UPDATE 1-Valero says Aruba refinery tax dispute deal proposed

Thu Jan 21, 2010 4:49pm EST

Related Topics

* Tax dispute seen as roadblock to potential sale

* Valero would keep refinery workers on payroll

* Valero would pay $113 million if deal approved

* Refiner would also at least $10 million in future years (Adds details of the proposal, background on refinery, tax dispute, paragraphs 3-14)

HOUSTON, Jan 21 (Reuters) - Valero Energy Corp (VLO.N) said on Thursday a framework to resolve a long-standing dispute over taxes on its Aruba refinery had been worked out with the Aruban government, but must be approved by that island's parliament.

A representative of the Aruban prime minister's office was not immediately available to comment.

Executives with potential buyer PetroChina (0857.HK) have told Reuters the dispute over the BBO tax must be resolved before the Asian energy giant would consider purchasing the refinery.

Valero has never identified would-be buyers, but spokesman Bill Day said discussions about a possible sale were continuing.

Under the proposed resolution framework, Valero would pay the equivalent of $113 million to the Aruban government, Day said, adding the company also would keep all workers on payroll through June 1 at the refinery, which was idled last year.

In future years, Valero would make a minimum payment of $10 million per year.

The tab for the BBO tax, set at 1 percent of the refinery's export sales and 3 percent of its Aruban sales, has been estimated by analysts to be over $200 million.

In the third quarter of last year, Valero set aside a loss contingency of $140 million for an eventual settlement of the tax.

Valero purchased the 235,000 barrel per day (bpd) refinery in 2004. The company inherited a tax holiday from certain taxes that was supposed to last through 2010.

The government of Nelson Oduber adopted the BBO tax in 2007, at a time when refiners were reaping record profits. This ignited a dispute that led to an arbitration battle in the Netherlands. Aruba is an autonomous region of the Kingdom of the Netherlands.

Aruban voters ousted Oduber in September in favor of Mike Eman, who promised a favorable resolution to the tax dispute with Valero, the island's largest employer. The refinery accounted for 30 to 35 percent of gross domestic product.

Valero idled the Aruba refinery in July and called the shutdown indefinite in August, but kept employees on the payroll. The refinery cannot make finished motor fuels, only intermediate feedstocks, most of them shipped to the East Coast.

Valero was hit hard by the demand downturn first as oil prices rocketed in 2008 and then when the recession took hold in 2009.

PetroChina recently took over a lease for 5 million barrels of crude oil storage at the Statia Terminals on the Caribbean island of St. Eustatius. (Editing by David Gregorio)

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