OilVoice - Venezuela Puts Breaks on Dominican Republic Refinery Deal

Venezuela Puts Breaks on Dominican Republic Refinery Deal

Monday, January 25, 2010

The Venezuelan government has discarded negotiations to purchase a 49% stake in the Dominican Republic's only oil refinery. The brakes have been put firmly on the deal by Rafael Ramirez, the president of state-run Petroleos de Venezuela (otherwise known as PdVSA), who stated that the operation 'is not advisable' for the South American nation.

Negotiations for the sale of the 34,000 barrel per day (bpd) Haina refinery, situated in Santo Domingo, were initially completed in late-October 2009. The deal was then expected to be finalised by mid-November. However, progress was stalled, and has now seemingly ground to a total halt.

Venezuela first expressed its interest in Refineria Dominicana de Petroleo (Refidomsa) - which operates the refinery - on the back of Royal Dutch Shell's exit from the company in July 2008. Up until that point, the refinery had been operating under a 50-50 joint venture between the Dominican Republic and Shell.

Following Shell's divestment, the national government used its right of first refusal, agreeing to pay $110 million for the additional 50% stake. Full ownership of the facility allowed the authorities to begin importing crude feedstock through the PetroCaribe scheme. In 2005, along with most other Caribbean nations, the Dominican Republic signed the PetroCaribe agreement, allowing it to import Venezuelan crude and oil products on preferential terms such as barter and low interest credit.

PdVSA subsequently agreed to buy an interest in Refidomsa for $132 million. This was announced by Treasury minister Vincent Bengoa. Under the deal, the government was to retain the controlling 51% stake in the facility. PdVSA was expected to pay for the remaining stake with a fixed-term discount on its crude and oil product supplies to the island. However, the exact payment terms were still being discussed at the time and it remains unclear whether an agreement on payment terms has been reached.

At present, no official reason as to why PdVSA may no longer be interested in acquiring the stake has been issued. Although Ramirez has disclosed President Hugo Chavez's increasing loss of interest in the deal.