The Multinational Monitor



Hess' Twin Tactics

Play Island Against Island - Bypass U.S. Shipping Costs

by Steve Koester

The current contract controversy between the Amerada Hess Corporation and the Virgin Islands marks only the latest in a series of blustering , moves by Leon Hess and his company to throw their weight around in the Caribbean, a region which has provided the Amerada Hess Corporation with vast profits.

Amerada Hess first entered the Caribbean in 1965 with the construction of a port and refinery at St. Croix. The Virgin Islands made an ideal location for a refinery, both because of proximity to the industrial east coast of the U.S_-Hess' major market for petroleum products and because of naturally deep harbors, which are well-suited for super-tanker traffic.

In the Virgin Islands, Hess is able to take advantage of a 1922 exemption in the Jones Act, a law prohibiting foreign flag vessels from engaging in domestic commerce. The Virgin Islands is the only American territory excluded from the Jones Act. As a result, the Hess refinery in St. Croix is not required to use American ships to transport cargos of crude or refined petroleum products to the U.S.

This exemption brings profits to Hess, since foreign shipping industries - particularly Liberia's--afford cheaper operating costs. In the Virgin Islands. Hess "gets a lot of tax breaks, doesn't have to meet health and safety regulations, doesn't have to meet manning and training requirements, and of course the labor costs are cheaper." says Jim Gannon, editor of the monthly newsletter of the Seafarer's International Union of North America. Business Week has estimated that Hess saves $2.15 per barrel by using "flag of convenience" (non-U.S.) ships.

In addition to the benefits of the Jones Act exemption, the government of the Virgin Islands gave Amerada Hess other financial incentives, including a subsidy that returns 75 percent of the company's corporate income taxes, and total exemption from all property taxes and import fees. These concessions were granted for a 16-year period which expires in September of this year.

Hess' operations in the Virgin Island have been so profitable that in 1974 the company closed down a 65,000 barrel-a-day refinery in New Jersey, laying off 250 workers, and correspondingly increased the output at its Virgin Islands facility. Now the world's largest refinery, it is capable of producing over 700,000 barrels of petroleum products per day.

Hess has long been preparing for this year's contract renegotiations with the Virgin Islands by laying plans to relocate its operations on other Caribbean Islands, thereby putting pressure on the Virgin Islands to accept its terms.

In 1977, the corporation announced plans to build a refinery and transshipment terminal in St. Lucia. Amerada Hess had quickly signed an agreement with St. Lucia-one which gave the company extraordinary benefits. The agreement, called the Oil Refinery Act, required the approval of a simple majority of the St. Lucia legislature in order to be legally binding. Leon Hess, however, demanded its unanimous approval without amendment, apparently concerned over the possibility of a new government coming to power which would be less favorable to him.

The terms of the contract are as informative as the conditions under which it was ratified. The agreement is for 50 years and includes a 20-year holiday from all income, sales, property and franchise taxes and all duties and license fees, except for those on automobiles. These benefits are extended to all Hess affiliates and subcontractors. In addition the Oil Refinery Act authorizes the company, its contractors and all foreign employees "to open and freely operate external bank accounts and to freely transfer funds abroad." To top it off, Hess is covered by an escape clause: "in the event ii shall become impractical to complete the project, which decision shall be at Hess' sole discretion, Hess may abandon the project." Hess' only responsibility in this event is to turn the title o1 the project over to the government and pay St. Lucia $360,000.

One of the primary reasons the Hess project was approved by the St. Lucia legislature was the claim by Hess that 3,000 jobs would be created by its presence, helping alleviate unemployment and underemployment which hover around 45 percent in a population of 120,000. From 1977-1979, the maximum number of people employed at a single time at the project was 300. By early 1980, the number had fallen to 175. Hess has still not begun construction on the oil refinery-perhaps because the St. Lucia refinery is more valuable as a threat to the Virgin Islands than as an operating refining unit.

Hess' efforts to play one Caribbean island off against another did not stop with its St. Lucia contract.

In 1979 Hess turned its sights on Bonaire, an island off the coast of Venezuela which is part of the Netherlands Antilles.

First, the corporation attempted to buy shares in Bonaire's transshipment company, Bonaire Petroleum Corporation, which is jointly owned by the Netherlands firm Palcoed and an American firm, Northville Industries Corporation. At the same time, Hess exerted pressure on the government to allow the company to build a refinery there on terms identical to those Hess extracted from St. Lucia. Hess bandied about promises to create new jobs for the island, which has an unemployment rate of around 22 percent, and to substantially broaden the economic base of Bonaire.

