Tuesday, September 18, 2018

Virgin Island Governor Says No To any More Rum Deals Like the Diageo and Cruzan Ones

Cruzan Plant on St. Croix

     U.S. Virgin Islands Governor, Kenneth Mapp said on Wednesday night that he refused to do business with two rum companies, because the companies wanted an agreement similar to Diageo USVI’s and Cruzan Rum’s, and that was something the governor said he was not willing to do.  The response to Mr. Johnson’s revelation that Mr. Mapp had turned down rum companies came during the governor’s Virgin Islands Political Consortium interview on Wednesday, held at Government House, where the governor fielded questions on a number of matters of importance to the Virgin Islands.

     “We don’t have any interest because we’re not in the business of giving away the revenues of the treasury and then putting the burden on the citizens that live and work in the Virgin Islands and conduct business here”.   Mr. Mapp, though expressing no intention of revisiting the deal, has nonetheless spoken vehemently against the agreement, contending that the administration of John de Jongh gave up too many concessions, which he contends has cost the local government dearly.

     Internal Revenue Matching Fund, known as the rum cover-over funds that the territory receives annually from the U.S. Treasury, hover between $225 million to $250 million, most of which go towards paying the territory’s bondholders. Of the remaining funds, Diageo USVI and Cruzan Rum receive the lion’s share for promotional fees and molasses subsidies, as per the government’s agreement with the companies.   That does not benefit the USVI, and he would not offer any other rum company a deal that mirrors the current. He also reminded that the local government paid $250 million to build the Diageo plant.

Diageo Plant on St. Croix
     This year, the governor said the rum-cover funds to be received from the federal government jumped from $227 million to $251 million. He said the rum revenues to the general fund this year will be $24 million, $20 million of which will go to the rum companies, while $4 million will remain with the local government.  
     “The molasses subsidy on rum is 16 cents a gallon by the rum company, and the people of the Virgin Islands pay the difference. It takes one gallon of molasses to produce one gallon of rum. When the Diageo deal was ratified in 2008, one gallon of molasses was $1.68, so when you took out the 16 cents, the people of the Virgin Islands paid $1.52 for molasses. You multiple that by Diageo’s 9 million gallons of rum, and that’s about $13 million a year in rum subsidy,” Mr. Mapp explained. “Today in 2018, a gallon of molasses on the spot market to produce one gallon of rum is $2.98. Diageo pays 16 cents, and the people of the Virgin Islands pay $2.82 for that gallon of rum… So when you bring rum companies to the territory under that regimen, we, with the rum companies that exist today, could find ourselves going to the general fund to take money out to pay to the rum companies.”

     I can understand his position, things are tight enough there in St. Croix and to add more negative cash flow to the territories is not something of a real benefit.  They have had some issues with Diageo as well during its tenure on the island.

Read More at https://viconsortium.com/business/governor-mapp-says-he-refused-new-rum-companies-because-they-wanted-similar-deal-to-diageo-cruzan-rum/