energy sector to be renewables at first, with that figure growing over time as the island takes advantage of wind and solar elements.

 

Next to energy and vital utilities like water, the next most important infrastructure priority is telecommunications. Puerto Rico’s blackout underscored the need for new telco infrastructure and communications networks; telephone lines and cellular sites were decimated during the storms.

AT&T, Sprint, and T-Mobile, as well as networking hardware companies like Cisco deployed large ground crews in the aftermath of the hurricans to patch and rebuild. Silicon Valley came through as well, with Facebook sending its connectivity team and Google sending in its balloon-powered Project Loon internet project, which brought LTE service back to more than 100,000 AT&T and T-Mobile customers in the two months following the hurricanes.

Marrero said Puerto Rico was already considering implementing more intelligent infrastructure, but the natural disasters pushed the government and tech companies into action.

“This is an opportunity that allowed Google and other companies to deploy their technology and see if it works…and it worked,” he said. “We want to harden communications infrastructure and deploy better technology to make it more resilient, to make sure it can withstand [future catastrophes]. We want to expand access to broadband.

“We were already considering a product similar to KentuckyWire, a broadband product essentially allowing the private sector to build the infrastructure and then get their own investments through user fees. Now our need has further sparked that interest.”

Because Puerto Rico has to rebuild from scratch, Marrero hopes the island can serve as a testbed of sorts for what the cities of the future might look like. He said that part of the aid package approved by Congress, upward of $11 billion, has to be used within two years. The government has a specific timeframe in which it needs to deploy and use technology to rebuild Puerto Rico. The P3A is exploring investments and partnerships not only in energy and communications but also toward loftier goals, such as 5G networks and smart cities. That, in turn, is an investment in attracting more startups, tech companies, and corporations to the island to help revitalize the economy.

“It’s not just about substituting the bulbs we have now with LED lightbulbs or embedded them into Wi-Fi and broadband,” said Marrero. “We are going to be as aggressive as we can. We’re preparing what I call our moonshot recovery plan. We have a Smart Cities Council helping us develop innovative ideas, and both the Rockefeller Foundation and MIT have committed to help us. We submitted an application for a grant so Puerto Rico can train local leaders, both public and private, in how they can formulate smarter projects and build smarter cities.”

A Blockchain-Fueled Startup Tech Boom

 

Puerto Rico’s infrastructure rebuild is only half the story. The island has long been a quiet home for tech companies and multinational corporations. GE, Google, Honeywell, HP, Microsoft, Pfizer, Tesla, and others all have outposts in Puerto Rico for everything from manufacturing to software development. Over the past several years, the government has unveiled a number of economic and tax incentives to attract large companies and to entice a larger crop of startups and entrepreneurs.

2012’s Act 20 includes tax incentives to promote export services, including a maximum 4 percent corporate tax rate and no minimum job creation requirement. Act 73 adds economic incentives, including a 4 percent income tax rate specifically for manufacturing, technology, and software development, as well as a 50 percent tax credit for research and development.

Manuel Laboy, Puerto Rico’s Secretary of Economic Development and Commerce, said the island has benefitted from a combination of its tropical locale, economic incentives, and highly skilled workforce.

“Puerto Rico has mostly been dominated by big corporations. There was a boom in the seventies that brought pharmaceutical and electronic giants to the island, like Intel, looking for good local incentives,” said Laboy. “The second wave was biotechnology companies and pharmaceutical groups, and a third wave was aerospace, and at that point the companies began transferring knowledge to the people. The last 10 years have been more technology-driven, with companies like Microsoft. Now everyone is starting to see the island as a place to do business.

“We still want Microsoft, Honeywell. We want all those guys on the island,” he continued. “We also now have a Google X presence through Project Loon, and Tesla’s work with solar and battery packs. But the perception we’re seeking is in addition to those guys. We want to attract technology entrepreneurs and startup companies.”

 

Startup accelerators such as Parallel18 are looking to attract international companies and talent and turn Puerto Rico into a hub of the Americas. Other prominent startups include Abartys Health, which won the 2017 Release IT competition at the South by Southwest (SXSW) conference. Abartys is building cloud-based platforms to disrupt and simplify the healthcare and insurance landscape.

