The owners of Hovensa said they might close the fuel storage and fuel rack at the shuttered St. Croix facility if the government insists on collecting customs duties on oil stored in the territory. 
In a letter to the V.I. Government, George Dudley, the St. Thomas attorney representing Hovensa and the two entities that own it, said the company hopes that this closure does not come to pass, but laid out the circumstances under which it could in his Monday letter.
Dudley also reiterated that the company will not reopen the refinery.
The letter from Hovensa’s owners’ attorney was in response to Gov. John deJongh Jr.’s letter last week officially confirming the defeat last week by the V.I. Senate of the proposed Fourth Amendment Agreement that would have governed the sale of the refinery.
Dudley’s letter was released Tuesday by Government House.
Tuesday night, deJongh called on the Senate to provide the resources necessary for a legal battle with the multi-billion dollar company.
"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," the governor said.
"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 said.
The agreement would have governed a sales process for the facility in the hope that a buyer would emerge to operate the refinery. Both sides in the negotiations – the government and the company – said the deal was an attempt to go beyond a basic disagreement about whether the company was in breach of contract for stopping operations at the refinery.
DeJongh said the 16 months of negotiations had been aimed "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."
In his letter last week, deJongh told the company the failure of the agreement, which was rejected by the Senate on Aug. 7 in an 11-3 vote, means the Third Concession Agreement will continue in full effect. He also directed the attorney general to send a letter to U.S. Customs and Border Protection asking them to resume collecting duties on nonexempt shipments of petroleum products for storage at Hovensa.
In his letter of response, Dudley firmly reiterated his belief that Hovensa is not in breach of the Third Concession Agreement, which governs relations between the company and the territory.
"We respectfully disagree with your assertion that Hovensa has an obligation to operate the refinery," he wrote to deJongh.
According to Dudley, the first Concession Agreement and the subsequent agreements obligated the company to construct the refinery, but "in none of those negotiations and the resulting modifications to the Concession Agreement did HOVIC or Hovensa specifically undertake to operate the refinery. Consequently, and for the same economic reasons that led to the shutdown of the refinery, Hovensa and its owners will not agree to restart refining operations upon the expiration of the Fourth Amendment Agreement," which expires Friday.
Hovensa will bid for supplying fuel to the V.I. Water and Power Authority, but not at the discounted rate it used to, because that rate was based on an operating refinery on St. Croix, Dudley said.
He also said the company will maintain its property "in full accord with applicable federal and territorial environmental laws and regulations."
Of more immediate concern is the company’s willingness to maintain sufficient fuel storage to meet the fuel needs of the territory.
Dudley said the obligation asserted by the government is the result of taking a section of the Concession Agreement out of context. Dudley said the duty to maintain fuel supply is based on the context of a refining operation.
"The obligation alluded to in your letter is contained in Section 12 of the Extension and Amendment Agreement between the Government of the Virgin Islands and Hess Oil Virgin Islands Corp., dated April 24, 1981 … which imposes the duty to maintain adequate supplies for local consumption ‘prior to the exportation of any such fuels,’" Dudley wrote.
"In the context of a refining operation, before HOVIC/Hovensa could export products refined at the refinery, it first had to have in storage sufficient amounts of that refined product to meet local fuel needs," he wrote.
"In light of the fact that Hovensa no longer is engaged in refining, the obligation to retain refined products in storage for local consumption prior to export is of no effect," Dudley said.
In regards to the government’s instructions to the Customs and Border Protection to resume collecting a 6 percent customs duty on all import of petroleum products not intended for local use, Dudley said the attempt to collect those duties will be a breach of the original 1965 agreement and subsequent Concession Agreements. Further, he said, that tax could be expected to make importers unwilling to use the facility.
"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 (Customs) upon arrival," Dudley pointed out.
He said the government’s own consultants, Duff & Phelps, had testified that no other storage facility in the Caribbean collects such taxes.
"It is likely that no one will use the storage facility on St. Croix if such taxes and duties are imposed," Dudley said.
The Virgin Islands does not create enough business demand on its own to economically justify continued operation of the storage facility and fuel rack, he continued.
"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.
"In this regard, I again note the testimony by Duff & Phelps at the Senate hearings, 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," he concluded.
Thank you Senators! We sure showed them by standing tough.
I wonder where the money will come from to fight this upcoming battle? I’m sure the Senators who rejected the Governor’s agreement won’t mind sacrificing their salaries to stand shoulder to shoulder with those they have consigned to a life of unemployment.
They can stand and watch Hovensa rust away like Vialco did. That will be good for the Island, two rusting facilities on contaminated soil. “Farm’s filled with old lead from the days of leaded gasoline and other toxic waste.
It will be much cheaper to keep Hovensa than to try and sell it. The cleanup alone would be almost insurmountable.
The path the Governor laid out is looking better by the minute; too bad we had to “Stand Up” to our future.
And so it begins… Once again the people must pay for the leaders stupidity. I don’t know why the Senate thinks they have something to fight with. Now we run the risk of loosing fuel for wapa fuel for our cars propane to cook with. This is just great!!!! I say we impeach everybody in government and watch the place go down in flames. I’m sure some idiot is going to post something about we ware strong we can farm. I would love to see you stick some corn in your gas tank and drive around the island. Everyone sell your car and buy a horse. The Senate has made it known that they do not care about the future of the Virgin Islands. I say we elect people from outside the island because our own people try to shove that broomstick as far as they can up our a**. Outside people can do no worse than our own local Senate.
From the day that Leon Hess held his head with both hands after Ms. deChabert told him what she wanted for her land, he was committed to building his refinery. Early on, they had problems; even making payroll but they flourished. Leon came up from hard knocks; driving oil trucks but John Hess came up from the silver spoon and assignments doled out by Harvard. Leon threw his heart into it but John throws his Economic Text Book at it…..the bottom line. I just hope that when my son takes over the little I leave him, he won’t throw it away and let it decay away (as a symbol of my legacy).
Interesting, how Mr. Dudley (the attorney)has quoted the Duff & Phelps report on several occasions to bolster his arguments. Would this be the same report that indicated that Hovensa was in fact lying about the feasibility of keeping the refinery open? The same report that said that opening the refinery would lead to an annual profit in the $100 million dollar ballpark; over and above operating expenses? You see, you can all have your jobs and the govt. could have its taxes but for the Hovensa owners, the gravy is too thin to stay in.
The VI Government retirement system should buy it. The senators can run the place and give jobs to the unemployed and with all profits make the retirement system solvent, fund government operations, reduce taxes, give free fuel to wapa, and reduce wapa bills. C’mon senators stand up.
Are you serious? Do you hear yourself?
Hess Man, I think stxit was being sarcastic. It’s actually kinda hilarious if you think about it. Just imagine the VIG that can barely run its own operations efficiently taking the helms of an industrial complex like Hovensa… lol
The Governor, although he doesn’t seem as bright as he should be, was right in at least trying to work with Hovensa to sell that place. Now the senators who just couldn’t let go of the past and would rather fuel their own personal agendas and “notortiety” has let us down again. It’s like having a chihuahua fight a pitbull. All that barking with no bite. And Hovensa knows that. Let’s just hope and pray that we have enough resolve to survive this and stop floating in that creek