Gov. John deJongh Jr. on Friday submitted to the 30th Legislature the document governing a 14-month sales process of the Hovensa refinery on St. Croix.
The Fourth Amendment Agreement between the Government of the Virgin Islands and Hovensa covers the potential sale of the company’s assets, including the shuttered refinery on St. Croix’s south shore. It has been signed by both the government and the company.
The agreement, the governor’s letter submitting it to the Legislature, and a proposed bill ratifying the agreement, can be downloaded here.
The agreement, if approved by the Legislature, assures the continued sale of fuel from the Hovensa truck rack as the sale-process moves forward, Government House said in a news release Saturday. The agreement will also permit Hovensa to temporarily operate as an oil storage terminal during the sales process period.
Legislative approval is required, as the proposed Fourth Amendment Agreement represents a modification to the existing Concession Agreement which runs through 2022.
“The 30th Legislature’s approval of the submitted agreement will allow the process of getting a new owner to begin, which will ensure that the facility is once again a place of job creation and generation of tax revenues for the territory,” deJongh said.
A report commissioned by the government suggests a new owner could reopen the refinery, potentially creating thousands of jobs in the territory. Some industry analysts have cast doubt on that likelihood, but in his letter submitting the agreement to the Senate, deJongh called it a realistic scenario.
"Let me assure you, a reopened refinery is an attainable goal. It is true that Hovensa has been losing money on its refinery operations for several years. But as recently as 2008 it was extremely profitable. Duff & Phelps’ (the company that studied the issue for the government) analysis concluded that the refinery’s current problems – most notably its high energy costs – can be remedied, and it can be profitable again in the hands of an owner committed to the refining business and willing to make reasonable capital investments with that commitment."
DeJongh said the agreement represents a significant step forward towards the refinery’s sale.
“Our negotiations with the refinery’s owners have been long and difficult, but seeing if we can get the refinery reopened has been important to me and many in our community. For the last year and half, we have experienced what a closed refinery means to our economy and that continuing scenario is something we can ill afford, given the prominence of its location and, quite frankly, its potential value locally and to an industry that is going through a transformation that we can be a part of."
In a letter to Senate President Shawn Michael Malone accompanying the agreement, de Jongh said, “I believe the amendment provides a major opportunity for the territory to heal its economic wounds and allow our people to move forward to a brighter future. Upon full consideration by the Legislature, I strongly urge you and your distinguished colleagues to approve the bill and pass it into law.”
Some of the key terms of the agreement include:
• The sales process will begin upon the Senate’s ratification of the agreement;
• The sales process shall not exceed 14 months from the date ratified by the Senate;
• Hovensa will make available storage for fuels sufficient to meet the needs of St. Croix for as long as Hovensa is operating an oil storage terminal;
• Hovensa will make fuels available to the government and the public at its truck rack through March 2014, after which date Hovensa will assist the government in securing responsible third-party suppliers and operators;
• Hovensa will invest a minimum of $500,000 annually in career technical and scholarship programs for so long as the terminal is owned by Hovensa; and
• Hovensa will provide the University of the Virgin Islands with access to the Hovensa Training School;
For its part, the USVI government has agreed:
• To suspend Hovensa’s obligation to bid on the WAPA fuel supply;
• To reduce Hovensa’s obligations for payment in lieu of property taxes to $7 million annually commencing Oct. 1 for so long as Hovensa is operating an oil storage terminal, after which time it will return to $14 million annually. If the refinery is not sold or if Hovensa ceases to operate an oil storage terminal the company will make to the government a lump sum payment of such amount as is necessary for the government to recoup all payments foregone.
Terms of the agreement require that the sales process be managed by an investment banking firm which must retained by Hovensa’s owners no later than 10 days after the agreement is ratified by the Legislature.
In his Friday transmittal letter to Malone, de Jongh addressed some of the concerns that lawmakers have raised.
“Several senators have expressed concerns with the amendment’s partial deferral of Hovensa’s payments in lieu of property tax. Under the Concession Agreement, current PILOT payments are set at $14 million per year. Under the Fourth Amendment, they will be temporarily reduced to $7 million per year beginning on October 1, 2013, and extending through 2019, or for so long as Hovensa operates an oil storage terminal. The deferred amount may be as little as $7 million (if the refinery is sold as planned in 2014) but no more than $42 million (if the refinery is not sold and Hovensa continues to operate its storage terminal for the full period allowed by the agreement).”
DeJongh added that the amendment is structured so the government is almost certain to be made whole for all of those amounts. According to Government House, if the refinery is not sold, the government will recoup every dollar of foregone revenue, plus interest.
If the refinery is sold during the sales process period, the foregone revenue cannot exceed $7 million, which deJongh called a very small price to pay for a restarted refinery.
“We cannot afford to have 2,000 acres of a rusting metal façade sitting idle in the middle of St Croix providing neither jobs nor economic activity necessary for our well-being," deJongh said in urging the Senate to ratify the agreement. "This is not the original course that Hovensa and its owners wanted, but it is the best course for the longterm interest of our community: we allow a company to exit that no longer wants to be here, we explore the preferred alternatives, and then we negotiate a new agreement with a new owner under terms and conditions that are in the best interest of our people and our territory.”
