“Hovensa’s customers for the storage of fuels will not bring in fuel for storage at its fuel storage terminal due to the imposition of duties and taxes by the V.I. Government,” a Hovensa spokesman told OPIS on Friday.

“The fuel Hovensa sells at its truck loading rack is purchased from such customers. Thus without fuel being imported, Hovensa will run out of fuel for sale at the rack,” he added.

Hovensa will not speculate as to what would happen after the gasoline and jet inventory on hand is exhausted, the spokesman said.

Hovensa had said that its current inventory of regular gasoline will keep the local fuel racks supplied until Oct. 31. The stocks for premium gasoline, ultra low-sulfur diesel and jet fuel will last until Dec. 31.

The company has said it will no longer supply the racks after its current fuel inventory runs dry.

OPIS reported on Aug. 13 that existing customers at the Hovensa oil storage facility on the U.S. Virgin Islands were expected to pay higher storage costs due to the 6% oil custom duty and other fees if they want to continue using those strategic tanks in the Caribbean or ship out. Industry sources said that storage tenants at Hovensa include Vitol, Hess and Total.

Hovensa is a 50-50 joint-venture between PDVSA of Venezuela and Hess.

Last year, Hovensa informed companies which were storing petroleum products at the terminal/refinery that they may have a tax liability to the Virgin Islands government if Hovensa was not able to successfully complete those negotiations by the end of December 2012.

However, negotiations between Hovensa and the local government dragged on for more than a year since March 2012.

Hovensa used to operate a 500,000-b/d refinery at St. Croix, which supplied products to the Caribbean and U.S. East Coast. Since its shutdown in February 2012, it has been converted to a fully operational storage terminal for imports and exports.

Its strategic position in the Caribbean is also crucial for breaking and building bulk volumes for arbitrage trading purposes.

Hovensa had received tax concessions from the government when it was operating the now-shut refinery, but those concessions were viewed as a government subsidy for refinery operations only.

Hovensa was seeking an extension of the tax concessions for the operation of its storage facility. However, that was met with resistance from the government, which wanted Hovensa to restart its refinery operations for local economic reasons.

In a letter to Hess in August, Governor John de Jongh said that “it has always been the government’s position that a stand-alone storage terminal business operating free from generally applicable import duties is not permitted by the existing Concession Agreement.”

“Accordingly, I have instructed Customs and Border Protection to cease its forbearance on the collection of duties on non-exempt shipments of petroleum products for storage at Hovensa, effective Aug. 16, 2013,” he said.

The government expects Hovensa to comply fully with all its obligations under that Concession Agreement. Those obligations include, among many others, the obligation to operate the refinery and maintain it in a manner consistent with protection of public health.

Also, Hovensa is expected to bid to supply the Water and Power Authority (WAPA) with fuel at the lower of the landed cost of crude and a price calculated as a function of prices posted in the Oil Buyers’ Guide, and Hovensa is to pay all applicable taxes and fees, including the fixed sum of $14 million annually in real property taxes.

Hovensa is to pay import duties on all shipments of petroleum and petroleum products not destined for use or consumption within the territory.

Hovensa is to maintain in storage sufficient fuel to ensure that there are adequate supplies to meet the local fuel needs, including the needs of WAPA, and it is to supply certain government agencies with gasoline and diesel fuel at posted rack prices.

Hovensa is to establish and conduct certain education and training programs for Virgin Islands residents.

“The government will take all necessary measures to enforce those obligations and protect its rights,” Gov. de Jongh said.

OPIS reported in May 2012 that Hovensa had offered about 16 million bbl of storage capacity or about 50% of its maximum capacity of 32 million bbl. The balance of unused capacity would be mothballed.

The company considered the offer of 16 million bbl to be the optimal capacity based on practical operational costs and regional market demand.