This time, however, Leon Hess' tactics failed, the government of Bonaire refused to yield on the issue of a refinery, and Hess abandoned its plans for buying into the transshipment company. "His way and his terms of negotiating were not orthodox, and did not go over very well," said Harold Henriques, Minister Plenipotentiary of the Netherlands Antilles. "He was trying to impose his terms, rather than negotiate."

The Amerada Hess Corporation refused to respond to more than 15 requests for information regarding material presented in this article.

Steve Koester is an anthropologist at the University of Colorado.

Amerada Hess: Showdown in the Virgin Islands

The Virgin Islands is currently feeling the pinch of multinational power, as the Amerada Hess Corporation, a U.S. petroleum company, threatens to wreak havoc on the Islands' economy.

Hess, which runs the world's largest refinery-capacity of 700,000 barrels a day-in St. Croix, has issued an ultimatum to Governor Juan Luis: either accept by May 8 the company's terms for operating on the Islands, or the refinery will be closed by September. Hess employs 1300 people and contracts with 1700 others in this U.S. territory, which has a population of 95,000 people. The company also supplies the Islands with all their energy needs; if Hess were to pull out, the government would be hard pressed to find propane for cooking, gasoline for cars and airplanes, and fuel for water and power plants.

The ultimatum, dated March 6 and signed personally by Leon Hess, chairman of the company, comes in the midst of discussions between Hess and the government to renegotiate Hess' contract, which expires in September. The original contract, signed in 1965, granted Hess generous terms for operating the refinery: a 75 percent subsidy on corporate income taxes and total exemption from property taxes and import fees. (See adjoining article.)

The government of the Virgin Islands has been trying to renegotiate with Hess on terms more favorable to the Islands' economy. "During the first 16 years, Hess has made a lot of money; it's time it contributes a little more," says Richard Allen, director of government information for the Virgin Islands.

To bring about such a change, Governor Luis has submitted three proposals to Hess, the last one, dated March 20, stipulating a per barrel fees charge of 22 cents a barrel for the first 90 million barrels of petroleum products exported each year. This per barrel charge, however, can be reduced dollar by dollar by the amount of income tax the company pays. The Governor's proposal contained two other provisions to increase the economic benefits of Hess' project to the Virgin Islands: Hess should sell and deliver fuel at cost to the Virgin Islands Water and Power Authority, and Hess should increase employment training of citizens of the Virgin Islands "in all technical, managerial and professional levels."

Leon Hess has rejected all of these proposals, the last one most strongly, terming it "unreasonable and impossible." In a blistering letter to Luis on .April 3. Hess wrote that the Governor "must accept full responsibility" for tailing to reach a settlement, adding that-the real victims" would be those Virgin Islands' citizens that Hess employs.

"Insulting and inflammatory." That's how Julio Brady federal program director for the Virgin Islands, characterized Hess' last letter of rejection. "It virtually threatened that the Governor's political future was done for if he didn't agree (with Hess)."

There may he an element of bluff in all of Hess' actions, earning high profits and having enormous fixed investments at its St. Croix refinery, Hess may well he reluctant to pick up and leave. (Hess would not respond to numerous requests for information either on this specific matter or in fact on um thing concerning its Virgin Islands' operation.)

In any event, Hess' threat already is having an impact on the economy of the Islands. Hess has halted construction of a$250-million project and has laid off nearly 1000 workers since January, claiming that the uncertainty of' the contract makes it economically impractical to carry on with plans to expand. The lay-off has come at a time when world demand for relined fuel has plummeted, so Hess has not suffered from this move. The workers, however, are protesting not against Hess as much as against the government for not signing.

And the major bank on the island, Chase Manhattan, has stopped issuing loans in late March for everything except home mortgage assistance. "Business loans are just not even being discussed anymore," Chase's St. Croix manager, Willard Jazues, was quoted as saying in the Virgin Islands' Daily News. Jazues claims that Chase is worried about the security of its loans if Hess pulls out.

With the Governor of St. Lucia over a barrel, Hess may win out in the end. Negotiations are continuing, and chances are that some agreement will be reached. Hess wants the profits from its refinery; the Virgin Islands needs the employment, fuel and capital it generates. Given Leon Hess' influence and style, the contract will most likely be favorable to him. "Hess still wants to bat us over the head and suck the last drop of blood from us," Virgin lslands' spokesperson Brady says, "and that goes beyond greed."

- M. R.

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