Gov. John deJongh Jr. has submitted the Atlantic Basin Refining Inc. operating agreement to the V.I. Legislature and called a special session to advise and consent on the agreement for Nov. 12, Government House officials said Friday.
The operating agreement requires legislative ratification before the sale of the shuttered Hovensa refinery to the newly formed company can be closed.
Government House released the legislation codifying the agreement, which includes extensive tax benefits as well as assurances of cleanup if the plant ceases to operate, local hiring requirements and extensive financial and insurance provisions. [ABR-GVI Operating Agreement and Transmittal]
In September, Government House announced the tentative sale of the refinery. Hovensa closed the facility in 2012, costing the V.I. economy more than 2,500 jobs. The governor said then that the next step would be the "delicate negotiations" with the unnamed buyer and the government over the operating agreement.
DeJongh said Monday that the government negotiated an operating agreement requiring ABR to rebuild and restart the refinery, to employ hundreds of Virgin Islanders and to 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.
Owners of the refinery will 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, according to Government House
The operating agreement also requires the new owners to pay into a site restoration fund that will pay for the ultimate deconstruction and takedown of the refinery and remediation of the site.
It requires the ratification by the Legislature to become effective.
Article 12 of the agreement outlines blanket tax exemptions for the operators of the refinery and all investors in the refinery:
"AVRVI, Holdings, ABR and each of their Affiliates or Equity Holders that are engaged in owning or operating in whole or material part, the Oil Refinery and Related Facilities, shall be exempt from payment of … all taxes, fees, excises, duties, imposts and exaction imposed by or with the consent of the Government or any subdivision, agency or instrumentality thereof, on rehabilitation, ownership, operation, maintenance, expansion or other activity … ."
In addition to the general, blanket exemption, it specifically exempts the refinery from: gross receipts tax, property tax, corporate income tax; excise tax, customs duties, fuel tax, highway user’s tax, production tax, franchise tax, license fees and withholdings on distributions to stockholders.
Employee taxes, insurance contributions, submerged lands permit payments and Workers Compensation are not exempted.
Several senators have previously objected to a reduction in Hovensa’s payment in lieu of property taxes from $14 million per year to $7 million per year, and in 2013 nearly refused to ratify an agreement with Hovensa to sell the refinery, largely over that tax exemption. (See: "Update: Legislature Approves Hovensa Agreement" in Related Links below)
The proposed operating agreement exempts the new refinery from property tax altogether.
When DeJongh announced the agreement earlier this week, he said economic activity at the refinery would pick up as soon as the Legislature approves the operating agreement and the sale of the refinery is closed.
“Activity will accelerate substantially once construction commences. After the restart, the refinery is expected to employ over 700 workers, with over 500 full-time employees and over 200 contractors," the governor said. Once restarted, the refinery will provide a tremendous boost to the St. Croix economy and generate hundreds of additional jobs to support the refinery’s operations and employees."
The base term of the operating agreement is for 22 years, but it may be extended for two additional terms of 10 years each if ABR is not in breach of its obligations under the agreement.
It requires a restart plan and cost estimate within 10 months of closing the deal. Refinery operations have to start within two years, with some wiggle room for acts of god and other unavoidable delays.