The Governor and Limetree Bay LLC are trying to hurry a refinery deal through our Legislature with undue speed. As the late Governor Farrelly used to say, “Hurry dog eat raw meat.”
The proposed refinery operating agreement is a massive economic Christmas gift to Limetree Bay in exchange for a short term $40 million infusion to our government. The headlines and short term cash infusion may benefit the governor’s re-election campaign, but the concessions to Limetree Bay are bad for the Virgin Islands in the long term. The Legislature should refer the proposal to the Finance Committee, engage professional refinery engineers and economists, and consider what is being offered very carefully before approving anything.
Let’s start with the so-called urgency. There is no true urgency. We are told that the refinery needs to be operating by 2020 to take advantage of the new sulfur fuel regulations. Limetree Bay already has an operating agreement with the Virgin Islands that allows it to restart and operate the refinery. The fact of the matter is that Limetree Bay is going forward with everything needed to restart the refinery even as I write this. For months, hundreds of workers have been preparing to restart the refinery. The modular houses started arriving on-island this week and are being stored in the parking lot across the street from the refinery. There is no need for a new operating agreement for Limetree Bay to move forward with the refinery operation. (The sale of the refinery housing back to Limetree Bay can be accomplished with a simple real estate contract if that is essential to the restart.) If a new operating agreement was an essential part of the equation, Limetree Bay would have been in front of the Legislature a year ago — before it began spending all of the money it has been spending over the last year.
The only “urgency” is that Limetree Bay wants to renegotiate the terms of its existing operating agreement Under that agreement, Limetree Bay must pay 17.5% of refinery income to the Virgin Islands Government. Limetree Bay wants to reduce that number. It knows that once the refinery is up and running, it will have lost the biggest leverage it has to renegotiate that number. So, the “urgency” is two-fold: First, Limetree Bay doesn’t want to lose its leverage; second, any delay will give the Senate time to scrutinize the deal.
Here’s what a little scrutiny will show:
$ there is no minimum number of employees required by the proposed refinery operating agreement.
$ there is no requirement that the refinery be restarted and operated.
$ the claim that the minimum annual payment to the Virgin Islands will be $14 million is false. If the refinery processing drops below 85,000 barrels per day, the minimum payment is $10 million. And if the refinery processing drops below 10,000 barrels per day, the minimum payment is . . . zero. In any normal world, where “minimum” actually means “minimum,” the minimum payment would be reported as zero, not $14 million.
$ The refinery will require the coker to process the Columbian Castilla crude it plans to use as feedstock. Castilla crude has a high vanadium content compared to other crudes. The coke that is produced will have vanadium in it which creates a disposal problem for the spent coke. Further, vanadium will inevitably be released as particulate matter during the refining process and particularly when the coker is not operating properly. (It never operated properly when HOVENSA ran it and there is no reason to think that Limetree’s experience will be any different.) Operation of the refinery in the configuration proposed by Limetree Bay means health issues downwind from the refinery. Let’s understand what the ramifications are before we accept the 40 million pieces of silver.
$ Even if the Legislature ratifies the agreement, there is no deal – because it is subject to Limetree Bay entering into a contract with someone to provide feedstock to the refinery. So, guess what that means? After we’ve been hurried into a bad deal and given away substantial benefits, we will just be starting the one-way negotiation. Because you know that the next step is for Limetree Bay to come back in two months and say, “We’ve almost got the feedstock company ready to sign, but we need one or two more concessions from the Virgin Islands . . .”
The one legislative hearing that we have already had has already revealed some important information. First, we learned that the Governor’s projection of revenue to the VI Government of $600 million over 10 years was a best-case scenario and that the likely revenues will be far less than that. Second, we received confirmation that the there is no minimum number of jobs that the restarted refinery must offer.
This deal was presented as the economic savior of the Virgin Islands. Senators, don’t be hoodwinked—we will get less money under this deal than under the existing deal. The refinery is going to restart no matter how you vote on this deal. As far as I can tell, the only thing the VI gets from this deal in exchange for substantially reducing the amount that Limetree Bay must pay by hundreds of millions of dollars is an advance payment of taxes of $40 million. That’s a raw deal. It’s too early to say “vote no.” But the Legislature should certainly vote slow. Send this deal to the Finance Committee and let’s shed some real light on it.
Editor’s note: Andrew C. Simpson is a U.S. Virgin Islands attorney living on St. Croix.