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Senators, Government House Respond to Hovensa Threat of Gas Shutoff

In the wake of Hovensa’s announcement Tuesday that it may stop bringing in fuel and the "fuel rack will be shut down," Gov. John deJongh Jr. has ordered an inventory of St. Croix supplies and wants to know alternative sources are ready.

Hovensa shut down refining operations in 2012 after several years of losses totaling more than $1 billion. Negotiations with the refinery over environmental cleanup, whether to allow it to operate as a storage facility, what its tax obligations will be and other issues have been contentious.

In April, Government House announced an agreement with Hovensa, settling many of the disputes, and setting up a process to try to sell the refinery.

The V.I. Legislature voted down the agreement Aug. 7, with opponents saying the agreement gave away too much to Hovensa. The Senate then passed a resolution, urging Hovensa to find a buyer and sell the facility to someone who would operate it as a refinery, suggesting a series of conditions to the sale that the company has already rejected. The proposed agreement would have legally bound Hovensa. The resolution approved by the Legislature, in contrast, has no legal force and does not bind Hovensa.

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The agreement would have allowed an oil storage facility and required Hovensa to provide fuel storage for St. Croix through 2019, or as long as Hovensa keeps operating an oil storage terminal at the site. It would have to provide fuel through March of 2014, then help find third-party suppliers. It would have provided a small amount to scholarships, and would have paid $7 million annually to the government in lieu of property taxes, instead of the current level of $14 million annually.

Several senators vociferously objected to the tax breaks in particular.

On Aug. 10, deJongh issued a statement saying the government would "take all necessary measures" to enforce its rights, in the absence of an agreement. DeJongh restated the government position that a standalone storage terminal business operating free from generally applicable import duties is not permitted by the existing concession agreement.

The governor instructed Attorney General Vincent Frazer to write to U.S. Customs and Border Protection and inform them to resume collecting duties on nonexempt shipments of petroleum products for storage at Hovensa. The 6 percent customs duty will go into effect on Aug. 16, the day after the existing interim agreement expires.

On Tuesday, Hovensa responded, saying that no other Caribbean jurisdictions charge duties on stored petroleum, so it cannot compete and no one will use the facility if the 6 percent duty is collected.

The Virgin Islands does not create enough business demand on its own to economically justify continued operation of the storage facility and fuel rack, wrote Hovensa attorney George Dudley in a letter to Government House.

"Consequently when the inventories presently in storage at the refinery are exhausted, they will not be replaced and the storage facilities and fuel rack will be shut down," Dudley said.

On Wednesday, deJongh directed the Commissioners of Licensing and Consumer Affairs and Planning and Natural Resources to provide him with updated reports on the present resources and facilities available on the island of St Croix.

“I want to ensure that there is no disruption to the of supply of gasoline and diesel fuel for motor vehicles and or marine uses, as well as no disruption to the supply of propane for cooking as well as commercial or industrial uses, given the announcement by Hovensa that it will stop supplying the island when present fuel supplies are exhausted,” deJongh said Wednesday.

The governor also wants to know that all alternative facilities and suppliers are fully licensed, permitted and compliant with the environmental and safety regulations that apply to their operations, according to Government House.

“This information is critical to developing an appropriate response to the Hovensa announcement, especially given the fact that resolution of the issues confronting the territory by reason of Hovensa’s actions and statements could take years if left to a non-exigent judicial process, the very litigation the I sought to avoid in my acceptance of the terms of the proposed Fourth Amendment to the Concession Agreement,” deJongh added.

Senators reached for comment either saw Hovensa’s actions as indicating the vote to reject the agreement was misguided, or as bullying actions that should not intimidate officials, depending on whether they supported or opposed the agreement when it came for a vote.

"It does relate to the senators’ action" of rejecting the agreement, Senate Vice President Sammuel Sanes said, reached by phone Wednesday. Sanes, along with Senate Majority Leader Donald Cole and Sen. Judi Buckley, voted for the agreement.

Sen. Craig Barshinger was absent and the rest of the senators voted against it.

Sanes said, "It is unfortunate we have reached this stage, but what happened happened and we just have to move forward." He added that he is willing to go back to the table and revisit the agreement or work on a new one, but that does not know if it can be done.

"We just have to wait and see whether or not Hovensa and the executive branch can come to that type of agreement. But from what I’ve been reading and seeing, it seems unlikely," he said.

The news of the Senate’s action has traveled fast, said Sanes, who is out of the territory attending the National Conference of State Legislatures meeting in Atlanta, along with most of his fellow senators.

"It unfortunately has had a ripple effect," he said. "I’ve already had a couple of people here, legislators from two different states, come up and ask me what our next step is."

Sen. Terrence "Positive" Nelson, who opposed the agreement, suggested Hovensa was improperly retaliating against the territory and emphasized he still strongly believes it was right to vote down the agreement.

"I am not one who succumbs to Hovensa’s threats," Nelson said. "I feel, however, that the government has the right to assert itself and its wishes and if this is, in fact, retaliation, the government has the authority to respond accordingly," he added.

According to Nelson, even if Hovensa shuts the rack, fuel could still be shipped in tanker trucks on barges, avoiding the need for a rack, but "at a slightly higher cost."

With the threat of the loss of the rack, Nelson said he has heard rumors that a senator who voted against the agreement might move to reconsider it. Only a senator who voted with the majority can move to have the Legislature reconsider it, so the three who voted for the agreement cannot call for its reconsideration.

"To reconsider the vote would be to give into fear, and there is no hope in fear," Nelson said.

Along with Nelson and Sanes, the Source reached out to many of the senators for comment Wednesday, leaving messages and emails. Most were out of the territory at the National Conference of State Legislators and did not respond to messages.

