Dear Source:
I write to add my comments to the discussion on the Fourth Amendment to the Hovensa Concession Agreement that is now being considered by the 30th Legislature of the Virgin Islands.
Let me preface my comments by stating an adage that I learned over my years of negotiating various contracts and lessons gained from formal training: “The best agreements are those in which both sides are a little unhappy.” In other words, neither side gets exactly what each wants.
Many in our community, particularly here on St. Croix, see this amendment as an opportunity to extract pounds of flesh from Hovensa for past injustices, real or perceived. They believe that the people of the Virgin Islands have not received our “fair” share from previous agreements we entered into with this company and its current 50% owner, HOVIC (Hess Oil Virgin Islands Corporation). Quite a number believe that the deterioration in our environment and the root cause of the high rate of the incidence of cancer and other ailments are due to the presence of the oil refinery on our shores. Though there might be some potential merit to these assumptions, to my knowledge, there is no body of information or collection of data that shows a direct correlation, unfortunately. There is no empirical data or evidence to support these assumptions, whether it is by design or otherwise. Despite the cries of our people, the elected representatives failed miserably to implement processes and programs to collect this data. The pleas fell on deaf ears.
Additionally, from an economical and financial perspective, it is widely held that the oil company and other companies that we have entered into agreements with always had us over a barrel; pun intended. It is believed that the folks elected to represent our interest at the negotiating table, most often times negotiated from a position of weakness, rather than from a position of strength.
Be that as it may, in the current situation and going forward, we honestly must try to detach ourselves from the emotion and look objectively at what is before us. With
the closure of refinery operations at Hovensa, our economy is reeling from this blow. We don’t need to paint a picture because all of us, specifically here on St. Croix, see the effects of the loss of that economic activity every day. I did a very rudimentary analysis that compared the economic activity generated by a refinery of similar size to Hovensa. This refinery is located in Lake Charles, Louisiana, and is owned by PDVSA and operates under CITGO. The economic activity that is generated by that refinery is close to half a billion dollars annually. That economic activity, including direct tax payments, is exactly what we are losing here in the Virgin Islands with the closure of Hovensa’s refinery here on St. Croix. This must be an integral part of the conversation, no doubt about it, and we cannot escape that.
However, I tend to view this Fourth Amendment Agreement as a bridge to the all important next agreement with a new company. Hess has decided that they want to end the current relationship with us and we should not stand in their way. They have reaped a lot of benefits over the years, and if we are honest, we have reaped some too. Who reaped the most? We can determine and calculate that if we wish to, but at this juncture I don’t believe it would add a whole lot of value to the discussion, but we can surmise that it wasn’t us.
What I see in the next negotiation with a prospective new partner is an opportunity to address our failures, if you will, from our previous agreements. In these new negotiations we can address what I consider the primary issues to us: environment, health, energy, and the economy, to include the unfunded liability of the GERS. And, we must stay close to that company, something it appears we failed to do with HOVIC and Hovensa and were blind-sided by the closure. We must insure that the new agreement will safeguard the health of our residents, protect our environment, provide us with affordable energy and provide a dedicated revenue stream to address the unfunded liability of the GERS.
Let us not look solely at the deferral in the PILOT (payment in lieu of taxes) from $14M to $7M. I would be the first to say, why are we financing multi-billion dollar companies $7M annually for a possible six years? We need every dime that we can get, NOW! I say financing because those forborne amounts are required to be repaid with interest at the earlier of the sale of the refinery or the expiration date of the Fourth Amendment Agreement if it is ratified.
(Note: There is no stated interest rate for this financing and it is not clear if the storage fees from the oil terminal, V. I. source income, are subject to Gross Receipts taxes.)
This forbearance, we are told, is the incentive that Hovensa needs to proceed with a bona-fide effort for an arms-length sales transaction.
I certainly would like to see safeguards in this agreement that would guarantee that in the event there is not a sale of the refinery that the site would be remediated at the expiration of the Fourth Amendment Agreement or sooner, and we find other uses that would sustain our economy for years to come.
I shudder to think of, and be a witness to, an economy in a continuously downward spiral, with a shrinking population base and the departure of our young people to other destinations with no promise of return. We must find the methods and the means of preventing further decline to our economy and our quality of life, but more importantly, have the courage and the will to do what is necessary to lift us upward and move us forward.
Our elected representatives in the 30th Legislature must not be short-sighted or focused on the next election. They must be deliberative, conscious of the impact of their decision either way, and must be ready to defend whatever position they take on this agreement, always keeping in mind that whatever it is they determine, should and must be in the best interest of the people of the Virgin Islands.
Marvin L. Pickering
St. Croix
