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Local news — St. Croix
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Governor Slams Hovensa Proposal, Threatens Lawsuit

Reopen it, sell it or we’ll see you in court. That’s the message Gov. John deJongh Jr. delivered to Hovensa executives concerning their closed refinery on St. Croix during a primetime address to the territory Monday night.

The territory has been awash in rumors and speculation as to the fate of the refinery since Hovensa announced the closure on Jan. 18. Until now the government has been largely quiet on the issue, allowing Hovensa to control the narrative.

Since the closure, the company has championed the idea of converting the refinery into an oil storage facility. The facility would employ around 100 people, far fewer than the approximately 2,000 previously employed at the refinery, and would require several new tax concessions from the V.I. government to function.

In his speech, deJongh said he agreed to consider the plan in exchange for Hovensa continuing to supply fuel oil to the territory at a discounted rate through the end of the year. The agreement stipulated he present an answer to Hovensa by Monday night.

That answer was an emphatic “no, thank you.”

DeJongh opened his televised speech on a combative note, recalling the day John Hess, chief executive officer of Hess Corporation, called to inform him that the following day Hovensa would announce the refinery was closing.

“Mr. Hess was not calling to ask us to do anything or to ask me for our thoughts on the matter,” deJongh said. “He was simply calling to inform the government and the people of the Virgin Islands of a decision that had already been made.”

“That we received less than 24 hours notice was a sure indicator of just how little the U.S. Virgin Islands has come to mean to Hess, as well as for its partner, PDVSA, despite the fact that the Virgin Islands and its people have been partners with Hess for the better part of a half a century,” deJongh continued.

In no uncertain terms, deJongh dismissed Hovensa’s oil storage facility proposal, saying it simply would not benefit the territory. He said the concessions sought by Hovensa were too steep, including a reduction in their property tax payments from $14 million to $4 million a year, an extension of their submerged lands permit at a rent of $1 a year, and tax benefits for the oil storage facility’s customers, though he did not elaborate what kind.

“And the entire package was initially presented to us as somehow nonnegotiable,” deJongh said. “As somehow not requiring justification or factual support.”

DeJongh went on to accuse Hovensa of preying on the fears of Virgin Islanders to push the deal forward. He said the company had willfully spread the rumor that oil and gasoline shipments to St. Croix would be cut if they did not receive the concessions they were seeking.

DeJongh seemed to be referring to comments made by Brian Lever, Hovensa’s president and chief operating officer, at the USVI Hotel and Tourism Association’s annual meeting on May 22. Twice during that meeting, Lever stated that the only way to move gasoline onto St. Croix was through Hovensa’s jetty.

Lever told the crowd there was no reason to fear a gas shortage, “assuming we get the concession agreement from the government.”

In July, the government hired financial analysis company Duff & Phelps to review Hovensa’s proposal and to come up with possible alternatives. DeJongh announced that the company’s investigation found that the Hovensa facility could still be run as a profitable refinery if certain upgrades were made.

Duff & Phelps found that the key element hindering the refinery was its reliance on burning oil to create electricity. If the refinery could be switched to a liquid natural gas system, it could drastically cut its overhead and continue refining oil at a competitive price, they found.

DeJongh demanded that Hovensa commit to making such an upgrade or sell the facility to a company that would. He pledged the support of the V.I. government in enacting these upgrades, saying they could ultimately lower the electricity bills of residents as well.

“If the infrastructure that would bring significant benefits to the refinery would, as it appears it could, also bring benefits to WAPA and to its ratepayers, then this government stands ready to participate fully and cooperatively with respect to all aspects of that conversion, including capital investments, the use of tax exempt financing and whatever other matters government participation can influence including facilitating permits and intervening in federal regulatory proceedings,” he said.

If Hovensa refuses to convert or sell, deJongh said he would expect the company to continue to honor its responsibilities under the current concession agreement, known as the Third Extension Agreement, including the supply of fuel oil to the territory at a discount.

Hovensa officials have previously said that they believe the agreement only applies to the operation of a refinery and is thus moot since the facility shut down.

DeJongh disagrees with this interpretation, arguing that the agreement is a binding contract and Hovensa must continue to abide by it “for the next decade at least.” In his speech, deJongh indicated that he was not afraid to argue the matter in court.

“If Hovensa disagrees, as it does, then the interpretation of that contract provision falls to the lengthy and expensive procedures of litigation,” he said.

The governor sought to reassure the public that, regardless of what Hovensa decides to do next, the supply of fuel oil and gasoline to the territory will not be interrupted.

“I hope that the implicit threat contained in the regrettable remarks of their local executive will not be translated into an action that will not be permitted to stand threatening public health and safety,” he said.

DeJongh concluded his speech by once again calling on Hovensa executives to sell or reopen the refinery and reiterating his opposition to the oil storage plan.

