HOVENSA pushes back against V.I. government
Published: August 14, 2013
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ST. CROIX - HOVENSA sent a letter to Gov. John deJongh Jr. on Monday outlining how the company intends to proceed in the coming months, including its plan to shut down the fuel rack where St. Croix gets its gasoline supply.
The letter highlights major differences in the positions of the V.I. government and HOVENSA as they seem to edge nearer to litigation, as the fallout continues from the 30th Legislature's decision a week ago not to ratify a proposed amendment to the company's agreement with the government.
In the letter, which Government House released Tuesday evening, HOVENSA's attorney argues that the corporation has no obligation to operate a refinery and contends that because HOVENSA no longer is refining and exporting fuel, the obligation to "retain refined products in storage for local consumption prior to export is of no effect."
Those refined products include the gasoline and diesel fuel that HOVENSA supplies on a wholesale basis to St. Croix.
"As I have explained to you previously, the demand for products consumed in the territory is not sufficient to support the expense of operating the storage terminal and fuel rack without the additional storage business," attorney George Dudley, who represents HOVENSA, wrote in the letter. "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."
HOVENSA spokesman Alex Moorhead said Tuesday night that he did not know how much inventory for the fuel rack HOVENSA keeps at the refinery site.
After releasing HOVENSA's letter, Government House released a brief prepared statement from deJongh a few hours later.
"We are now on a collision course that I did not want for us, but it is clear that we are on a confrontation path with the owners of HOVENSA," deJongh said in the statement. "For the last sixteen months my objectives were very clear - to offer our community a calmness within the turmoil of their decisions, to be firm in achieving a sale and minimizing the financial resources we expended on this effort.
"The decision of the senators is final and there will be periods of uncertainty but with the resources the Senators provide for our next steps, I am confident all will be done in the best interest of our community," deJongh's statement concluded.
The Daily News was unable to reach Senate President Shawn-Michael Malone for comment on Tuesday night.
A week ago, the 30th Legislature voted 11 to 3, with one absent, against ratifying the proposed Fourth Amendment Agreement with HOVENSA, which would have governed how the company would go about trying to sell the shuttered refinery on St. Croix's south shore.
In the week since the vote occurred, senators have not announced any organized plan for how they will move forward with revitalizing the economy.
However, they did vote immediately after rejecting the agreement to pass a resolution encouraging the company to find a new owner for its refinery site.
The government's position
On Friday night, DeJongh wrote HOVENSA to formally notify the company of the Legislature's decision.
He said in that letter that the interim terms that the government and company have been operating under while negotiating will expire Thursday, with the previous agreement going back into effect on Friday.
"The Government expects HOVENSA to comply fully with all its obligations under that Concession Agreement," DeJongh wrote.
He then listed some of the items the government contends are HOVENSA's obligations under the existing agreement, including:
- Operating a refinery.
- Bidding to supply the V.I. Water and Power Authority with fuel.
- Paying all applicable taxes and fees, including $14 million annually in real property taxes.
- Paying import duties on all shipments of petroleum and petroleum products not destined for use or consumption in the territory.
- Maintaining in storage sufficient fuel to ensure there are adequate supplies to meet the needs of the territory, including the needs of WAPA.
- Complying with applicable environmental laws and regulations.
"The Government will take all necessary measures to enforce those obligations and protect its rights," DeJongh wrote in his letter.
DeJongh went on to say that the government's position that a stand-alone oil storage terminal operating free from import duties is not permitted by the existing agreement and is not in the long-term interest of the territory.
He also indicated that he had instructed U.S. Customs and Border Protection to cease the forbearance on collecting customs duties on non-exempt shipments of petroleum products for storage at HOVENSA, effective this Friday.
Dudley's letter on Monday for HOVENSA, PDVSA, and Hess Oil Virgin Islands Corp. starts by expressing disappointment in the Legislature's decision.
The companies disagree with the assertion that HOVENSA is obligated to operate the refinery and contend that the first agreement between the government and Hess Oil Virgin Islands Corp. in 1965 only obligated Hess to build the refinery.
Dudley's letter contends that every agreement since then "addressed the reconfiguration and expansion of the refinery's refining capacity and equipment in exchange for various modifications to the Concession Agreement and its duration."
"However, in none of those negotiations and the resulting modifications to the Concession Agreement did HOVIC or HOVENSA specifically undertake to operate the refinery," Dudley wrote.
Therefore, and for the same economic reasons that led to the shutdown, HOVENSA and its owners will not agree to restart refining operations, he wrote.
Dudley goes on to say HOVENSA will maintain its property "in full accord with applicable federal and territorial environmental laws and regulations," and will submit its bid for the sale of fuel to WAPA.
However, Dudley contends that there is no obligation under the current circumstances for the company to maintain adequate fuel supplies for local consumption.
According to Dudley's letter, the companies contend that the requirement to maintain adequate supplies for local consumption "prior to the exportation of any such fuels" exists within the context of refining operations only.
Dudley maintains that because HOVENSA is not currently engaged in refining, that requirement "is of no effect."
Regarding the governor's instruction to Customs and Border Protection, Dudley contends that the products brought to the refinery for storage "either are not subject to custom duties or are exempted from duties and taxes."
He contends that any attempt to apply the customs duty or fuel tax statute to these products would violate the 1965 agreement and the Revised Organic Act.
"HOVENSA has no control over the decision of its customers to cease shipments to St. Croix for storage because of the tax that would be collected by CBP upon arrival," he wrote. Dudley also points out that other storage facilities in the Caribbean do not collect those sorts of taxes, and it is likely that "no one will use the storage facility on St. Croix if such taxes and duties are imposed."
HOVENSA notified its storage tenants about the instructions, and it will be up to them whether they will continue to use the storage at HOVENSA, Dudley wrote.
Dudley closes the letter explaining that HOVENSA will shut down the fuel rack because the demand for products consumed in the territory is inadequate to support the operation of the storage terminal and fuel rack without the additional storage business.
He also notes Senate testimony by the government's consultants that the absence of an operating storage facility would make the refinery less marketable.
"It is the hope of HOVENSA and its owners that this does not come to pass," Dudley's letter closes.
- Contact Joy Blackburn at 714-9145 or email firstname.lastname@example.org.