Download Read Chamber President, Mark Eckard`s Testimony Here.

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
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$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.
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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
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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.