Published On: Thu, Jan 3rd, 2013

Curacao wants PDVSA to invest $1.5 billion in Isla refinery

WILLEMSTAD – Curacao could extend or renegotiate a lease of its Isla refinery to Venezuelan state oil company PDVSA if the latter agrees to invest $1.5 billion to upgrade the World War One-era facility, one of the Caribbean island's top politicians said.

The 335,000 barrel per day (bpd) Isla refinery, which is crucial to the Dutch island nation's economy, has faced years of complaints from residents and environmental activists over pollution, but PDVSA has been reluctant to invest in it.

"It is important to extend PDVSA's contract, but under certain conditions," Helmin Wiels, leader of the Sovereign People party which won the largest block at last week's parliamentary elections, told Reuters on Wednesday.

"But obviously if PDVSA is going to invest that amount it won't negotiate for 2019," he said, referring to when the current contract expires. "That level of investment would require at least 25 years to be sustainable."

He said PDVSA could be invited to become a partner in a joint venture with the government of Curacao, which is a semi-autonomous "constituent country" that is part of the Kingdom of the Netherlands.

"As partners, PDVSA would share the responsibility," he said, adding that the Venezuelan company could choose to pull out of the refinery project if it felt conditions were inadequate.

PDVSA executives have insisted a new contract for Isla will definitely be renegotiated before the current one ends in 2019.

Wiels's party, which is sympathetic to Venezuelan socialist President Hugo Chavez, is in negotiations with other political parties to form a new government and choose a prime minister under parliamentary system of Curacao, which is located 40 miles off the Venezuelan coast.

This year, a Curacao court ruled against a petition by local activist group SMOC to shut down the refinery on the grounds that toxic emissions were sickening residents. SMOC has said it will continue to put pressure on the refinery to either clean up its operations or shut down.

'SOLD FOR $1'

Some residents say closing the refinery would free up land in the heart of the capital, Willemstad, remove the distinctive smell of sulfur emissions from the plant, and get rid of an eyesore that puts off tourists.

But Wiels said shutting the refinery would constitute "economic sudden death" for the island, because Isla provides close to 10 percent of Curaco's GDP.

Isla was originally opened in 1918 by Royal Dutch Shell (RDSa.L) on the site of a former Willemstad slave market to process Venezuela's first crude oil, and the refinery supplied the Allies in World War Two.

In 1985 Shell sold it to Curacao for a symbolic $1, and the island quickly leased it to PDVSA - which has made few major investments to reduce emissions.

Wiels said his coalition may consider suing Shell for pollution, including indiscriminate dumping of carcinogenic heavy metals, prior to 1985.

"I'm not an expert, but I think the damage suffered by Curacao is on the order of $30 billion to $40 billion," he said, adding such a trial would likely end up in Dutch courts.

"The deal with Shell (in 1985) did not absolve it from responsibility for the damage caused to the country."

The economy of Curacao, 40 miles off the Venezuelan coast, has become less dependent on refining in the last decade and wants to expand its banking, shipping and tourism sectors.

But Isla remains a vital asset for PDVSA. It represents more than 10 percent of the company's global refining capacity, while a tank depot next to the facility can store up to 16 million barrels of crude and has become an important staging point for Venezuelan oil shipments to China.

Unlike most coastal facilities in Venezuela, an OPEC member, the terminal and the neighboring island of Bullenbaai can receive large tankers, including VLCCs (very large crude carriers).

Isla has suffered several operational problems in recent years, mostly due to malfunctions at the utility plant that feeds the refinery with electricity, water and steam.

One source working at Isla told Reuters the facility's catalytic cracker was offline undergoing maintenance and was likely to be restarted in the coming weeks.

© REUTERS

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