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Charlotte Amalie
Thursday, April 18, 2024
HomeNewsLocal newsSenate Approves Limetree Bay Oil Storage Concession

Senate Approves Limetree Bay Oil Storage Concession

The V.I. Legislature voted by a 10-5 margin Tuesday to approve a proposed 25-year concession agreement for Limetree Bay Terminals to buy the shuttered Hovensa refinery and run it as an oil storage operation. [Concession Agreement] Senators voting for the deal emphasized steady employment for more than 80 people on St. Croix and hundreds of millions of dollars in revenue for the territory.  Opponents objected to the length of the deal and that its terms were not more generous.

The agreement has Limetree Bay, a subsidiary of multibillion-dollar capital firm ArcLight Capital Partners, purchasing the refinery from Hovensa, which closed refinery operations in 2012.  Hovensa has been using the property as an oil storage business. The concession agreement proposes to keep using the plant for oil storage.

The agreement includes a $220 million upfront payment to the V.I. government, a 10 percent ownership stake and minimum payments in lieu of taxes that, after a short build-up period, will be guaranteed at a minimum of $7 million per year. Limetree and ArcLight officials and outside analysts have projected the actual annual payments will likely exceed that amount.

The government has financial equity but no operational oversight.

If ArcLight and Limetree sell the refinery, which they plan to do at some point, the government will receive 10 percent of the sales price or a minimum of $25.5 million.

ArcLight and Limetree commit to invest $125 million over the first two years to fund the restart and growth of the terminal facility. The company commits to operate the terminal for 25 years with an optional 15-year extension if the company so desires, so the agreement could last as long as 40 years – a sticking point for some senators.

The agreement stipulates at least 80 full-time jobs by the end of the first year and 80 percent of those workers must be full-time residents of the territory. As many as 200 workers will be needed for construction and cleanup.

Other components of the purchase include up to $30 million for environmental remediation and $15 million in free power to implement the cleanup.

Limetree has also committed to spending up to $6 million to renovate a multimillion gallon bitumen tank that would allow the territory to make its own asphalt for roads at a much lower cost than purchasing it off-island.

The territory also gets 330 acres of land at the Hovensa site, including 122 homes and the former Hovensa vocational school.

It guarantees V.I. access to the Hovensa fuel rack, and sale of fuel at wholesale prices, plus a 10 percent markup. Some senators were unhappy there was not a large, permanent discount on fuel prices.

Limetree is to pay submerged land use fees of $150,000 annually, while Hovensa’s lease was for $1 per year for 60 years.

The deal also requires $500,000 annually in charitable contributions, with $200,000 of that in scholarships.

The plan includes a 10-year lease with China Petroleum and Chemical Corporation (Sinopec) to use 75 percent of the storage tanks. Sinopec is one of the largest buyers of crude oil in the world and will lease storage for oil it acquires from the U.S. mainland, Africa and South America.

The agreement also calls for storing two million barrels of fuel for Freepoint Commodities LLC of Stamford, Conn.

It gives Limetree extensive tax breaks, but also ensures minimum annual tax payments.

Mapp administration officials have estimated the deal to be worth over $800 million to the territory in the short term, but that figure includes settling $368 million in disputed taxes that Hovensa was seeking in a lawsuit. Some senators dispute whether that should be included, as the territory was disputing the claims in court.

An analysis from the government’s gas and oil consultant firm Gaffney, Cline and Associates found the deal is likely to generate a little over $800 million over the first 25 years of the deal, with much of the revenue coming from its guaranteed payments in lieu of taxes and from revenue sharing. That sum includes the $220 million upfront payment.

Senate President Neville James said he supported the deal but that it was far from perfect.

"My position is the deal is an OK deal – more mediocre than good," James said. "It’s not a great deal and I think we’ve left something on the table. But the situation on St. Croix is worse than mediocre and you have to factor that in."

Later James said the Mapp administration had a strong hand after it took Hovensa to court for violating its concession agreement. "That should have been done three years ago," he said, criticizing the previous administration of Gov. John deJongh Jr. for not doing so.

"Our current governor, while he did a good thing, he did not go far enough," James said.

James said some on St. Croix are opposed to the deal because they want to see refining operations start again, "and that’s a long shot."

"The Legislature was mandated with ratification or rejection. It is what it is. The deal should be better, not could but should," James said. On the whole, approving the deal and getting the cash and jobs for St. Croix are the better option, he said.

Sen. Tregenza Roach, who voted against the deal, said he was concerned about locking in payment terms for the potential 40-year term of the agreement and about focusing solely on revenues generated from an oil storage business and refinery operations, "particularly given the amount of tax we are giving up."

Sen. Myron Jackson raised concerns about the level of charitable commitments, which he said were, in his opinion, “very low for corporate contributions." Jackson also objected to the governor’s office overseeing the charitable donations, rather than the Legislature. And he objected to the amount of submerged land lease payments and to the government having to rent tank space to store bitumen for asphalt, among other concerns.

Sen. Janette Millin Young objected to the length of the deal, the small number of jobs as compared to the thousands formerly employed by the refinery, and the amount of revenue to the government. "Eighty employees, that is not enough," she said. Millin Young also objected to including the disputed tax refund figures in the government’s revenue from the deal.

Sen. Justin Harrigan said he was concerned about giving tax breaks and set payments for up to 40 years, as well as the fact that "affiliates" of Limetree Bay and ArcLight also get tax breaks, describing it as a "chimney" for untold losses of tax revenues.

Sen. Clifford Graham said he believed the sale process was fair and the deal a good one. He said senators who wanted to change the terms of the agreement were  misunderstanding the role of the Legislature. "The Senate does not negotiate; it only ratifies," he said.

Sen. Almando "Rocky" Liburd said the deal would bring in money, jobs and economic activity. "Let’s not throw out the baby with the bathwater," he said.

Voting to approve the concession agreement were James, Graham, Liburd, Sens. Marvin Blyden, Jean Forde, Novelle Francis, Kenneth Gittens, Nereida "Nellie" Rivera-O’Reilly, Sammuel Sanes and Kurt Vialet. Voting no were Harrigan, Jackson, Roach, Millin Young and Sen. Terrence "Positive" Nelson. 

Mapp praised the senators in a statement after the vote.

“The additional revenues to our treasury will also assist the government in providing much needed and improved public services,” Mapp said in a statement. “As a result of today’s ratification of the operating agreement, I am directing the commissioner of Finance to release the almost $22 million in tax refunds owed through the tax year 2014.”

“The ability to get this task completed in a timely manner demonstrates the territory’s eagerness to open our doors for business investment,” Mapp said.

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