The new $165 million Captain Morgan rum distillery will be built on 26 acres on St. Croix's south shore belonging to the St. Croix Renaissance Group.

International wine and spirits giant Diageo PLC announced on Friday that it signed a long-term lease agreement for the parcel of land in Renaissance Park. The lease agreement is for an initial 11-year term, with five 10-year renewal options.

Renaissance vice president of operations Myron Allick said that the distillery is a good fit for the south shore industrial area. When completed, the distillery will have the capacity to produce 20 million proof gallons of rum a year. Diageo expects to begin producing rum at the distillery by next fall, and begin selling locally produced Captain Morgan Rum in 2011.

"I think this will make a serious difference in our economy," Allick said. "It's already an industrial zone, we have a deep water port, we have affordable energy that we can give our tenants. It will make a difference to the public, and Diageo can start working sooner."

St. Croix Renaissance Group owns 1,244 acres east of Rohlsen Airport - all of which is zoned industrial. The 26-acre parcel where the Captain Morgan distillery will be built is at the northern end of the property, across the road from the recreation center. Allick said that the distillery will be visible from the highway.

Allick did not discuss the lease terms or amounts because the lease is a proprietary document. He said that it is normal for industrial project leases to have terms this long. Possible purchase of the site was not discussed with Diageo, Allick said.

Allick said Diageo principals first began scouting land at the Renaissance Industrial Park this summer, shortly after the Senate ratified the 30-year public-private agreement to bring the second-largest rum brand in the United States to the Virgin Islands. Government House spokesman Jean Greaux Jr. said that Gov. John deJongh Jr. also made sure that Diageo saw other possible locations for the distillery.

"The governor encouraged them to look around St. Croix, but they had their hearts set on St. Croix Renaissance," Greaux said.

According to a written statement from Diageo spokeswoman Zsoka McDonald, the Renaissance Park site was deemed the best based on location, transportation and logistical ease.

The fact that Renaissance Park already is a zoned industrial site was key, McDonald wrote. It also provides easy access to the ocean with limited impact on the environment, has a dock for molasses shipments, and roads and infrastructure already in place. St. Croix Renaissance Group could also provide the distillery with water and electricity, she wrote.

Diageo will still need to get a major coastal zone permit for the distillery operations from the Department of Planning and Natural Resources. The necessary plans were submitted on Friday to the St. Croix Coastal Zone Management Committee to begin the review process on Friday, said DPNR spokesman Jamal Nielsen.

According to a written statement from Diageo, the company plans to build an environmentally sound, state-of-the-art distillery. Environmental concerns incorporated into the design include a closed-loop water system, organic solids reclamation, and stormwater best management practices, the statement says.

The agreement between Diageo and St. Croix Renaissance Group has no bearing on pending litigation over some of the industrial park's land between Renaissance Group and Florida-based Bennington Foods, Renaissance Group attorney Joel Holt said. The land at the center of that litigation is a different parcel than the one where the distillery will be built, Holt said.

On Thursday, the V.I. Public Finance Authority governing board authorized issuing up to $50 million in short-term financing to fund early-stage development costs for distillery construction. The short-term notes, which will be used to keep the project moving forward, will be paid back later this year when the government issues long-term bonds to cover project costs, PFA Director of Finance and Administration Julito Francis said.

The financing is a part of an overall $250 million financing deal between the government and Diageo, which was ratified by the V.I. Senate in July. According to the agreement, the PFA will float bonds to finance the construction of the distillery. Those bonds will be paid back with federal excise tax rebates from Captain Morgan rum sales - currently $13.25 per proof gallon of rum exported to the mainland United States.

Renaissance Park currently is the headquarters of St. Croix Renaissance Group and Geonet Ethanol. Allick said that he is glad to add a third tenant, which promises to create about 40 jobs and is a worldwide industry leader.

"Diageo will act as a cowbell," Allick said. "It will come and other industries will follow."

- Contact reporter Megan Poinski at 774-8772 ext. 304 or e-mail mpoinski@dailynews.vi.