Although many senators said they had concerns about its content, the Senate Finance Committee voted to send an agreement to sell and reopen the Hovensa refinery on to the Rules and Judiciary Committee for further consideration in a 2:45 a.m. vote Wednesday.
In September, Government House announced the tentative sale of the refinery, which closed in 2012, costing the Virgin Islands 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, Gov. John deJongh Jr. 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 taxes and other issues.
DeJongh called a special session of the Legislature in November to act on the agreement. Senators expressed skepticism about the agreement’s provisions releasing Hovensa from all liability upon the sale and about the ability of ABR to pay for cleanup if the deal falls through. The Legislature voted unanimously to send the agreement to the Finance Committee to be vetted in committee.
Senators peppered ABR representatives, government officials and other testifiers with questions about releasing Hovensa from any liability, about ABR’s ability to perform and what recourse the government would have if ABR was unable to reopen the refinery.
ABR Managing Director Steven Schmitz said ABR is confident in the refinery’s potential despite Hovensa’s losing money. Schmitz said Hovensa was constrained by having to buy Venezuelan heavy sour crude, depended on its own heavy fuel oil for power generation and struggled to meet new emissions limits with its sour crude and the refinery configuration. By reconfiguring the plant to refine sweet light crude, it can avoid many of Hovensa’s difficulties, he said.
In the first six years, ABR has fixed payments of $14 million and no variable or site restoration payments. The sum is set at the same level Hovensa pays in lieu of property taxes.
In year seven, the fixed payment is $32 million, and 10 percent of income up to $200 million, or less if ABR meets employment thresholds. The sums increase gradually over time to $45 million in fixed payments and 10 percent of income on the first $100 million, increasing gradually to 25 percent for income in excess of $500 million in a year.
The company has 10 months to come up with financing and two years to reopen the refinery. If it fails to do so, annual payments to the government increase sooner, V.I. Attorney General Vincent Frazer said.
On signing the operating agreement, ABR placed in escrow the sum of $1 million, which will be paid over to the government if the transaction does not close due to ABR. Also on closing, the government will receive $5 million to cover its costs and expenses associated with the transaction and a $40 million payment as settlement for a lawsuit over an aquifer tainted by Hovensa.
The government will also receive 20 percent of the gross proceeds of the sale of Hovensa to ABR. Under the terms of its purchase and sale agreement with the current owners of Hovensa, ABR will pay the owners $200 million within six years of closing, plus 50 percent of the proceeds of any sale of the coker and the catalytic cracking unit.
But if the agreement is not passed, none of these will happen and the territory will have to plug a substantial budget hole this year, Frazer said.
After the expert and official testimony, several St. Croix residents testified after midnight for and against the agreement, with all but one speaking in favor of the agreement.
Voting to send the agreement, along with an extensive legal analysis and post audit report conducted by Legislature staff, on to the Rules and Judiciary Committee were Sens. Judi Buckley, Donald Cole, Myron Jackson, Clarence Payne and Clifford Graham. Voting no were Sens. Terrence "Positive" Nelson and Nereida "Nellie" Rivera-O’Reilly.