Remarks by Governor John P. de Jongh, Jr.
Announcing an Landmark Initiative with Diageo for the Construction of a Captain Morgan Rum Distillery on St. Croix

June 23, 2008
Government House, St. Croix

GOVERNOR de Jongh: Good evening. I have requested this time to report some very exciting news directly to the people of our Virgin Islands. And it is with great pleasure and tremendous pride that I bring you this report of positive economic news during what have been very tough times here at home and throughout our country.

The news I am reporting is of a partnership, more specifically a public-private partnership, that I have negotiated with a company whose corporate name may not be known to you, but which is, in fact, a world-wide premium drinks business. The company is Diageo, PLC.

Diageo, PLC is a large multinational corporation headquartered in the United Kingdom. Diageo’s brands are world famous and distributed in 180 markets. The company is publicly traded on both the New York Stock Exchange and the London Stock Exchange, and the firm has over 22,000 employees in offices across 80 countries. To give you better idea of who we are talking about, Diageo is the company that owns Guinness, Johnnie Walker, J & B, Smirnoff’s, Tanqueray, Jose Cuervo, and most important to the Virgin Islands and to this partnership – Captain Morgan, the number two rum in the world with sales of over 7 ½ million cases a year. We have signed an historic agreement to bring the production of Captain Morgan Rum to the Virgin Islands and more specifically to St. Croix.

The story of how we got to this day is a real success story that I believe we can all be proud of as Virgin Islanders, I am happy to share that story with you. 

When I was made aware that Diageo was exploring alternatives for a new home for Captain Morgan, and it appeared that they were going to move outside of the United States to a foreign location in Central America or elsewhere in the Caribbean, it became clear that we might have a once-in-a- generation opportunity, an opportunity to once again establish the Virgin Islands as a major rum-producing locale. The broad question was: What could we do to bring Diageo and Captain Morgan to the Virgin Islands, to St. Croix?

i believe we have done just this. The Agreement that I, on behalf of the Government of the Virgin Islands, entered into with Diageo will bring to the Virgin Islands a $165 million manufacturing facility on St. Croix that, when completed in approximately three years, will produce on St. Croix all the rum used in Captain Morgan brand products. This Agreement marks the greatest single financial step forward we have taken in this Territory in fifty years, since the time when Governor Paiewonsky brought Harvey Alumina and Hess Oil to St. Croix. This will bring jobs and a tremendous future stream of revenue, a long-term source of funds that will go far towards solving many of the challenges we face as a Territory.

I want to take a moment to explain the basis for this Agreement, the premises on which Diageo and the Government have moved ahead, and the long-term financial benefits of this public-private partnership to our Territory.

One of the cornerstones of United States policy has long been the provision that permits the so-called “cover-over” of excise taxes paid on rum that is made in a Territory or possession back to that Territory – be it the Virgin Islands, Puerto Rico, Guam, or American Samoa. This was made applicable to the Virgin Islands in 1954. Locally we have called this “the rum revenues” because that is the product we have manufactured here in the Virgin Islands upon which the excise tax has been collected. For many, many years these revenues have been returned in whole, or in part, to the Virgin Islands.

We used to have three rum producers on St. Croix. Years ago, we lost Mount Eagle, and finally Brugal left. In the last month the ownership of Cruzan VIRIL has once again changed, the latest of a series of such transfers of ownership that we have seen.

Cruzan VIRIL has long been both a bulk rum producer as well as a manufacturer of our local branded Cruzan rum products. I am deeply committed to strengthening our longterm relationship with Cruzan, and its new owner Pernod Ricard. I also recognize the importance of having Cruzan’s new parent company focused on maintaining its St. Croix production and growing its production of branded products here in the Territory. This is important to us because as tariffs into the U.S. market continue to be challenged and possibly reduced, bulk rum products are increasingly vulnerable to competition across the Caribbean and South America.

That is why I went to Paris some weeks ago to meet with Pernod Ricard. For although Cruzan was, indeed, a small part of what Pernod bought when they purchased the company that makes Absolut Vodka, we believe that the opportunities for the Cruzan brand are tremendous.

Not only did I seek assurances that Cruzan would remain a Virgin Islands rum, and that the new owners would continue to produce bulk rum here in the Territory, but I initiated discussions that I hope in the future will lead to an expansion of rum production on St. Croix by Pernod Ricard. For rum production in the Virgin Islands is the primary competitive tool given to us by the U.S. Congress with which we can foster economic growth and achieve our own financial stability.

The Agreement with Diageo is a use of this tool which builds on what we have done in the past with Cruzan Rum. It also promises to let us build on the strength of our on-going relationships with other global partners such as HOVENSA and Stanford Financial, and to broadcast to major companies throughout the world that the US Virgin Islands are open for business and that we are ready to be their partner. We have the land, we have the labor force, we have a community that welcomes new investment, and a government that is willing to work with those who will work together with us to build a better future.

The Diageo partnership is built on incremental revenues, in other words, on new cover over revenues, that we will begin to receive upon the shipment of Captain Morgan into the U.S. market. The revenues from the return of the excise tax are what all previous Governors and Administrations have used to secure the borrowing that they have done to pay for government needs, especially capital projects. These revenues have helped us pay for new schools and infrastructure projects and fund critical programs. Because of our existing bonded debt, today only approximately $18 million of the rum revenues make it into the General Fund each year. This partnership with Diageo will allow us to receive over five times that amount; yes, ladies and gentlemen, about $100 million annually of new money, and that for the 30 year term of our Agreement.

