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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.

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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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