ORANJESTAD, Aruba (Reuters) - The government of Curacao has signed a preliminary agreement with China’s Guangdong Zhenrong Energy to operate the aging Isla refinery and invest some $10 billion in upgrading the facility, according to an agreement made public on Monday.
Venezuelan state oil company PDVSA [PDVSA.UL] has for decades operated the refinery, which opened in 1918, under a lease agreement. But the cash-poor PDVSA has been reluctant to invest some $1.5 billion that Curacao authorities requested several years back to modernize the 335,000-barrels-per-day facility.
“Unfortunately, all the government’s efforts to reach a new contract with Venezuela did not yield positive results,” Curacao Prime Minister Bernard Whiteman said in a video posted on the government’s website on Monday. “Curacao could not wait any longer; we had to look at other alternatives.”
He added that Guangdong Zhenrong would “finance, modernize and operate the refinery, the storage terminal and dock.”
Guangdong Zhenrong, a state-controlled commodities trader, will also assist in modernizing the water and electricity plants as well as aid in the construction of a new gas terminal, he said.
The memorandum of understanding between the two parties lays out a two-month timeframe for negotiations with the possibility for a two-month extension.
PDVSA and Guangdong Zhenrong did not respond to emails seeking comment.
Located just 50 kilometers (31 miles) northwest of Venezuela, the Isla refinery is a strategic facility for PDVSA to store and ship Venezuelan oil destined for the Asian market. China in the last decade has become one of the top buyers of Venezuelan crude and fuel through an oil-for-loans financing agreement.
Unlike many facilities in Venezuela, terminals at Isla and neighboring Bullenbaai can receive large tankers, such as Very Large Crude Carriers that can transport up to 2 million barrels of oil to China.
The current lease agreement with PDVSA stipulates that if neither party ends the agreement two years before its expiration, it is automatically renewed for another 10 years. The current lease expires on Dec. 31, 2019.
Residents of Curacao, an autonomous country within the kingdom of the Netherlands, have for years complained that Isla’s emissions cause health problems and insist the facility needs investment to reduce its environmental impact.
Guangdong Zhenrong is 44.3 percent owned by Zhuhai Zhenrong Corp, one of China’s top four state petroleum traders.
This year it won approval from Myanmar authorities to build a $3 billion refinery in the Southeast Asian country in partnership with local parties including the Energy Ministry.
(This version of the story has been refiled to fix dateline)
Writing by Brian Ellsworth, editing by G Crosse
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