Senators and St. Croix residents showed skepticism towards a plan to sell and reopen the Hovensa refinery, expressing concerns Monday that the government was letting Hovensa’s well-heeled owners off the hook for taxes and cleanup, and putting responsibility onto a "thinly capitalized" company.
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, 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, and the Senate president called a hearing of the Committee of the Whole on Monday to get testimony on the proposal before a special session called by the governor on Wednesday.
Attorney General Vincent Frazer outlined the history of negotiations and terms of the agreement, saying if all unfolds as anticipated, ABR would rebuild and restart the refinery, employ hundreds of Virgin Islanders and make substantial payments to the government totaling more than $1.6 billion in fixed payments over the life of the agreement and additional variable payments depending on the refinery’s profitability.
The owners of the refinery would be required to take the facility down and clean up the site if they do not restart the refinery or if it is again shut down at any time in the future, Frazer said. While the agreement includes tax breaks, Frazer said it also includes payments in lieu of taxes that start at the level Hovensa has been paying, then increasing over time.
He said there are three primary kinds of payments ABR will make to the government: fixed payments in lieu of property taxes, variable payments in lieu of corporate income taxes, and site restoration payments.
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, Frazer said.
He outlined other protections built into the agreement, in "recognition of the risks the government is assuming in entering into a long-term agreement with a new and thinly capitalized company."
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, Frazer said. 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, which Frazer said would mean the government will receive from ABR an additional $40 to $50 million over this period.
After Frazer and ABR officials testified in favor of the agreement, the Senate heard from Darryl Hardy, a senior partner in a firm called Monarch Energy, who said his company entered the process very late, and felt they should have been given more cooperation. The company, Lazarde, that handled the sale, "has an impeccable reputation," Hardy said. But he said "there was some misrepresentation about who was in charge of the sale, that was another red flag for us," Hardy said. He said his company "sent verified funds of $350 million," and so should have been allowed to proceed to a bid.
Frazer and David Herr of Duff and Phelps, the governor’s refinery advisors, both said the bidding process was completed and negotiations with ABR already well under way when Monarch made its appearance. Herr said Monarch was allowed into the process in case the ABR deal fell through, there may be a backup buyer.
Sen. Craig Barshinger was one of several senators who expressed concern the agreement seems to shift the burden of responsibility for cleanup shifts from Hovensa and its deep-pocketed owners to ABR, "which to quote Mr. Frazer is ‘thinly capitalized.’"
"You are right that it is the sale of a company," said attorney Dave Hiebert, who is advising the government on the negotiations. "ABR will stand in place of the current members," Hiebert said. He added that Hovensa’s owners may have lots of money, but Hovensa is not well capitalized.
Nearly every senator and a number of St. Croix residents who testified against the proposal said the agreement was being sprung too suddenly and should be considered for a longer time before taking action.
"Be patient and let the incoming leadership renegotiate this deal with a new administration and a new legislative body," said Neb KaRa C. Herishetapaheru, executive director of Per Ankh Inc. "Please do not allow our economic situation to cause us to negotiate from a position of weakness," he said.
St. Croix resident Cletus Emanuel urged senators to take their time, saying the territory too often gets rushed into long-term agreements.
Retired St. Croix track coach Herman Fahie said to "leave it to the 31st Legislature" to approve.
While more residents urged caution, some including St. Croix attorney Kevin Rames and Vice President of the St. Croix Chamber of Commerce Shack Hawkins urged the Senate to approve the agreement.
Hawkins said the payments to the government in lieu of taxes is double what Hovensa would have paid over the same period.
Sen. Diane Capehart said the Legislature received the agreement right before the Nov. 4 election "and there is so much coming out tonight, I think it is unfair to expect us to act on this immediately."
Sen. Donald Cole said he "commended ABR’s principals for coming forward with a plan."
"But there are a lot of loopholes," Cole said, adding that the agreement would need to be amended and studied more before he could see voting for it.
No senators gave a clear indication of support for the measure when it comes for a vote Wednesday in the special session called by deJongh.
