If an agreement for the sale of Hovensa refinery is approved and if the buyer successfully restarts the refinery and if all goes as planned, the restart could perhaps generate up to $1 billion in direct economic impact, according to the V.I. Bureau of Economic Research.
Government House released the BER report Tuesday, a week before the Finance Committee considers the agreement. [BER Refining Agreement Report]
"Taking into account ABR’s proposed $1.1 billion in costs, in the form of compensation, training and raw materials associated with the engineering, rehabilitation, construction and restart of the Hovensa oil refinery, $550 million is estimated to be sourced in the territory," BER Director Wharton Berger said in a Dec. 2 letter transmitting the report to Senate President Shawn-Michael Malone.
"Given this estimate, this report concludes the ABR Operating Agreement may potentially generate $1 billion in direct economic impact on the Virgin Islands economy, during the 36 month period, creating over 2,000 jobs, primarily on the island of St. Croix," Berger said.
Gov. John deJongh Jr. said, "A thorough reading of this report will answer many questions about the costs involved in refurbishing the Hovensa refinery and ABR’s commitment to the initiative and to the Virgin Islands."
According to the statement from Government House, deJongh said, "I think it is important for the people of our community to understand that eight refineries, not including Hovensa, have closed in North America since 2010. After an extensive search by the owners of Hovensa, we have a company that is interested in restarting the facility on St. Croix and that the company has committed to making a $1.1 billion investment to do just that."
The company has also agreed to employ a minimum of 500 full-time employees, of which 75 percent must be V.I. residents, and 100 full-time equivalent contractors, deJongh said. "This agreement could very well be the ‘shot in the arm’ our economy needs," he added.
“Admittedly there are risks, but we believe those risks have been addressed by certain requirements in the Operating Agreement and these risks are better than the risk of doing nothing,” he said.
Berger’s report finds the long-term economic benefits of the agreement are "substantial" and that compensation for the 600 full-time employees and contractors could be in excess of $100 million annually. The compensation could have "an estimated direct economic impact of over $175 million annually when adjusted to include personal consumption expenditures – all this in addition to the direct revenues obtained by the government in the form of mandated fixed and variable payments from ABR."
Including both renewal periods, ABR will be obligated to make over $1.6 billion in fixed payments to the government, in addition to annual variable payments based on profitability, the report said.
In its conclusion, the report reiterates the benefits of restarting the refinery and calls it "one critical element in the government’s plan to improve employment opportunities and provide energy security on the island of St. Croix." However, the study also states that "the restart of the refinery is not a panacea for the territory’s economic problems.”
It concludes, “Additional private and public investments in manufacturing, construction and service sectors beyond the proposed $1.1 billion in total expenditures required to restart the refinery are needed."
In September, Government House announced the tentative sale of the refinery, which closed in 2012, costing the V.I. economy more than 2,500 jobs. It announced Atlantic Basin Refining Inc., a recently created V.I. company, had negotiated the purchase of the refinery.
On Nov.1, deJongh released a legislative proposal codifying the negotiated operating agreement for the refinery. [ABR-GVI Operating Agreement and Transmittal]
The operating agreement requires legislative ratification before the sale can be closed, because it includes legislative action on tax breaks and other issues. DeJongh called a special session of the Legislature in November to act on the agreement.
Citing a need for more review and concerns over the shallow financial resources of the prospective buyers, the V.I. Legislature voted unanimously to send the agreement to sell and reopen the Hovensa refinery for further review in committee. ABR has described itself as "thinly capitalized" and expects to finance the project and investments ultimately through future refinery revenues. (See Related Links below)
The bill is on the Finance Committee agenda for Dec. 16.
And the operative words here are “may potentially.” They will get you with that every time.
I am not sold on ABR. No, I have no proof to substantiate my position…just instinct. I think that the initial seed money is being supplied by the Hovensa owners in some way. The government will never learn. You go to any operating refinery in the world and you will find one thing. The majority of the MANAGEMENT staff are locals. Go to the Dominican Republic Haina refinery, go to the refineries in Hawaii, go to the Canadian refineries, go to the Jamaican refinery PetroJam….all managed by locals. We should have mandated 75% of all employees AND MANAGEMENT must be local. Locals hire locals. I worked with so many racist stateside managers at Hovensa back in the day. They would hire a guy from the states with little to no experience and everything that guy would do was an exemplified move. They would toot his horn and put him on display anytime they had the chance. However, when a local did something productive, it was ‘just doing his/her job.’ This is how they justified fast promotions for their state-side friends. That is also why Estate Cottage (camp where they housed all of their managers) was 80% white and the rest of the field locals lived elsewhere. Remember that we are dealing with people from abroad who have no interest in our environment and an indifferent people who have demonstrated in the past to care very little about the health of our people. Why would you coerce employees to lie about chemical release quantities? This can only come from higher up to lower down. If you have more locals at the top, they are less likely to contribute to the destruction of their own homeland. I.E. There were locals working in the Hovensa Environmental Dept. and I will tell you that they stood up many times to protect our waters and air from a ‘laissez faire’ stateside management. They did not let things slide. Guess what happened? Management slowly weaned out the local staff in that department and replaced them with ‘you guessed it.’
All one has to do is look at the current price of oil to know this is a fraud. Why on earth would anyone spend millions to bring the refinery up to regulation, and then start refining oil again when you cannot even drill oil for the price it is now? Pay attention folks, as the people of the VI are going to take it up the rear if this deal goes through.
I will like to correct some of the comment. First around the world the companies hired personnel around the world, that is one of the consequence of the Globalization of the Markets. In USA the management of the companies are from different part of the world. Companies tried to hired the best. But even ABR hired locals they wont find all the qualify people in the island. The comment about the oil industry is wrong too. Actually, the price of the oil is so low because US are producing oil. That is one of the reason why ABR want to buy Hovensa they need place to refine crude. Beside, in January the US Congress will sign the The Keystone Pipeline System.A oil pipeline system in Canada and the United States that will bring oil from Canada to the Gulf Coast to be refine the need places to refine that oil. Hovensa facility is the biggest refinery in the USA soil, the best thing to do is put in operation what they have instead to construct a new one.
I do believe that we are living in a world of globalization, however, as local talent is affected by global hiring practices, responsible countries have placed hiring preferences to protect the local pool. Rightfully So! Trust me when I tell you that the hiring practices at Hovensa were far from fair. We just do not want to leave it up to them to do the right thing this time around. Remember the saying, ‘fool me twice, shame on me.’ It should be stipulated that at least 50% – 75% of the management staff be locals. Also, we do have a tremendous local pool of professionals. Do you have any idea how many master’s degrees and PhD’s have been earned from the local pool and from our diaspora? I don’t know about you, but there are friends of mine living abroad that would take a major salary cut to reside back home.