Gov. Kenneth E. Mapp this week formally approved his proposal to change Limetree Bay’s operating agreement to smooth the way for a potential partial restarting of the shuttered former Hovensa refinery on St. Croix.
Government House announced the signing in a news release issued Tuesday.
Mapp presented the deal-sweetening refinery terms as an omnibus package with multiple changes to the government retiree system’s funding and board; a $10 million loan to a hotel developer and more. But senators split off the non-refinery elements and sent them to committee for more review.
Senators telegraphed the move to split off the components of Mapp’s proposal when the Legislature met in committee of the whole and took testimony July 20.
In a statement Tuesday, Mapp reiterated promises the deal will result in a restart of the refinery and may create up to 1,300 temporary construction jobs and as many as 700 long-term positions.
The agreement Mapp approved explicitly extends the time-frame to “evaluate” a refinery by nearly a decade.
The former, 2015 agreement envisions a refinery and sets annual payment rates for it. It gives Limetree Bay three years to decide whether to restart or take down the refinery and sets payments and terms for a refinery. That evaluation period ends the first week of January 2019. If it did not restart the refinery, Limetree Bay would have another three years – until just after the end of 2021 – to deconstruct the above-ground portion.
The agreement Mapp signed into law this week starts that clock anew, giving ArcLight and Limetree Bay three more years, or until 2021, to evaluate whether or not to restart. And it adds a new provision, not in the current agreement, allowing Limetree Bay to unilaterally extend the evaluation period by up to two more years, or until late 2023. Then it would have three more years – until late 2026 – to actually deconstruct the refinery.
During legislative hearings on the bills, Limetree officials said they hoped to start construction in September and hoped to restart the refinery before 2020. But they did not commit to doing so. While administration officials spoke of the restart as a certainty, when Jake Erhard of ArcLight Capital, parent to Limetree Bay testified to the Legislature, he qualified the promises.
“Assuming Limetree is successful in effecting a restart, the proposed project would bring considerable benefits to the USVI,” Erhard said. (Emphasis added)
Sen. Marvin Blyden asked why, if Limetree Bay is invested in moving forward with the refinery, the agreement gives Limetree Bay several years to evaluate and no obligation to restart.
Geoffrey Eaton from Winston and Strawn. the V.I. government’s longtime hired counsel, answered Blyden, saying that unlike Limetree Bay’s terminal oil storage operation, “there is not an affirmative duty to do that” referring to restarting the refinery.
The deal brings $70 million in immediate cash to the territorial government. Of that, $30 million is proceeds from selling land and $40 million is a loan. If the refinery restarts, it will be repaid in a few years out of refinery payments in lieu of taxes, which can vary from $14 million up to $70 million per year, depending on certain spot market prices for crude oil and refined products. If the refinery does not restart, it will be paid back by cutting Limetree Bay’s payments in half for its oil storage business. Those bring the territory a minimum of $7 million per year.
Mapp also trumpeted the potential for refinery revenues to add several years to the life of the V.I. government’s failing pension system. Mapp’s projection of extending the Government Employee Retirement System by five years, to 2028 or 2029, assumes three things: that several painful and expensive GERS reforms are enacted into law and paid for by the government when the time comes; that the refinery does restart by 2020, and that revenue comes in to the government at the absolute top end of the projections made by the administration’s hired consultants.
“We are rebuilding the economy of the territory with the resumption of petroleum refining at the Limetree Bay refinery,” Mapp wrote in his transmittal letter to Senate President Myron Jackson. “This revenue sharing agreement between Limetree Bay Refining, LLC and the people of the Virgin Islands will generate vital needed revenues to add more solvent years to the Government Employees Retirement System, provide vital public services to our community and sustain living wages to public employees,” Mapp continued.
He also urged the Legislature to enact the other parts of his proposal, dealing with GERS and a hotel deal.
“I look forward to working with members of the Legislature on these very critical and important economic issues affecting the territory. … Let’s do what we did with the first two agreements and make this a positive achievement for our territory,” Mapp said.