Published On: Tue, Feb 3rd, 2015

USVI government seeks to foreclose on St Croix refinery

hovensa_refineryST CROIX, USVI -- In the latest twist in the ongoing saga of the mothballed HOVENSA oil refinery on St Croix, the US Virgin Islands government last week filed a six-page action in the local Superior Court to begin the process of foreclosure on the property following HOVENSA’s failure to pay $40 million in settlement funds owed to the government.

Newly installed USVI governor, Kenneth Mapp, along with Lt. Gov. Osbert Potter and a legal team, met on January 15 with representatives from Hess Corporation and Venezuela’s state oil company Petróleos de Venezuela SA (PDVSA), joint owners of the HOVENSA refinery.

At a press conference the following day, Mapp said that, at the meeting, Hess officials offered a limited set of options: either the facility is sold and the government is able to enter into an operating agreement with the successful buyer, or the corporation would use the money it currently owes the government to complete the shutdown of the facility and declare bankruptcy.

Last year, the USVI Department of Planning and Natural Resources (DPNR) settled several lawsuits initiated in 2005 against HOVENSA over contamination of the South Coast Industrial Area, where the refinery is located, including leaks from oil processing and storage that resulted in plumes of oil floating on top of the groundwater underlying the facility.

The lawsuits sought damages, the government’s investigation and cleanup costs, the performance of environmental cleanup and restoration work, penalties, litigation costs, and litigation fees. The lawsuits alleged that HOVENSA’s operations injured and contaminated the public’s natural resources, including potential drinking water, the marine environment, plant life, and wildlife.

The government eventually settled the suit for $43.5 million, with $3.5 million paid at the settlement signing and the remaining $40 million due after the sale of the refinery or by December 31, 2014, whichever came first. At this point, the refinery has not been sold, nor the remainder of the settlement money paid.

As security for the $40 million debt, HOVENSA’s owners granted a mortgage on the property and the government is now moving to foreclose on the lien and “seize all assets” on the site in an attempt to collect on the debt.

In last week’s filing, the government claimed, among other things, that by not paying the outstanding $40 million, HOVENSA is in breach of the settlement agreement and has defaulted on the mortgage, which provides that, in the event of a default, the government may foreclose on the property.

The government also asked that HOVENSA be removed from the refinery and that the court appoint a receiver to oversee the sale of the property and the payment of $40 million to the government from the proceeds.

In December 2010, the refinery experienced an airborne release of vaporized and aerosolized material. The Environmental Protection Agency (EPA) immediately initiated investigation and oversight activities, including inspecting the affected communities and reviewing air monitoring results.

The EPA, the US Department of Justice and HOVENSA entered into a consent decree in January 2011. Under this agreement, HOVENSA was to pay a civil penalty of more than $5.3 million and spend more than $700 million on new pollution controls that would resolve Clean Air Act violations at the refinery. The settlement required new and upgraded pollution controls, more stringent emission limits, and aggressive monitoring, leak-detection and repair practices to reduce emissions from refinery equipment and process units.

A year later, on January 18, 2012, HOVENSA and its owners announced the imminent termination of refining operations on St Croix and the planned conversion of the facility into an oil storage terminal. Three weeks later the facility was shut down.

In December 2014, the USVI senate rejected a proposal to sell the HOVENSA refinery in a deal that, according to a statement issued by a number of senators, they believed would not have benefited the territorial government financially.

Former Governor John de Jongh had earlier signed an operating agreement between the USVI government and Atlantic Basin Refining (ABR), which agreement was a pre-condition to a sale of the refinery to ABR.

According to testimony by USVI attorney general Vincent Frazer before the senate at the time, the agreement provided “that if the refinery cannot be returned to full operations, or is returned to full operations only to be closed again, the new owners will pay for the refinery to be deconstructed and the refinery site cleaned up.”

Since any such site cleanup and refinery deconstruction is likely to cost several billion dollars, the rationale and commercial feasibility of such an undertaking was never satisfactorily explained in relation to a refinery that will, in that scenario, never become operational again.

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