The four top executives from the Hovensa refinery spent a long day in Frederiksted Thursday, being questioned, and occasionally lectured by the V.I. Senate, meeting as a committee of the whole.
The session was slated following the company’s announcement Jan. 18, that it will close its St. Croix refinery, by far the largest private employer in the territory.
Senate President Ronald Russell gaveled the session to order at 9:18 a.m. and finally adjourned the meeting at 5:39. Seated at the witness table were Hovensa President and CEO Brian Lever, attorney George H.T. Dudley, an outside counsel for the company, Franklin Quow, chief legal officer and secretary of Hovensa, and longtime Hovensa spokesman, and now a consultant, Alexander Moorhead.
Even with a break for lunch and a couple of short recesses, it was a long day for everyone involved, and at times, tempers frayed and tensions ran high as the senators poked and prodded, looking for answers as to why the facility is closing, what the government can do about it, and what, if anything, Hovensa owes the territory. At times the dialogue took on the tones of a jilted lover. "You’re not just going to walk away!" one senator warned the officials, who all denied the company was walking away.
When round after round of questioning finally ended,some of it contentious, the story was much the same as it had been at the beginning. The prepared statement Lever read at the start mirrored the quesitoning: something everyone knew the answers to for over a week. Hovensa has lost more than $1.3 billion over the last three years, and due to the prevailing economic conditions and the state of the oil industry, no end to those losses are in site. Lever did say the company looked at every alternative and concluded that closing the refinery operation and converting to an oil storage facility with a small staff was the only viable option.
"Hovensa explored every option to keep operating, but severe losses put us on a path to bankruptcy. In bankruptcy, employees would receive nothing and the Virgin Islands would receive nothing. We took the only responsible action, to convert to an oil storage terminal," Lever said.
The market conditions that led to the current situation include an overabundance of refining capacity in the world, a drop in demand for their petroleum products, and the fact that the St. Croix refinery runs on oil, while every refinery in the states operates on much less expensive natural gas. Lever said the company explored converting to natural gas, but there was no way to do so economically. Stateside refineries simply run a pipeline to existing gas lines, but to serve the island, gas would have to be liquefied, safely transported,stored, then reconverted to a gaseous state and the equipment converted to burn it. There’s simply no economical way to do that, Lever said.
He also said the company reached an agreement with the United Steelworkers on Tuesday, the union representing some 500 Hovensa employees. While he could not discuss details, Lever said the severance packages go "above and beyond" what is required by law or contracts.
The company will live by the commitments of the third extension agreement, the document that has governed relations between Hovensa and the government since 1998, Lever said. It will continue to provide oil to WAPA at the amount negotiated in the current contract, which expires June 30.
Lever also said the company will negotiate with the executive branch of the V.I. government for a reduction of its $14 million property tax bill, because that is an unsustainable amount for an oil storage facility.
Some of the questions the Hovensa four were asked several times (and the answers):
– Would Hovensa’s generator be available for WAPA’s use to generate electricity more efficiently, or at less cost than the utility’s current turbines? (The generator will remain in place, Lever said, but because it runs on gas created as part of the refining process, and Hovensa will no longer be refining gas on the site, it can’t be used economically.)
– Did the company consider selling the refinery, and are there any interested buyers? (The company considered it, Lever sad, because it considered everything, but there are no potential buyers. The same conditions that made it necessary for Hovensa to close the refinery preclude anyone else being able to make a profit there.)
– Will the company continue to honor its commitments under the "third extension agreement," the 1998 document between the Virgin Islands government, Hovensa, and the two companies that own the Hovensa LLC? The agreement runs through 2022. (Yes, Lever and both attorneys said. They will continue to provide oil under the current agreement, which expires at the end of June. After that, WAPA can accept bids for the contract. Attorney Dudley said that because Hovensa will no longer be refining oil, sale of refined fuel to WAPA would have to be priced under a different standard, specified in the agreement, which would make it significantly more expensive.)
– Several senators asked if what they called a $700 million fine from EPA was a big factor in the decision. (No, Lever said, primarily because it was not a fine. EPA ordered the company to make improvements to control emissions; work the company said would cost about $700 million. But even without those expenses, the company was already losing money.)
– Is Hovensa moving to St. Lucia? (No, Lever said, although throughout the day he drew distinctions between Hovensa and Hess Oil, one of its parent companies, and said it is Hess that owns an oil storage facility on St. Lucia.)
– Is Hovensa going to sell the equipment, or the plant facilities, clean up the site, or otherwise remove the "pile of iron," as Sen. Terrence "Positive" Nelson called it? (No, Lever said. The plant will be "mothballed" so the company can keep its options open.)