The real boon for startups is Act 22, which has helped establish Puerto Rico as an attractive tropical destination for blockchain and cryptocurrency companies over the past several years. Act 22 gives a 100 percent income tax exemption to new residents for their first six years living on the island, along with no capital gains tax, while they still maintain US citizenship. Combined with no minimum job creation requirement and the R&D tax credit, these incentives are a major factor in creating what The New York Times recently dubbed a “Crypto Utopia.”

 

Dozens of entrepreneurs and startups including Block.OneBlockV, and Videocoin are flocking to the island. A more mature company with its sights set on Puerto Rico is Blockchain Industries, a fintech firm specializing in digital assets and virtual currencies, which also offers cloud-based cryptocurrency mining services. Those operations are currently located in California but are expanding to Puerto Rico and Singapore this year.

Blockchain Industries is also sponsoring the Blockchain Unbound conference (formerly called the Puerto Crypto conference) with the Puerto Rican government. Taking place in San Juan in mid-March, Blockchain Unbound is a singular indication of the growing mainstream fervor around Puerto Rico’s crypto potential. Speakers to appear at the high-profile event include Olympic gold medalist and aspiring crypto entrepreneur Apolo Ohno and Overstock CEO Patrick Byrne, as well as Laboy and Governor Rosselló.

Blockchain Industries is also making an even bigger, more audacious bet on Puerto Rico: The company is forming a state-chartered bank to hold, convert, and lend against digital and virtual assets. How that plays out, however, is tied to the Puerto Rican government’s ambitious plans for the space.

Laboy and Governor Rosselló’s administration were not exactly thrilled with the New York Times article’s characterization of Puerto Rico as a lawless crypto haven. Long before the article ran, the government had begun working on a first-of-its-kind regulatory framework to turn the island’s blockchain and cryptocurrency activity into a quantifiable industry.

“This view of a cryptopia tax haven promoting illegal activities and fraud portrays a completely distorted view of what we think this could be for Puerto Rico,” said Laboy. “We want to craft a bill that is going to establish a necessary framework to both safeguard the interest of Puerto Rico and at the same time achieve the goal to be a major jurisdiction for blockchain and cryptocurrency.”

The administration has been working on the regulatory proposal for several months and hopes to make it a reality by the end of summer. They’re looking to create a friendly framework for attracting blockchain and cryptocurrency innovation, but with a clear set of rules to avoid illicit activities. Laboy wouldn’t divulge many technical specifics of the potential legislation, but said he sent representatives to events such as the North American Bitcoin Conference in Miami this past January to talk to industry stakeholders.

“We want to achieve two goals. We wanted to validate that this is the right direction, and number two, we want to get the details right. The [representative] put together a great scouting report about the [Bitcoin conference] and submitted it to the governor, who has been very interested in this since last year,” said Laboy. “I’d like to have something submitted before June 30That’s my goal, which is very aggressive, but certainly we would like to have something before the end of the year.”

Puerto Rico has an opportunity to become a real player in a number of different emerging spaces—not only the blockchain and cryptocurrency but renewable energy as well, Laboy said. He pointed to the Integrated Resources Plan and how the governor is looking to leverage the island’s recovery efforts and funding to rebuild, and also to leapfrog the competition on renewable energy with an ambitious infrastructure plan.

He sees the same sort of opportunity for blockchain. Countries around the world, including the US, Russia, the Philippines, and South Korea, are beginning to regulate cryptocurrencies and initial coin offerings (ICOs). Puerto Rico hopes to pass regulation that—thanks to the island’s accelerated economic plans tied to recovery—could help set precedents for the emerging space.

“Not only do we want to be a player and be relevant, we want to be a pioneer. We know that Wyoming, Nevada, and other states are trying to do the same thing, and that countries like Japan, Singapore, and South Korea are putting similar things in place,” said Laboy. “Blockchain technology is going to revolutionize all transactions through decentralized networks. It’s more effective, more efficient, and more transparent. If we don’t get into this within the next five years or ten years, we are going to become irrelevant. That’s why I would like to use the word ‘pioneer.'”

Puerto Rico is still deep into the recovery process from an unprecedented scale of widespread natural devastation. Yet Puerto Rico pushes forward. As the island rebuilds its homes, power grid, and telecommunications infrastructure, there is much hope to be found. The government and the tech and startup ecosystem helping to revitalize Puerto Rico’s economy envision an island of the future dominated by renewable energy, smart cities, and tech-driven prosperity. As Laboy put it in his presentation at the New York economic forum, he wants entrepreneurs and innovators to help Puerto Rico rebuild and to come “live and work in a tropical paradise.”

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