July 8, 2008 — Raising questions about timing and tax loopholes, five St. Croix senators tried but failed Wednesday to put the brakes on a deal that would bring an average of $100 million a year in new revenues to the territory.
In a solid 10-to-5 vote, the Senate ratified a 30-year agreement between the government and Diageo PLC — the world's leading beer, wine and spirits company — for the production of Captain Morgan rum on St. Croix. The governor was ecstatic, heralding the decision as a "major victory" in a news release issued moments after the vote came down.
"There are certain matters that, by reason of their importance, require a higher standard of review, consideration and care," Gov. John deJongh Jr. said in the release. "Our agreement with Diageo was such a matter. Its importance required a high degree of honesty and openness. It required us to rise above partisanship and above party, and 10 members of our Legislature rose to that standard."
Voting for the agreement were Sens. Liston Davis, Carlton "Ital" Dowe, Louis P. Hill, Norman Jn Baptiste, Shawn-Michael Malone, Basil Ottley Jr., James Weber III, Carmen M. Wesselhoft, Celestino A. White Sr. and Alvin L. Williams.
Voting against the agreement were Sens. Juan Figueroa-Serville, Neville James, Terrence "Positive" Nelson, Usie R. Richards and Ronald E. Russell.
The vote came down around 9:30 p.m. Wednesday, at the tail end of a two-day special session in which senators repeatedly grilled members of the governor's financial team and Diageo executives about the content of the agreement, and how it would impact the territory. (See "Senate Opts for More Time to Mull Captain Morgan Deal")
Though both sides continued to describe the proposed agreement as a "win-win" for both Diageo and the territory, some senators said many segments of the contract were unclear, riddled with loopholes and put the government more into debt for a company that could easily provide its own financing for a new Captain Morgan Rum distillery on St. Croix.
"Gov. deJongh, I have no appreciation whatsoever for the way in which you presented this thing — with such a big spectacle," Nelson added later. "We can't be so desperate that we drop all our values just for a deal. All of you had a year to go over this language. The governor slammed this on us to vote up or down within a few days. I don't appreciate this being ramrodded down our throats."
Attempts were made to persuade Diageo executives to reopen negotiations with the government before the contract expires July 31, but senators were told that such a move would most likely jeopardize the deal. Getting the contract approved quickly would allow the company to properly square things away with its current third-party supplier in Puerto Rico, begin construction and ensure that the company could at least meet its current nine-million gallon production load once the plant gets up and running in 2012, Diageo representatives said.
Diageo anticipates putting out about 11 million proof gallons of rum during its first year on St. Croix, but expects to produce 20 million proof gallons a year as the Captain Morgan brand continues to grow. Bonds floated by the Public Finance Authority to help finance the project will be completely paid off by excise-tax revenues remitted by the federal government, leaving the V.I. government with no liability and an average $100 million-a-year revenue stream once production gets in full swing, Diageo representatives said.
The federal government currently collects $13.50 in excise taxes on each proof gallon of V.I.-produced rum sold throughout the mainland. Of that amount, $13.25 is remitted to the V.I. government.
"I don't believe that in the 20 days we have left we can reopen a deal that has taken so long to do on both sides," said David Gosnell, Diageo's managing director of global supply and procurement. "It would open up lots of areas that we feel we've compromised on. Clearly we would have a list of things we would like to renegotiate, as well. Not to mention that this process has highlighted to everyone in the rum industry that Diageo has a contract (with a third-party supplier in Puerto Rico) that is coming to an end. That was not public before this process and has put us in a bit of a vulnerable position. If this agreement is not approved, then we have to move on. We have to move on with the future of the brand."
Meanwhile, offers from the Puerto Rican government to keep Captain Morgan, along with inquiries from other locales, are already coming in, Gosnell added.
The continuous practice of turning away good business deals is what's keeping St. Croix in its current economic state, Hill said after senators continued to pepper the testifiers with questions.
"We're not on Sesame Street — we're on Wall Street today, and the dynamic is different," he said. "So while we're sitting around fiddling, dealing with minutiae, the Puerto Rican government is maneuvering to keep Captain Morgan in Puerto Rico. We need to look at the big picture. You know, the longer I serve in the Senate, the more I understand why St. Croix is the way it is — because the political leadership for years has caused St. Croix to be in the position it is in today."
The Senate's decision to ratify the agreement shows that it is, for the most part, ready to move away from these past practices and willing to compete on a global scale, deJongh said in the Wednesday news release.
"Real change requires looking at things in new ways and working with new people, not just doing the same failing things over and over, and always getting the same unsatisfactory results," the governor said. "We have been making progress; we made real progress today with this vote. Some have tried to hold us back. But I believe that the people of our territory are tired of excuses and empty promises. I believe Virgin Islanders wish to say 'yes' to opportunity, progress, and cooperation."
All senators were present during Wednesday's session.
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