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HOVENSA floats $127 million bond issue

By John Collins (1)

Will provide long-term financing for new coker at St. Croix refinery to reduce cost of processing Venezuelan heavy crude.

HOVENSA, the entity formed by the merger of Hess Oil Virgin Islands and Petroleos de Venezuela (PDVSA), has sold $126,7 million dollars worth of tax-exempt bonds to provide partial long-term financing for construction of a $600 million coker at its St. Croix refinery, announced Rene Sagebien, president and ceo.

The coker began operation in August and enables HOVENSA to process heavy Venezuelan crude. Since heavy crude is less expensive than the oil the refinery previously processed, its average cost of crude oil has been reduced. HOVENSA installed the coker because a number of its competitors had already done so.

The bonds were issued by the U.S. Virgin Islands (USVI) government and the V.I. Public Finance Authority. They have an average maturity of 15 years but HOVENSA has the sole financial obligation for the repayment of the bonds.

U.S. Internal Revenue Service regulations permit a government entity to allocate annually a portion of its tax-exempt bonding capacity for eligible projects of private entities.

Sagebien expressed his appreciation to the USVI government ant to the PFA board for their separate allocations of private activity bonding capacity from 1999 through 2002 which constituted the total amount of the bonds sold.

“By providing these allocations the government reduced HOVENSA’s cost of financing this vital project without placing any financial burden on the government,” said Sagebien. The interest cost of tax-exempt bond funds normally is less than other forms of financing.

HOVENSA agreed to pay the USVI government $828,000 in bond issuance fees in addition to underwriting all expenses incurred by the government including administrative costs, according to Sagebien.

HOVENSA has emerged as a principal source of supply of oil to Puerto Rico with imports from the St. Croix refinery last year reaching $793.5 million (CB April 18). In addition the network of Citgo service stations in Puerto Rico, also owned by another PDVSA subsidiary, is supplied by HOVENSA.

HOVENSA was established in St. Croix in 1966 by the legendary Leon Hess. It reportedly produces 115,000 barrels daily. Because of mechanization it total employment has contracted from a high once of 5,000 to 1,600 today. Since the merger between Hess Oil and PDVSA in 1998, the new entity has generated payroll earnings of $625 million and $150 million in taxes to the USVI economy.

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1) Other articles by the well known Caribbean author John Collins can be read at:

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November 30, 2002


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