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BEFORE THE THIRTIETH LEGISLATURE OF THE VIRGIN ISLANDS TESTIMONY OF ST. CROIX CHAMBER OF COMMERCE IN SUPPORT OF RATIFICATION OF THE FOURTH AMENDMENT TO THE CONCESSION AGREEMENT BY AND BETWEEN THE GOVERNMENT OF THE VIRGIN ISLANDS AND HOVENSA, LLC Good afternoon, Mr. President and distinguished Members of the Thirtieth Legislature. My name is Mark Eckard; I serve as the volunteer President of the all-volunteer St. Croix Chamber of Commerce. I am honored to be before you today to testify in support of this Body’s ratification of the Fourth Amendment to the Concession Agreement between the Government of the Virgin Islands and Hovensa, LLC (the “Fourth Amendment Agreement”). I find myself challenged today to deliver a message that is in stark contrast to the message that the St. Croix Chamber of Commerce strives to communicate on a daily basis. Since becoming President, I have traveled far and wide to boast sell St. Croix and the wonderful opportunities our island offers for businesses large and small. We at the Chamber take every opportunity to boast about the technology infrastructure projects underway that will soon enable our small island to offer broadband bandwidth and speed that rivals the largest metropolitan areas in the world. We talk about the other wonderful infrastructure projects now underway or that have been completed such as the Christiansted Bypass – which enables the historic town of Christiansted to be whatever it decides it wants to be, now that it is free of the loud congested traffic and puffs of black truck smoke. We brag about the beauty and opportunity of Frederiksted with its wide streets, land available for an events arena, and world class pier facility. And we always share our excitement about the efforts of our Water and Power Authority which has stated - unequivocally – on numerous occasions – that the utility’s end users will see a 30% reduction in electric rates by the end of the summer of 2014. And, of course, we have boasted about the resiliency and creativity of the St. Croix business community. Today, however, our message will take a different tone. In order to grasp the importance of the measure before you today, it is essential that we take time to acknowledge the effects that Hovensa’s closure has had on our business community and the island generally. For over forty years, the former Hess oil refinery (later named “HOVENSA” to characterize Hess’s joint venture with Petroleos de Venezuela S.A.) has been the largest private employer in the Virgin Islands. The refinery, which sits on 2000 acres on our south shore, was, at one point, the largest refinery in the world with capacity of approximately 650,000 BPD. The Hovensa refinery still, to this day, is one of the ten largest refineries in the world with crude oil processing capacity of over 500,000 BPD (although Hovensa reduced its capacity to approximately 350,000 BPD in 2010). The economic importance of Hovensa to the Territory cannot be overstated. In 2007, Hovensa paid over $160 million in taxes to the Territory. Even in 2011, after a major reduction in capacity, Hovensa paid over $69 million in taxes to the Territory, consisting of: $30 million in withholding taxes; $18 million in excise/gross receipts and highway user taxes $14 million in property taxes; St. Croix Chamber of Commerce Testimony re Fourth Amendment Agreement Page 2 of 4 $2.4 million in production taxes; $1.5 million in corporate income taxes; $850,000 in DPNR permit fees; and $110,000 in submerged land leases. Since its inception, Hovensa (and Hess before it) was the largest charitable giver in the Territory. No matter what the cause or event, Hovensa’s name was included as a sponsor. From Fourth of July fireworks to the Three Kings Day Parade, the island of St. Croix could – and indeed did – count on Hovensa for funding. Hovensa’s approximate 2,500 highly paid employees and contractors were an integral driver of our island’s economy. Hovensa employees ate in our restaurants, drank in our bars, shopped in our stores, rented apartments, purchased homes, deposited money in our banks, bought or leased cars and trucks, bought auto insurance, sought medical care at our hospital and from private doctors, engaged our accountants and lawyers, frequented our tourist businesses such as dive shops and Buck Island tour operators, attended our churches, and on an individual level, contributed to charitable and community endeavors. Perhaps most importantly, Hovensa supplied our Water & Power Authority with fuel oil at greatly discounted rates, supplied our gas stations with cheap gasoline, supplied jet fuel to our airport and seaplane facilities, enabled cruise ships to bunker and brought in federal government airplanes for cheap fuel. In light of the all-important and omnipresent nature of Hovensa’s presence on our island, it was unthinkable that the refinery could ever go completely dark. However, as we all know, on January 18, 2012, the unthinkable occurred when Hovensa announced that it would entirely cease production at the refinery. Just approximately three and a half years after the global economic meltdown of the fall of 2008 and on top of the shrinking effect of (U.S.) Congressional legislation that severely limited our EDC program, the Hovensa closure was recognized publicly as a “body blow” for our island’s economy. The immediate and actual impact of Hovensa’s closure to our economy and, by extension, the St. Croix business community, was severe. The closure resulted in the direct termination of 2,471 employees and subcontractors, which equated to twelve percent of total employment and 27% of the average gross pay of the private sector on St. Croix. The closure resulted in 922 unemployed workers filing initial claims for unemployment in May 2012 as the unemployment rate on St. Croix rose to 18%. For the Territory generally, Hovensa’s closure resulted in $580 million reduction in direct gross economic output and over $92 million in overall general government tax revenues, beginning in 2012. Beyond