LC3 Fuel Storage Site, La Collette, St Helier

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A decision made (16/04/2007 regarding: LC3 Fuel Storage Site, La Collette, St Helier - Lease renewal.

Subject:	LC3 Fuel Storage Site, La Collette, St Helier - Lease renewal
Decision Reference:	MD-PH-2006-0021	Exempt clause(s):		None
Type of Report: (oral or written)	Written	Person Giving Report (if oral):		N/A
Telephone or e-mail Meeting?	N/A	Report File ref:		10/2052/1
Written Report – Title	LC3 Fuel Storage Site, La Collette, St Helier -Lease renewal	Written report - author		Paul Griffin
Decision(s): 1. The Minister approved, as recommended by Property Holdings, to enter into a 10 year lease renewal between the Public and Shell (UK) Limited and Esso Petroleum Company Limited for the demised premises known as LC3 Fuel Storage site situated at La Route de Veule, La Collette, St Helier, in accordance with MD-E-2006-0198 approved by the Assistant Minister for Economic Development dated 22/03/07. 2. Under Standing Order 168 (1) (a) and 168 (3) the Minister hereby notifies the States that he has accepted the recommendation of Property Holdings to agree to the above land transaction. 3. Under Standing Order 168 (5) the Minister hereby authorises the Attorney General and the Greffier of the States to pass any contracts on behalf of the Public of Jersey that may be necessary. After the expiry of 15 working days following presentation to the States the transaction may be concluded.
Reason(s) for decision: To allow the Lessee Shell (UK) Limited and Esso Petroleum Company Limited security of tenure in order to continue to invest in the facility and the provision of petroleum products to the Island Under Standing Order 168 (1) (a) and 168 (3) the Minister is required to notify the States of his acceptance of recommendations to dispose, acquire, let or rent land on behalf of the Public of Jersey.
Action required: 1. In accordance with Standing Order 168 (3) this decision must be presented to the States at least 15 working days before the contract is passed. After the expiry of 15 working days following presentation to the States the transaction may be concluded. 2. The Director of Property Holdings is to instruct the Attorney General and the Greffier to pass the necessary contract, and to copy this decision to the Minister, Treasurer and Assistant Treasurer.
Signature: Minister Senator T A Le Sueur			Date of Decision: 16 April 2007

LC3 Fuel Storage Site, La Collette, St Helier - Lease renewal.

TREASURY AND RESOURCES DEPARTMENT

PROPERTY HOLDINGS

Property Transaction for Ministerial Decision - Minister for Treasury and Resources

Lease renewal LC3 Fuel Storage Site la Collette St Helier

10/1662/2

Purpose

To request the Treasury and Resources Minister to support and approve the drafting and signing of a 10 year lease agreement between the Public and Shell (UK) Limited and Esso Petroleum Company Limited for the demised premises known as LC3 Fuel Storage site situated at La Collette, La Route de Veule, St Helier.

Background

Subsequent to the deferral by the States of Projet P.60/2003 in September 2004, a Sub-Committee consisting of Senator T Le Sueur, President of the Finance and Economics Committee and Deputy G Voisin, President of the Economic Development Committee and chaired by Deputy M Dubras was formed to review the leasing arrangements of the Public and the Jersey Fuel Consortium (Shell (UK) Limited and Esso Petroleum Company Limited) and appointed Mr. J. Milne of “Consultancy Solutions for the Oil Industry” to report on the whole arrangement for the importation, storage, distribution and retailing of petroleum products in the Island. The “Fuel Farm La Collette St Helier Final Report” (the report) was presented to the Sub-Committee on the 14 December 2004 and distributed to States members on the 20 December 2004.

On the 10 February 2005 the then Harbour Master and acting Chief Executive Officer Jersey Harbours set up a meeting to confirm the negotiating team and to ensure that all issues identified in the report were carried through into the lease.

Current Situation

Terms and conditions have now been agreed for the lease renewal with Shell (UK) Limited and Esso Petroleum Company Limited on the following basis

LESSOR - The Public of the Island of Jersey

LESSEE - Shell (UK) Limited and Esso Petroleum Company Limited,

DEMISED PREMISES - Approximately 203,500 square feet of land known as LC3 Fuel Storage site situated at La Collette, La Route de Veule, St Helier.

TERM - 10 years to be deemed to commence from 1 February 2006 until the 31 January 2016.

