If an agreement for the sale of Hovensa refinery is approved and if the buyer successfully restarts the refinery and if all goes as planned, the restart could perhaps generate up to $1 billion in direct economic impact, according to the V.I. Bureau of Economic Research.
Government House released the BER report Tuesday, a week before the Finance Committee considers the agreement. [BER Refining Agreement Report]
"Taking into account ABR’s proposed $1.1 billion in costs, in the form of compensation, training and raw materials associated with the engineering, rehabilitation, construction and restart of the Hovensa oil refinery, $550 million is estimated to be sourced in the territory," BER Director Wharton Berger said in a Dec. 2 letter transmitting the report to Senate President Shawn-Michael Malone.
"Given this estimate, this report concludes the ABR Operating Agreement may potentially generate $1 billion in direct economic impact on the Virgin Islands economy, during the 36 month period, creating over 2,000 jobs, primarily on the island of St. Croix," Berger said.
Gov. John deJongh Jr. said, "A thorough reading of this report will answer many questions about the costs involved in refurbishing the Hovensa refinery and ABR’s commitment to the initiative and to the Virgin Islands."
According to the statement from Government House, deJongh said, "I think it is important for the people of our community to understand that eight refineries, not including Hovensa, have closed in North America since 2010. After an extensive search by the owners of Hovensa, we have a company that is interested in restarting the facility on St. Croix and that the company has committed to making a $1.1 billion investment to do just that."
The company has also agreed to employ a minimum of 500 full-time employees, of which 75 percent must be V.I. residents, and 100 full-time equivalent contractors, deJongh said. "This agreement could very well be the ‘shot in the arm’ our economy needs," he added.
“Admittedly there are risks, but we believe those risks have been addressed by certain requirements in the Operating Agreement and these risks are better than the risk of doing nothing,” he said.
Berger’s report finds the long-term economic benefits of the agreement are "substantial" and that compensation for the 600 full-time employees and contractors could be in excess of $100 million annually. The compensation could have "an estimated direct economic impact of over $175 million annually when adjusted to include personal consumption expenditures – all this in addition to the direct revenues obtained by the government in the form of mandated fixed and variable payments from ABR."
Including both renewal periods, ABR will be obligated to make over $1.6 billion in fixed payments to the government, in addition to annual variable payments based on profitability, the report said.
In its conclusion, the report reiterates the benefits of restarting the refinery and calls it "one critical element in the government’s plan to improve employment opportunities and provide energy security on the island of St. Croix." However, the study also states that "the restart of the refinery is not a panacea for the territory’s economic problems.”
It concludes, “Additional private and public investments in manufacturing, construction and service sectors beyond the proposed $1.1 billion in total expenditures required to restart the refinery are needed."
In September, Government House announced the tentative sale of the refinery, which closed in 2012, costing the V.I. economy more than 2,500 jobs. It announced Atlantic Basin Refining Inc., a recently created V.I. company, had negotiated the purchase of the refinery.
On Nov.1, deJongh released a legislative proposal codifying the negotiated operating agreement for the refinery. [ABR-GVI Operating Agreement and Transmittal]
The operating agreement requires legislative ratification before the sale can be closed, because it includes legislative action on tax breaks and other issues. DeJongh called a special session of the Legislature in November to act on the agreement.
Citing a need for more review and concerns over the shallow financial resources of the prospective buyers, the V.I. Legislature voted unanimously to send the agreement to sell and reopen the Hovensa refinery for further review in committee. ABR has described itself as "thinly capitalized" and expects to finance the project and investments ultimately through future refinery revenues. (See Related Links below)
The bill is on the Finance Committee agenda for Dec. 16.