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In the wake of Hovensa's announcement Tuesday that it may stop bringing in fuel and the "fuel rack will be shut down," Gov. John deJongh Jr. has ordered an inventory of St. Croix supplies and wants to know alternative sources are ready.

Hovensa shut down refining operations in 2012 after several years of losses totaling more than $1 billion. Negotiations with the refinery over environmental cleanup, whether to allow it to operate as a storage facility, what its tax obligations will be and other issues have been contentious.

In April, Government House announced an agreement with Hovensa, settling many of the disputes, and setting up a process to try to sell the refinery.

The V.I. Legislature voted down the agreement Aug. 7, with opponents saying the agreement gave away too much to Hovensa. The Senate then passed a resolution, urging Hovensa to find a buyer and sell the facility to someone who would operate it as a refinery, suggesting a series of conditions to the sale that the company has already rejected. The proposed agreement would have legally bound Hovensa. The resolution approved by the Legislature, in contrast, has no legal force and does not bind Hovensa.

The agreement would have allowed an oil storage facility and required Hovensa to provide fuel storage for St. Croix through 2019, or as long as Hovensa keeps operating an oil storage terminal at the site. It would have to provide fuel through March of 2014, then help find third-party suppliers. It would have provided a small amount to scholarships, and would have paid $7 million annually to the government in lieu of property taxes, instead of the current level of $14 million annually.

Several senators vociferously objected to the tax breaks in particular.

On Aug. 10, deJongh issued a statement saying the government would "take all necessary measures" to enforce its rights, in the absence of an agreement. DeJongh restated the government position that a standalone storage terminal business operating free from generally applicable import duties is not permitted by the existing concession agreement.

The governor instructed Attorney General Vincent Frazer to write to U.S. Customs and Border Protection and inform them to resume collecting duties on nonexempt shipments of petroleum products for storage at Hovensa. The 6 percent customs duty will go into effect on Aug. 16, the day after the existing interim agreement expires.

On Tuesday, Hovensa responded, saying that no other Caribbean jurisdictions charge duties on stored petroleum, so it cannot compete and no one will use the facility if the 6 percent duty is collected.

The Virgin Islands does not create enough business demand on its own to economically justify continued operation of the storage facility and fuel rack, wrote Hovensa attorney George Dudley in a letter to Government House.

"Consequently when the inventories presently in storage at the refinery are exhausted, they will not be replaced and the storage facilities and fuel rack will be shut down," Dudley said.

On Wednesday, deJongh directed the Commissioners of Licensing and Consumer Affairs and Planning and Natural Resources to provide him with updated reports on the present resources and facilities available on the island of St Croix.

“I want to ensure that there is no disruption to the of supply of gasoline and diesel fuel for motor vehicles and or marine uses, as well as no disruption to the supply of propane for cooking as well as commercial or industrial uses, given the announcement by Hovensa that it will stop supplying the island when present fuel supplies are exhausted,” deJongh said Wednesday.

The governor also wants to know that all alternative facilities and suppliers are fully licensed, permitted and compliant with the environmental and safety regulations that apply to their operations, according to Government House.

“This information is critical to developing an appropriate response to the Hovensa announcement, especially given the fact that resolution of the issues confronting the territory by reason of Hovensa's actions and statements could take years if left to a non-exigent judicial process, the very litigation the I sought to avoid in my acceptance of the terms of the proposed Fourth Amendment to the Concession Agreement,” deJongh added.

Senators reached for comment either saw Hovensa's actions as indicating the vote to reject the agreement was misguided, or as bullying actions that should not intimidate officials, depending on whether they supported or opposed the agreement when it came for a vote.

"It does relate to the senators’ action" of rejecting the agreement, Senate Vice President Sammuel Sanes said, reached by phone Wednesday. Sanes, along with Senate Majority Leader Donald Cole and Sen. Judi Buckley, voted for the agreement.

Sen. Craig Barshinger was absent and the rest of the senators voted against it.

Sanes said, "It is unfortunate we have reached this stage, but what happened happened and we just have to move forward." He added that he is willing to go back to the table and revisit the agreement or work on a new one, but that does not know if it can be done.

"We just have to wait and see whether or not Hovensa and the executive branch can come to that type of agreement. But from what I've been reading and seeing, it seems unlikely," he said.

The news of the Senate's action has traveled fast, said Sanes, who is out of the territory attending the National Conference of State Legislatures meeting in Atlanta, along with most of his fellow senators.

"It unfortunately has had a ripple effect," he said. "I've already had a couple of people here, legislators from two different states, come up and ask me what our next step is."

Sen. Terrence "Positive" Nelson, who opposed the agreement, suggested Hovensa was improperly retaliating against the territory and emphasized he still strongly believes it was right to vote down the agreement.

"I am not one who succumbs to Hovensa's threats," Nelson said. "I feel, however, that the government has the right to assert itself and its wishes and if this is, in fact, retaliation, the government has the authority to respond accordingly," he added.

According to Nelson, even if Hovensa shuts the rack, fuel could still be shipped in tanker trucks on barges, avoiding the need for a rack, but "at a slightly higher cost."

With the threat of the loss of the rack, Nelson said he has heard rumors that a senator who voted against the agreement might move to reconsider it. Only a senator who voted with the majority can move to have the Legislature reconsider it, so the three who voted for the agreement cannot call for its reconsideration.

"To reconsider the vote would be to give into fear, and there is no hope in fear," Nelson said.

Along with Nelson and Sanes, the Source reached out to many of the senators for comment Wednesday, leaving messages and emails. Most were out of the territory at the National Conference of State Legislators and did not respond to messages.