Monday’s announcement that the owners of Hovensa LLC – HOVIC and PDVSA VI – is preparing to close the fuel rack at its shuttered St. Croix refinery, puts the ball squarely in the V.I. Senate’s court, Gov John deJongh Jr. said Sunday.
The Senate held an extensive hearing on the proposed operating agreement for the refinery. The deal between the Government of the Virgin Islands and Atlantic Basin refining, the company that came forward to purchase and reopen Hovensa’s refinery, would be the basis for the company to reopen the facility.
Afterwards, the Senate voted Nov. 12 not to approve the deal, but refer it to the Finance Committee for further review.
Monday, the company announced that because of its "dire" financial condition and the fact that the owners will not put any more money into it, it will begin closing the St. Croix fuel rack. The rack is the source of the territory’s automotive and aviation fuel and the diesel fuel which runs the generator’s for the Water and Power Authority.
In a statement released Sunday by Government House, deJongh said the announcement should have come as no surprise.
"What the owners said this week is consistent with the Nov. 11 correspondence from their legal counsel to both the governor and Senate President Shawn Michael Malone. That correspondence laid out Hovensa’s course of action should there be no approval of the proposed operating agreement."
Approval of the agreement is necessary for the owners to sell the refinery to ABR.
“The operating agreement negotiated by my administration and Atlantic Basin Refining remains before the 30th Legislature for whatever further analysis and deliberations are deemed required by the Senate Finance Committee. It also remains the decision of the 30th Legislature to determine whether any possible misgivings about the selected buyer, ABR, outweigh the risks that will come if there is no sale of the refinery, no prompt payment of the $45 million to be paid at the closing, and the failure of the government to obtain a release of claims from the owners of Hovensa which would leave the government without those releases standing between the government and Hovensa’s claims that it is entitled to tax refunds totaling in the hundreds of millions of dollars,” the governor noted.
The governor pointed out that if there is no approval, and thus no closing, the territory will face aeveral challenges, beginning with the company’s decision to cease operations. If the Senate approves the operating agreement but the companies cannot close the sale, we will be in the same position. The question is whether the risks of rejecting the operating agreement to avoid the possibility that ABR will fail to fulfill its closing obligations is worth taking. That was the question asked and answered by the administration before it signed the operating agreement and that is the question that now needs to be answered by the 30th Legislature.
The government will be in the same position whether the Senate does not approve the operating agreement, or it approves it but the sale does not go through for other reasons. According to the governor, the territory will have legal options, including use of emergency powers, to prevent the territory being cut off from needed supplies of fuel.
"The government is prepared to use all of its powers to ensure a steady supply of fuel to the territory, particularly on the island of St. Croix,” deJongh said.
The governor said litigation would likely be expensive, but would be made unavoidable if the 30th Legislature if, by its action or inaction, removes the possibility of a sale of the refinery.
The senators have been fully briefed and they understand what action is required now, and the magnitude of the risks we all face, deJongh said.
“We have come a long way since January 2012 (when Hovensa announced it was shutting down the refinery) where we withstood the initial panic, and moved Hovensa’s owners from their ‘no-sale’ posture to their undertaking a sales process conducted by a third-party investment bank that cast the broadest of nets to identify potential buyers for the refinery," he said.
"ABR was the only party willing to submit a bid to operate Hovensa’s as a refinery, a refinery that lost $1.5 billion over a three-year period prior to its closure. These losses are believed to form part of the basis for Hovensa’s claim of large tax refunds, a future risk eliminated with approval by the 30th Legislature of the proposed operating agreement with ABR," according to the governor.
DeJongh said the V.I. Bureau of Economic Research will submit its analysis of the economic impact of restarting the refinery to the Senate early next week. He said he is sure the analysis will assist in their review of the agreement.
"It is now to the 30th Legislature to decide," the governor said. "If they decide not to approve the operating agreement in a timely manner, then we will respond to whatever next action Hovensa takes in a way that is in the best interests of our community."