Let me take a few moments to describe what the Agreement with Diageo will allow us to begin to do, and to plan, for the future. First, St. Croix will be the home of a state-of-the-art, environmentally sound rum producing facility that will cost about $165 million to build. When this plant is totally built out it will be capable of producing about 20 million proof gallons of rum – the newest and one of the largest distilleries in the Caribbean. Construction jobs will lead to manufacturing jobs. Rum production, when it begins, will start the flow of rum revenues into our General Fund.

This source and flow of income is a vehicle that will take us to a place where we can at last address problems that have long confronted us. It will permit us to now face these problems with new and realistic confidence. For many years we have not had enough money in our General Fund to meet our present obligations, let alone build for the future. Now we will be able to do both.

With the funds to come from this Agreement we will finally be in a position to truthfully say to every government employee – past, present, and future – that they can now feel confident that their retirement benefits will be there for them when they retire. This is a promise I made to our government workers and it gives me a deep satisfaction to say that we can now keep this promise; and our taxpayers should feel confident that this will not become a future burden to them.

More than this, we will be able to address other problems on an ongoing basis. We will no longer be forced to choose either to postpone choices like building what we need to educate our children, improving the infrastructure we know we need, and caring for our people and growing our economy, or to mortgage our children’s future by borrowing more and more.

Today the Virgin Islands has the highest per person debt anywhere – yes, anywhere – under the U.S. flag. Now, at last, we will be in a position to reverse this and begin to let our debt service pay down our debt over time and thus lessen this unfair burden that has been placed on our children and grandchildren. We can begin to better prepare the way for our next generation – as it should be.

With the annual payments that will now be anticipated: we can now know where the funding for the new school on St. John will come from. We can now know where the funding for the replacement junior high school on St. Thomas will come from. We will now know where the funding for new and replacement schools on St. Croix will come from. We can now talk of building proper, safe and modern facilities in which to care for our elders on all three islands, and know we are talking about something real.

We are now able to begin discussing and planning real solutions, not simply sitting and wishing for answers. At last we can look at local solutions to put into the mix with federal funds in areas like our transportation projects and road repairs.

Also, a part of the Agreement I have signed is the creation of a special Community Facilities Trust Fund which will receive an allocation from Diageo and the government for community and sports facilities, and urban redevelopment projects. Folks in Frederiksted have long wondered if their ballpark would ever be renovated into a modern multi-use stadium, and how this would be paid for. Now we know, and now we can do this. This, and so much more, on all three of our islands.

What the Agreement I have signed will do is assist Diageo with the financing and construction of an environmentally sound rum-producing facility on St. Croix that will -- when fully built out and operating in 2011 – begin to generate a stream of rum revenues that will be enable us to address our long-term challenges -- in particular our unfunded pension liability and long-needed capital projects – without having to take the money from other areas of need or borrow from our children. More than that, the stream of payments should grow and continue under current excise tax rebate laws and Diageo’s production projections.

This will also allow us to continue to pay down the debt we have previously incurred. If we maintain discipline – and we must – there should come a time when my youngest child, God willing, will be 40 years old, and he and every other Virgin Islander will, and should be, no longer burdened with the enormous debts from years past that we all now must bear.

If there is one thing I learned as a banker and a business-man, it is that, although we must manage the problems of the moment, we must plan and invest for the long-term, or one morning you will wake up and find that you are out of business. I have never accepted that we in the Virgin Islands were to be forever doomed to be a community always on the edge of need, always fearful because our government was always close to broke. We can reverse past practices and live within our means. We can plan and act in ways which grow these means. We can and shall provide, and provide ever more, for our people and together we can take pride in this accomplishment as a Territory.

I believe that upon the review and approval of the Legislature, the Agreement I have signed with Diageo will place us on a path towards these goals. For although the Diageo Agreement takes us a long way toward solving a number of our long-standing problems, it is not a panacea, it does not fix everything. Chief among these is my commitment to deal with the issues of “retro”. With the strengthened financial outlook that the Diageo Agreement makes real, we will now be in a position to redouble our efforts in confronting – and dealing with – these remaining challenges.

In the fullness of time the contributions of many who have made this real will become known, but let us thank all who have worked to develop this public-private partnership between our Government and Diageo. And let me particularly thank our Delegate, Donna Christiansen, who not only made the first referral of Diageo to the Administration, but has continued throughout this long process to provide assistance in Washington.

Let us welcome Diageo to the U.S. Virgin Islands. That we have attracted such a vast and successful multi-national corporation to our shores can only serve as a signal that we are beginning to work together to build the Virgin Islands of prosperity and opportunity.

The senior management from Diageo will be in the Territory later this week. A press conference to introduce Diageo to the people of the Territory is currently scheduled for Wednesday morning, at which time they, and I, will be available to present further details of our Agreement. It is my hope that during this visit our Senators will be able to meet with the Diageo Team and begin their review of the agreement. This must be done promptly. I am confident that after thorough review the Legislature will act so that Diageo’s move to St. Croix can begin.

These remarks, and more information to be posted in coming days, will be available on my website www.Governorde Jongh.com. I have briefed our friends in the U.S. Congress and the members of the Virgin Islands Legislature. I believe we have, after long negotiations, created a properly balanced public-private partnership and brought it to the point where all good partnerships must be: a win-win situation for all parties.

I truly believe that we are at the beginning of an economic transformation that requires a government that works in the best interest of all, a government that is transparent, and one that understands that private sector development is the key to our future success. All of this is within our grasp -- it is all real, and possible. Let us make it so, as we ask God to bless the Virgin Islands and each and every one of its people.

---END---