APRIL 1981 - VOLUME 2 - NUMBER 4
Hess' Twin Tactics
Play Island Against Island - Bypass U.S. Shipping Costsby 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."
Steve Koester is an anthropologist at the University of Colorado.