Above: the HOVENSA refinery

By the Caribbean Journal staff

In what could be a crushing blow to the US Virgin Islands’ economy, the territory’s Senate has voted against the approval of a deal to purchase the shuttered HOVENSA refinery on St Croix.

The Senate rejected the Operating Agreement agreed in principle by the government and Atlantic Basin Refining, which would have restarted operations at what was once the region’s largest oil refinery.

The operating agreement was a requisite pre-condition to the sale of the refinery, which was first announced in October.

Part of the Senate’s objection seemed to be a provision in the deal that would have released HOVENSA from certain legal responsibilities to the government and concerns about the company’s capitalization.

The operating agreement’s provisions included $1.6 billion in fixed payments to the government over the life of the agreement and was expected to employ around 700 people and 200 contractors.

“This action now places us at a disadvantage moving forward,” US Virgin Islands Governor John de Jongh said following the vote. “It will have immediate budgetary and other impacts. The longer term implications of a shuttered HOVENSA operation, and the risks that may arise from the claims of the Owners of HOVENSA that they are owed millions of dollars in tax refunds, by reason of past operating losses at the refinery, are financial and legal issues that will now have to be addressed as a result of this decision by the 30th Legislature.”

It’s not clear what this will mean for the refinery and the territory going forward; before HOVENSA closed, it had been the US Virgin Islands’ single-largest private employer.

A more crucial issue could be one of moral hazard; that is, whether the rejection could dissuade interested parties in even looking to buy or restart operations in the future, although it’s possible Atlantic Basin re-enters talks.