“By now you know, and Hovensa knows, that the position of this government is that the company cannot simply walk away from the obligations set forth in our contract,” he said. “But I commit to you, the people of the Virgin Islands, that I will work with these owners or future owners of the refinery to build a joint future that benefits us all.”

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This is the death knell for the VI. HOVENSA is now going to retaliate, cut off fuel to WAPA and close off their rack system.

Energy costs are going to explode, and the island is going to sink into the sea.

Time to get off while you still can.

Gov. DeJongh is trying to cover his backside and deflect criticism from the government for failing to prepare for this inevitable day. Everybody knew the refinery was hemorrhaging money at a rate that was unsustainable, even for an oil company. Yet no one planned ahead and now everyone in government is pointing fingers.
Gov. DeJongh's temper tantrum against HOVENSA would be comical if the affects of the closure weren't so dire for so many decent and hard working people in the territory. Sadly, once again, the government of the USVI has let its people down.

The Governor is correct. Brian L. was brought down to St. Croix to shut down the refinery. This was something that was decided long before Brian L. landed on the island. This was no knee jerk reaction. Didn't Amerada Hess Corp. net around $21 Billion in 2007? Yet, today, they want a concession that reduces their annual property tax from $14 Million to $4 Million. A $10 Million savings to them. That is a drop in the sea to Hess and PDVSA. Both sides (VI & Hess) have had to give and take over the years. That is what partnerships are all about - mutual sacrifices. For example, the people of the VI have had to endure years of pollution to our air, sea, and ground water. What clean-up efforts are in place right now to clean up our ground water network? The VI government has allowed Hess and his crew to get away with their agendas for years - remember the coercive 'Dispute Resolution Agreement'. You must sign or no job here. The Governor is doing exactly what we elected him to do.. Stand up for us and improve our situation.

I guess you don't understand what losing a million dollars a day as a refinery means.

Look up another word - bankruptcy.

Duff & Phelps have confirmed what most of us already knew. In order to bring the margins into the black the refinery would have to convert to LNG. There are other reasons why Hess made his decision - $70 Million per year in environmental mandates for 10 years and $$Millions in improvements to the current piping and equipment. Those pipes were springing leaks every day. The refinery is old and the material's spec. used when it was originally built would probably not pass today. My point is, Hess and PDVSA should do something to improve their facility or put it on the market so another company can make the necessary investments/improvements. These companies rake in Billions per quarter but they shut down instead of investing a couple hundred million to turn a profit. The Coker cost over $500 Million and the FCC over $2 Billion. Let me not get into the quarterly net income of PDVSA. An LNG terminal is small peanuts to these billionaires. No special Concessions. The $14 Million dollar per year tax bill is a driver. It will be an influencing factor to help them decide to open shop or sell out.

I am amazed that we have people living among us that always feel that they must bash the Governor, the VI Senators, and the people of the VI. I think that the haters should pack up and leave. They chant how life is so great up in the states. Why are they here? The states are waiting for you with open arms. I lived in Texas, Kansas, Florida, New York, and other mainland places and I can tell you that none compare to the life we live in the VI. Up there, going for a drive is one boring stop light after another. The beaches suck unless you're in Hawaii. Kansas has been over 110°F every day for the past month. Dont mention the copper head, rattle, cotton mouth and other poisonous snakes. And let's not forget the recluse spider that is practically in everyone's home in the mid-west. You go or stay there, I ain't leavin' the VI.

Thanks for all of the words of encouragement. You know some of us have no choice but to leave. We've lost our jobs and probably our homes to foreclosure.

But you go ahead and bash your neighbors. You can pat yourself on the back for being such an understanding human being.

Just think, for all of your kindness and understanding you get the prize !!!! You get to pay triple and possibly quadruple more for electricity. Second prize is double the cost for groceries and gasoline. Don't forget the booby prizes of fewer teachers, police, firefighters,and EMT's. All of this brought to you by your incredibly effective government.

LOL i left and i should've left sooner. no more $1000 a month electric bills! i can buy a gallon of milk for $2! no more of the same old views when i go for a drive and no potholes for my car to fall into! yes the VI had nice beaches but that was it, i spent many years there and wish i had left sooner. by the way, haven't seen any of the critters your talking about but i did see centipedes and feral dogs on a regular basis while in the VI! I feel safe when I go out at night to boot!

He deliberately did not mention the $750 million in improvements mandated by the EPA. And the cost of re-opening the refinery would exceed $200 million alone.

Anybody got a BILLION dollars to re-open Hovensa laying around?

And it would still lose a million a day operationally unless you spent another 100 million on LNG storage and distribution.

Way to go Gov.

I feel really bad for the employees and other local people who have been affected by the closure of Hovensa.

