OilVoice - Disputes Ongoing Over PdVSA's Shut-In Isla Refinery

Disputes Ongoing Over PdVSA's Shut-In Isla Refinery

Thursday, March 25, 2010

Petroleos de Venezuela (PdVSA)'s Isla refinery on the Caribbean island of Curacao remains shut owing to power supply problems and disputes with the local authorities. The state-run firm as yet remains undecided over what to do with the refinery, which has been shut since March 2009.

The firm had been instructed to invest up to $1.5 billion on a refinery upgrade by the local government, but it has failed to materialize due to the cash-strapped Venezuelan firm's troubling balance sheet.

To make matters worse, the recent tightening of environmental regulations on Curacao have further hut the profitability of the 335,000 barrel per day (bpd) plant. Low North American fuel import demand has been another sizeable contributory factor in the Isla plant's fall from grace.

Rafael Ramirez, Venezuelan energy minister and PdVSA president, has said that the firm has not abandoned its commitment to the plant. However, he also stated that at as things stand PdVSA would not commit to any further investment until its legal position in Isla was clarified.

At present, PdVSA operates the refinery under a lease that expires in 2019 but has been in prolonged talks to acquire a holding stake in the plant from the local government. While Isla forms a sizeable chunk of Curacao's economy, the local government remains skeptical about divesting any control. In particular it has understandably highlighted concerns over PdVSA's poor operational record.

Curacao, which is located some 65 kilometers off of the Venezuelan coast, is among a host of Caribbean islands used by the state-controlled firm for its widespread regional oil trading operations.

Indeed, PdVSA has been operating in Curacao for some time now. The firm first acquired the Isla lease from the local government back in 1985, shortly after Royal Dutch Shell ended its contract for the plant. In the following 25 years since the new leased was signed tension has been mounting. During this time, a string of local media and politicians have accused the Venezuelan company of among other things underinvestment in the plant. Non-compliance with environmental regulations is also an issue that has been raised.

As recently as May of last year, a Curacao judge ordered PdVSA to invest around $100 million in the plant to reduce pollution or face heavier fines further down the road. A cash-strapped PdVSA failed to cough up claiming that the work would cost too much.

Following reported problems with power supplies and emissions at the start of last year, the refinery's operations were shut-in.