the actual impact of the Hovensa closure, rumors of impending gas and oil shortages on the island invoked fear and caused many to curtail spending even more than necessary. Indeed, Hovensa’s closure created the potential for a crippling threat to energy affordability. The shutdown of the refinery pulled the rug out from under an already struggling island economy and our business community. St. Croix Chamber of Commerce Testimony re Fourth Amendment Agreement Page 3 of 4 The real effect of Hovensa’s shutdown was immediately felt at our food stores, restaurants, bars, and convenience stores. Businesses that existed almost solely to provide goods and services to the refinery were forced to shut their own doors. Demand for many small service businesses dried up. Real estate listings exploded onto the multiple listing service, causing home prices to plummet. Commercial business spaces emptied and remain empty to this day. Professional service businesses such as lawyers and accountants, previously a significant component of our economy, reduced hours and pay for their employees. Furniture and home supply stores stood still. The auto sales business froze. Hotels sold fewer room nights and could no longer plan for periodic turnarounds which brought sell-out capacity to our hotels. Families left the island in droves in June 2012, after the end of the school year. We experienced another, small, exodus of families last month, in June 2013. As a result, enrollment at our public schools is said to have dropped by more than ten percent and our two largest private schools have been forced to merge. Our hospital’s financial and managerial woes have been greatly exacerbated by the Hovensa shutdown. And we cannot overlook the sad 2000 acre ghost-town that is left on our south shore. It is almost eerie to drive Hess Road from Castle Coakley all the way through the refinery and its housing developments out to the Melvin Evans highway. Especially at four o’clock in the afternoon, many of us still cannot get used to the lack of traffic tie-ups to get from Hess Road through the Sunny Isle’s intersection. The psychological impacts of the shutdown on our economy are real and continue to hurt our economy and business community. We must seize every possible opportunity to ensure that something is done with the Hovensa refinery. This is why the Chamber of Commerce stood in strong support of the Governor’s negotiation strategy with Hovensa, well characterized by the Avis headline: “Refine or Sell.” We cannot allow 2000 acres of rusting metal to stand idle on our south shore – like some sort of industrial graveyard. The St. Croix Chamber of Commerce agrees that if the refinery facility cannot be used to employ Crucians and provide fuel for the economies of St. Croix and the Territory as a whole then Hovensa should be strongly encouraged to break down the refinery and remediate its sight. But first, we must first do all we can to ensure that the refinery is marketed to potential buyers. And we must note that even Hovensa has stated their surprise at the level of interest that exists in purchasing the refinery. The Fourth Amendment Agreement does exactly that: it incentivizes Hovensa to sell the refinery to an operator who will use those 2000 acres on our south shore for the benefit of our island’s economy. Right now, Senators, it is ____________ o’clock in Riyadh, Saudi Arabia. There are Crucian men in Riyadh right now, working in a Saudi oil refinery, thousands of miles away from their homes, their families and their island. Right now, it is ________ o’clock in Houston, Texas and on the Gulf Coast, where Crucian men and women are working in refineries. These men and women were scooped up quickly by other refineries as a result of the training and experience they got at the Hovensa refinery. St. Croix Chamber of Commerce Testimony re Fourth Amendment Agreement Page 4 of 4 We must exhaust every possible opportunity to bring these men and women home to St. Croix to be with their families and, from the Chamber’s perspective, to spend money in our island’s economy instead of in Texas, Louisiana or Saudi Arabia. Perhaps a deal won’t be consummated – but we have been given strong indications of the very real potential for a deal. Regardless of whether the refinery is reopened, however, we must know that we tried. By ratifying the Fourth Amendment Agreement and enabling the year-long marketing process it contemplates, we will know that we exhausted at least one effort to restore the 2000 acre Hovensa refinery to operation and to restart our island’s economy toward its full potential. Having reviewed the Fourth Amendment Agreement, the Chamber is satisfied that the Agreement incentivizes Hovensa to sell the refinery with an appropriate balancing of give and take. We note that the 50% deferral of real estate tax payments is temporary and if Hovensa does not sell the refinery, it will have to pay the deferred amount of property taxes. We note that if the refinery sells, Hovensa will pay 20% of sale proceeds to the Government, capped at $50 million. And we note that if the refinery does not sell, Hovensa must resume all of its obligations under its agreements with the Government, including its obligation to bid to supply discounted fuel to WAPA. Perhaps most beneficial for the future viability of our island’s south shore industrial complex, we note that, if the refinery does not sell, Hovensa will be required to either execute on the requirements of its Consent Decree with the U.S. Environmental Protection Agency and make capital improvements – or – surrender its Clean Air Act permits. In closing, Senators, thank you for giving the St. Croix Chamber of Commerce the opportunity to be heard today in support of ratification of the Fourth Amendment Agreement. For the reasons stated by me today, the St. Croix Chamber of Commerce respectfully requests that the Legislature ratify the Fourth Amendment Agreement in the form executed by the Government of the Virgin Islands, Hess Oil Virgin Islands Corp., PDVSA, VI, Inc. and Hovensa, LLC. Thank you.