My personal fix is for Chevron to by the refinery and transfer my husband there to hire back all of the Hovensa employees! (And of course, we'll have to move to the islands!)

It is my sincere wish that this problem is worked out in a way that is best for the people of the Virgin Islands, and best for the ecology of the Carribean.

Who negotiated the submerged lands permit at the rate of $1.00 per year? What a give-away!

Alana, what is the current rate that they pay?
Does the Renesance Park pay any? I wonder how you came to that position?

In the above article it states:

He said the concessions sought by Hovensa were too steep, including a reduction in their property tax payments from $14 million to $4 million a year, an EXTENSION of their submerged lands permit at a rent of $1 a year, and tax benefits for the oil storage facility’s customers, though he did not elaborate what kind.

By use of the term extension, it means that they already ONLY pay that amount.

I have no idea how much Renaissance Park pays but surely not what it's worth as we know how able (not) our Government negotiators have been in the past.

Yes, thank you. You made my point.............................

People have already formed a strong opinion based on what the Governor said. Unfortunatley, he did not tell you about *all* of the offer, and twisted what he presented as facts. So sad.

This is not as simple as it looks. IMHO the gov't should had made this move earlier... But, it is what it is and this not the time to start criticizing... I do firmly believe that Hess should be more pro-active and try to sell this plant... The longer the refinery is down the worse it gets, and at an incredible rate..

-The site, before shutting down, was NOT in really bad shape to begin with.
-Hovensa was constantly performing upgrades, maintenance, and repairs.
-If you consider the miles of piping, leaks were minimal. Of course, there was always room for improvement.
-The east refinery is a state of the art facility! The west, with some upgrades can be brought up to snuff.
-Upgrading to CNG is not that easy. You need to find a good, reliable supplier. Build a storage facility. Because it is a different fuel, some of the existing piping will have to be replaced, and the equipment (heaters, boilers, etc) be upgraded to operate with CNG. We are talking billions of dollars here...
-Hovensa did generate pollution, but so do Diageo, Cruzan Rum, the landfill, and WAPA. I'd be more concerned about the huge pile of "Red Mud" at the former Vialco site and sewer problems around the Christiansted water front.
-Unlike a previous comment, the piping and materials used were always up to standard, and the older ones were always replaced! If it wasn't up to standard it was not used..

Did Hovensa mess up? YES, and so did the VI Government. Hess should sell the site and the gov't can also help find a buyer. But the gov't should also start a project to develop STX into a stronger tourism spot. New, modern hotels where cell phones would actually work (Try making a cell phone call from Carambola..). Tourism shouldn't be an STT and STJ affair only.

Please, don't bash others with the "if you don't like it, go, we don't need you" phrase. It is unfair to say that. My hard earned money was going into local businesses etc.

I didn't want to leave, but had no choice.. If the refinery is put back online, I want to go back, and I will stand proud, not only of the work I have to perform, but proud to be surrounded by a lot of wonderful hard working people, LOCAL people, I met there.

Peace, please...

Well said.

Well said.

Hugo Chavez has pledged $135 Billion in PDVSA Refinery improvements does this includes the LNG turbine upgrades and EPA improvements to Hovensa?
What have the engineering studies provided in line with cleaning up hovensa timelines? it is Rusting into the earth, im sure all stacks and vents are coated in lead based paint too? which havnet been painted since Hess owned refinery.
How much of that Billion dollars pledged funding is going to Hovensa overhaul? if not sell it, PDVSA Hugo has no interest in maintaining,Cleanup,compliance and repainting? Why has there been no reply to the gov request? Old east plant could become LNG areas when will the big cranes and activity upgrades begin? Read that some people in Chevron had expressed purchase interest in refinery petroleum newsletters. how much is the Hovensa refinery worth before and after upgrades? will St croix electrical grid include a switch yard to buy power from new lng sourced turbines? tidal power generation coming of age now too has this been included in the plans?

Hovensa lawsuit filing date set yet? reopening refinery? LNG solutions? Wapa default? Gov has deferred and deleted requests for status or updates on gov Hovensa demands ? Dec 31 all contract rights expire and market rack rates can escalate with higher electric rates and gasoline ? Why will no gov spokesperson comment on this ? Before EPA makes final decision to dismantle environmentally degrading rusting refinery?

October 3, 2012
[OPIS] - Existing customers at Hovensa oil storage facility on the U.S. Virgin Islands may have to pay higher costs at the end of this year 2012, if they want to continue using those strategic tanks in the Caribbean or ship out.

" The Hovensa spokesman said that the company has no plan to resume oil refining operations in response to a query by OPIS about options to mitigate Gov. John P. deJongh's government's demands. "

link:
http://www.tankterminals.com/news_detail.php?id=2036