RENT - The starting rental shall be £250,000 per annum paid quarterly in advance.

RENT REVIEW - The rent will be subject to a market value review on the fifth anniversary of this agreement.

PERMITTED USE - Means the storage, handling and distribution of petroleum products and activities directly associated thereto (but excluding for the avoidance of doubt, the retail sale of road fuels to members of the Public).

REPAIRS & MAINTENANCE - The Lessee shall be responsible for the full repair and maintenance of the demised premises.

ALIENATION - Not at any time during the term to assign this lease without the prior written consent of the Lessor or its duly authorised agent which consent shall not be unreasonably withheld or delayed.

Sub-letting will be permitted with the prior written consent of the Lessor or its duly authorised agent which consent shall not be unreasonably withheld or delayed but the sub-Lessee must be of at least an appropriate or similar covenant strength as the Lessee and all sub-lettings will always be subject to the user clause.

Should there be a requirement to add additional Lessee names or substitute Lessee names to the lease this would be done my mutual consent between the parties. Such consent shall not be unreasonably withheld or delayed.

THROUGH-PUTTING/STORAGE - The Lessor requires the Lessee to permit other authorised parties the through-putting and storage of petroleum products for which the Lessee will be entitled to charge an appropriate fee and set the necessary regulations and standards. For the avoidance of doubt the Lessee shall be the authorising party of any potential third party through putter.

INSURANCE - The Lessee is to maintain in force a building insurance policy approved by the Lessor to include full reinstatement of the demised premises and two years loss of rent.

The Lessee shall also maintain in force a Public Liability policy of not less than £30,000,000 (thirty million pounds) in respect of any one occurrence or such other sum as the Lessor may from time to time reasonably require.

OCCUPATION COSTS - The Lessee shall be responsible for all costs directly associated in the occupation of the demised premises. This is to include payment of all Parochial Rates.

FIRE PRECAUTIONS - The Lessee shall take all practicable and proper precautions and use all reasonable means for the prevention of fire to the reasonable satisfaction of the Lessor.

ENVIRONMENTAL GUARANTEE - The Lessee shall at the termination of the agreement return the land forming part of the demised premises to the Lessor in a condition such that there is no impediment to the use of the Demised Premises for any reasonable commercial or industrial use.

LEGAL COSTS - The Lessee to pay all reasonable legal costs incurred by the Lessor in relation to the drafting and passing of a lease.

Jersey Competition Regulatory Authority

In August of this year, the Jersey Competition Regulatory Authority (JCRA) was asked to comment on the lease proposal to advise whether the lease to the Fuel Consortium could be viewed as a contravention of the Competition (Jersey) Law 2005. It was agreed that this would be treated as a request for guidance under Article 43 of the Law.

Their view is that by accepting and including in the draft lease the recommendations of the Review completed by James Milne of Consultancy Solutions for the Oil Industry, entry into the lease is unlikely to contravene the Law’s prohibitions and is not viewed as a contravention of Articles 8(1) or 16(1) of the Law. It was pointed out, however, that the lease faces a continuing risk of invalidity if the Consortium Agreement is found to be anti-competitive under the Law. That risk cannot be assessed without reviewing the terms of the Consortium Agreement which is obviously confidential to the fuel companies. Expert advice is that this is unlikely to be a problem because it is not believed that either Esso or Shell would have entered into an agreement which risked them as anti-competitive.

Conclusion

Whilst there is a very low risk associated with the competition issue there is a greater risk with the more pressing need to put the recommended formal 10-year lease agreement in place between the Public and the Fuel Consortium (ie Esso and Shell) to protect the Island’s position in respect of future fuel supply.

The lease terms stated above are recommended by Property Holdings and are in accordance with the recommendations made by Consultancy Solutions for the Oil Industry in the report.

Recommendation

It is recommended that the Minister agrees to support the decision to enter into a 10 lease renewal between the Public and Shell (UK) Limited and Esso Petroleum Company Limited for the demised premises known as LC3 Fuel Storage site situated at La Collette, La Route de Veule, St Helier. It is further recommended that the Minister’s decision is forwarded to the Assistant Minister for Economic Development and the Council of Ministers with a recommendation that approval is given for the lease renewal agreement to be completed without further delay.

Written by Paul Tucker

Signature …………………………

Authorised by the Director of Property Holdings

Signature ………………………… 11 October 2006