By Hilary Russ

NEW YORK (Reuters) – The U.S. Treasury has delayed a $4.7 billion post-hurricane loan to Puerto Rico and reduced the amount by more than half, and the resulting financial strain threatens to disrupt essential services, the island’s governor said in a letter asking U.S. congressional leaders to intervene.

Congress approved the community disaster loan in October as part of a larger relief package after hurricanes Harvey, Irma and Maria devastated the island, which was already dealing with the largest government bankruptcy in U.S. history.

But four months later, the U.S. territory still has not received the loan. Last week, the Treasury said it wanted to shrink the amount to $2.065 billion and impose special terms and conditions, according to Governor Ricardo Rossello’s letter, dated Feb. 26.

The Puerto Rico government “may be forced to cut deeply into its liquidity reserves and make the untenable choice of which essential services to cut so that it can maintain other essential services,” Rossello wrote.

The risk of interruption to the island’s electric, water, sewer or other utilities is a direct result of Treasury’s “misguided delay and policy decisions,” he said.

Hurricane Maria, Puerto Rico’s worst natural disaster in nine decades, hit as the island was trudging through an unprecedented economic crisis.

The island declared a form of bankruptcy last May, shouldering some $120 billion in combined bond and pension debt.

Community disaster loans – which are usually forgiven – are just one form of disaster relief. The island’s latest fiscal recovery plan assumes $49.1 billion of federal disaster aid altogether.

The Treasury “intimated that the loans will not be forgiven under any circumstance” and focused more on repayment than on relief for the island’s residents, Rossello’s letter said.

The delayed federal loan has also forced the island’s government “to rely on its own limited liquidity to fund an emergency loan to the Puerto Rico Electric Power Authority,” or PREPA, Rossello’s letter said.

The strained electric utility will need yet another cash infusion in the next 30 to 45 days, he said.

Officials from the Treasury Department and other agencies met on Monday with the Puerto Rico Financial Oversight and Management Board to discuss terms under which the U.S. government will offer community disaster loans to Puerto Rico, Treasury said in a statement.

It said the conditions would include “important steps that will be taken to protect federal taxpayer investments while ensuring funding is available quickly when needed.”

The Treasury Department said Puerto Rico could use the money to make loans to PREPA and other public corporations.

(Reporting by Hilary Russ in New York; Additional reporting by Roberta Rampton in Washington; Editing by James Dalgleish and Lisa Shumaker)