USVI legislature approves agreement for St. Croix refinery restart

Senators of the 32nd Legislature of the US Virgin Islands have approved a proposed $1.4-billion operating agreement between the government and ArcLight Capital Partners LLC, Boston, to restart the 500,000-b/d refinery at Limetree Bay, on the island of St. Croix (OGJ Online, July 10, 2018; Jan. 18, 2012).

Ratified following a special session that began on July 25 in Charlotte Amalie, St. Thomas, the refinery agreement will lead to more than 1,300 local jobs during construction and as many as 700 permanent jobs upon restarting the facility, operations of which are scheduled for commissioning by yearend 2019 with an initial crude processing capacity of about 200,000 b/d, the USVI government said.

“This is a good day for the people of the Virgin Islands as we have signified to the outside world that following two Category 5 hurricanes, we are truly open for business and private sector investment in our community,” USVI Gov. Kenneth Mapp said.

While the refinery-operating portion of the agreement has been approved, Gov. Mapp noted that much work lies ahead, as senators did not act on the proposal in its entirety.

Mapp expressed concern regarding removal of provisions that would directly shore up solvency of the Government Employees Retirement System (GERS), as well as senators’ failure to consider other portions of the original proposal related to the local economy and the future of GERS.

Despite the setback, Mapp said he will continue to work with the legislature to bring some peace of mind to the islands’ retirees.

Under the governor’s original proposal, GERS was to receive half of the $615 million to be generated by the refinery over the next 10 years.

Further details regarding the scope of the refinery’s rehabilitation and additional proposal approvals have yet to be disclosed.

Approved operating agreement

Under the recently approved agreement, ArcLight—owner of Limetree Bay Terminals LLC (LB Terminals), which in 2016 restarted terminal assets connected to the former Hovensa LLC-owned refinery at Limetree Bay—will invest more than $1 billion between now and 2020 to rehabilitate, restart, and operate the refinery.

ArcLight subsidiary Limetree Bay Refining would pay the government $70 million, and upon restart of the refinery, annual payments in lieu of taxes of $22.5 million, with an adjustment based on the refinery’s performance that could raise the annual payment to as much as $70 million but never below $14 million in normal circumstances.

If the refinery performs as the government’s industry experts at Gaffney, Cline & Associates have projected, the government would receive more than $600 million during the first 10 years after restart vs. the $330 million Hovensa—a joint venture of Hess Corp. and Petroleos de Venezuela SA—paid the government in corporate income taxes in the more than 30 years it operated the refinery, Mapp said.

The $600 million in payments would be in addition to the income generated by LB Terminals’ oil storage terminal, which will continue to make payments currently amounting to $11 million/year as promised under the original terminal operating agreement (OGJ Online, Jan. 8, 2016; Jan. 4, 2016).

Alongside minor amendments to the existing terminal operating agreement, the new deal establishes a refinery operating agreement, under which LB Terminals will transfer its ownership of the refinery to LB Refining, which in turn will enter into a separate operating agreement with the government as well as assume independent financial and other obligations, according to government documents.

Regarding issues of employment for USVI residents—more than 2,000 of whom became jobless following Hovena’s 2012 closure of the refinery and one of the most recurrent hurdle facing the original 2016 terminal operating agreement—the new refinery operating agreement requires LB Refining to aggressively advertise open positions, to give preference to qualified local residents over nonresidents, and to use commercially reasonable efforts to ensure that at least 80% of workers are USVI residents.

Qualified residents of St. Thomas and St. John interested in working during reconstruction of the refinery also will be offered meals and housing while working on St. Croix without charge, Mapp said.

Contact Robert Brelsford at [email protected].