The government negotiated an operating agreement requiring ABR to rebuild and restart the refinery, to employ hundreds of Virgin Islanders and to make substantial payments to the government totaling more than $1.6 billion in fixed payments over the life of the agreement and additional variable payments depending on the refinery’s profitability.
For the first time ever, owners of the refinery will be required to take the facility down and clean up the site if they do not restart the refinery or if it is again shut down at any time in the future, according to the Government House.
The operating agreement also requires the new owners to pay into a site restoration fund that will pay for the ultimate deconstruction and take-down of the refinery and remediation of the site.
After the restart, the refinery is expected to employ over 700 workers, with over 500 full-time employees and over 200 contractors" according to the governor. Once restarted, the refinery will provide a tremendous boost to the St. Croix economy and generate hundreds of additional jobs to support the refinery’s operations and employees.
The base term of the operating agreement is for 22 years, but it may be extended for two additional terms of 10 years each if ABR is not in breach of its obligations under the agreement.
It also would have some cost advantages over U.S. facilities. The so-called Jones Act requires all goods shipped between U.S. ports to move on vessels built in the U.S. and sailed by American crews. That makes the tankers more expensive to rent—and harder to find—than foreign tankers crewed with less-expensive sailors from other countries.But while St. Croix is a U.S. territory, it is exempt from the Jones Act.
The St. Croix refinery has some higher costs than U.S. rivals, such as for power.
Hess built the St. Croix plant in 1966 and by the 1970s had expanded it to become, at one point, the largest in the world, processing up to 650,000 barrels of oil a day. The company sold a 50% stake to Petróleos de Venezuela in 1998 and adapted equipment to process the heavier crude that is pumped in Venezuela.
A global economic slowdown in 2008 cut into demand for fuel, and the St. Croix plant could no longer compete with newer, more efficient refineries. Hovensa recorded $1.3 billion in losses in the three years before it closed. (WSJ, 10/28/2014, St. Croix Source, 10/27/2014)