January 22, 2010 / 7:31 PM / 9 years ago

RPT-UPDATE 1-Aruba says hopes for Valero tax deal OK soon

(Repeats to widen distribution; no changes to headline or text) (Adds details about the approval process, agreement, potential buyer, refinery)

By Erwin Seba

HOUSTON, Jan 22 (Reuters) - Aruba’s government hopes the settlement of a tax dispute with Valero Energy Corp (VLO.N) over its idled refinery on the island will win approval from parliament “as soon as possible,” a government spokesman said on Friday.

The long-running dispute has been seen as a roadblock to Valero’s sale of the refinery, idled in July, which had provided a third of the Caribbean nation’s gross domestic product.

The government of Prime Minister Mike Eman has not yet requested parliamentary approval of the agreement with Valero, said government spokesman Lisander Besselink in a telephone interview.

Valero revealed on Thursday a deal with Eman’s government to settle the dispute.

With January nearly finished, Besselink said it will probably be sometime in February before the parliament can consider the deal.

“As soon as the parliament approves the agreement, we get the amount Valero has agreed to pay,” he said.

Valero said on Thursday it will pay about $130 million once parliament grants approval. The company has also agreed to keep workers on the refinery’s payroll until June 1.

That part of the agreement will provide time for Valero to arrange a sale of the 235,000 barrel per day (bpd) refinery, Besselink said.

PetroChina (0857.HK), which recently took over a lease for 5 million barrels of crude oil terminal space in the Caribbean, has been said to be the leading contender for the refinery. The Chinese energy giant has said the company would not consider buying the refinery before the tax dispute was resolved.

Besselink declined to discuss how soon an agreement might be reached with any potential buyer. He referred questions about talks with potential suitors to Valero.

Valero has refused to identify any would-be buyers and has only said discussions for a sale are underway.

Additionally, as part of the deal, Valero will pay at least $10 million per year in the following years to the Aruban government.

The refinery, which produces intermediate feedstocks that are made into finished motor fuels at other refineries, was purchased by Valero in 2004 for $465 million from El Paso Corp EP.N. It came with a six-year exemption from certain taxes.

The government of Nelson Oduber adopted a new tax on the refinery in 2007, at a time when refiners were reaping record profits. U.S. state and local goverments took similar steps to raise taxes on refineries during the same time period.

Since 2007 Valero has claimed the new tax violated the existing exemption.

Aruban voters ousted Oduber in September in favor of Eman, who promised a favorable resolution to the tax dispute with Valero, the island’s largest employer.

Valero idled the Aruba refinery in July and called the shutdown indefinite in August, but has kept employees on the payroll.

Independet refiner Valero has been hit hard in the past two years, first by skyrocketing supply costs as crude oil prices hit record highs in 2008 and then when the deepening recession crushed demand in 2009.

In the third quarter of 2009, Valero said it had set aside $140 million to put toward an eventual settlement. The tax bill was estimated to exceed $200 million. The tax was equal to 1 percent of the refinery’s exports and 3 percent of on-island sales.

At one time, the refinery was thought to a have a pricetag between $1.5 billion and $2 billion. Refinery brokers have said the plant will need billions more in investments so it can produce finished products. Valero has invested $500 million in upgrades since 2004. (Editing by David Gregorio)

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