Curacao oil refinery takeover: Good for jobs, bad for climate?

After sanctions row with Venezuelan firm, European company signs deal to run complex with economic, environmental woes.

Curacao oil refinery
The Isla oil refinery in Curacao, as seen from the cemetery west of the complex towards which pollutants have been emitted for decades [Ben Piven/Al Jazeera]

In the middle of the Dutch Caribbean island of Curacao, a massive oil refinery interrupts an otherwise serene swath of palm trees, pastel buildings and proud cacti.

Known as the Isla complex, the industrial site is the source of noxious pollution that causes severe health problems and gives tiny, windy Curacao one of the highest per-capita carbon emissions rates globally, according to the World Bank.

But although the complex is struggling, it still generates substantial revenue for the government, provides thousands of jobs and is a hefty economic engine.

Last week, the state-run refining company, Refineria di Korsou (RdK), announced it had signed a sale agreement with the Geneva-based Klesch Group – looking to end a dispute that put the plant in the middle of a sanctions dispute between the United States and Venezuela.

Known for value investing, the commodities conglomerate privately owned by US entrepreneur Gary Klesch has been accused by critics of “vulture capitalist” activities for acquiring distressed assets in the petrochemical and metal sectors.

The lease to operate the facility held by Petroleos De Venezuela (PDVSA), the Venezuelan state-owned oil company, expired December 31 – which set off a scramble for a new company to own and manage Isla.

‘Develop the whole harbour’

The plant, which can process 335,000 barrels per day, used to represent around 8 percent of Curacao’s gross domestic product. But not everyone is happy about the new plans for the refinery.

“Develop the whole harbour area for maritime-connected activities and business,” said Lloyd Narain, spokesman for Amigu di Tera (Friends of the Earth Curacao).

He told Al Jazeera that – rather than improving the refinery – new local investments focused on shipping, services and education would be better for people and the planet.

In addition, Narain said emphasis on sustainable energy systems and retraining of technical workers would result in higher incomes.

Regardless, he said the refinery’s “financial benefits must be spent on turning the island into a fossil-fuel free economy” and that production at the complex should be “limited to delivering [oil] for air traffic and shipping”.

Curacao waterfront
Tourists in Curacao come for the bright sun, colourful landscapes and extensive marine life [Ben Piven/Al Jazeera]

Curacao’s Prime Minister Eugene Rhuggenaath, who met with Klesch in October, has said the firm will inject “hundreds of millions” in the coming years. The annual lease will amount to $15m, with 15 cents paid to the government per barrel of oil stored and shipped. The tax setup is apparently still being negotiated.

Efforts to modernise the refinery could reap dividends for the ecosystem and reduce fumes that cause headaches, asthma and worse for locals. Officials have said the Klesch Group will comply with environmental standards.

“We need to promote new mechanisms for matching investment capital with enterprises addressing climate change,” tweeted Rhuggenaath on December 2, calling for “transformational investment to secure a healthy environment for all living things”.

Negative ecological effects

The refinery has belched toxins for decades. Area residents have long complained about the health toll, filing lawsuits alleging that cancer and chronic coughs are the results of the pollution and particulate matter.

The two neighbourhoods due west of the refinery, Marchena and Wishi, bear the brunt of the bad air.

Schools downwind have been known to cancel classes when the smell of smoke is at its worst. Environmental groups say sulfur dioxide exceeding World Health Organization limits has caused permanent lung damage.

In 2007, a Curacao court threatened to close the refinery if it did not meet emissions standards.

A study commissioned by Dutch consulting firm ECORYS estimated that 18 premature deaths occur every year due to contaminants from the plant. ECORYS also suggested three future possibilities: upgrading Isla, building a new refinery on a different site, or just closing it down to redevelop the area entirely.

The faded tombstones at the Sephardic Jewish cemetery adjacent to the refinery – the oldest in the Americas – are a testament to what pollution can do, even to rock surfaces.

Curacao's Beth Haim
Many of the graves at Beth Haim in Blenheim, Curacao, feature intricate designs of felled trees and skulls with crossbones [Ben Piven/Al Jazeera]

In 2016, Curacao emitted 45 metric tonnes of carbon dioxide per capita, the highest level in Latin America and the Caribbean – in large part due to Isla.

Although the island is beyond the hurricane zone, it may be vulnerable to rising seas and desertification.

Narain said Curacao’s houses “cannot withstand a very strong storm” and that the combination of longer dry seasons with higher temperatures would cause “negative impacts for the vegetation and the little agriculture we have”.

Despite high hopes harboured by environmentalists, Isla remains a dirty fact of life on Curacao – with all its tropical gifts and curses.

Oil sanctions situation

The second-largest sector of Curacao’s economy has recently been held hostage to US policies against the government of Venezuelan President Nicolas Maduro, enforced by the Department of the Treasury’s Office of Foreign Assets Control (OFAC).

Since 2017, punitive financial measures imposed by the administration of US President Donald Trump have taken a big bite out of Venezuela’s oil business, as US entities are forbidden from dealing with PDVSA and the government in Caracas.

A legal dispute earlier this year between ailing PDVSA and ConocoPhillips did not help to revive the largely idled plant in Curacao, beset by a dearth of crude from Venezuela. The US oil major attempted to seize tankers heading to the Isla refinery in May, as the Dutch legal jurisdiction has allowed creditors to do.

OFAC has also targeted Caribbean-based shipping companies to prevent PDVSA from exporting its goods.

In May, OFAC gave RdK a temporary exemption from sanctions that allows Curacao to continue working with PDVSA – as long as all income from the refinery goes towards maintenance and salaries but is not sent back to Venezuela as profit.

Oil refinery entrance
Curacao’s government saw the writing on the wall and has been shopping for a new partner to stimulate employment opportunities and upgrade the refinery [Ben Piven/Al Jazeera]

PDVSA did, however, receive a one-year temporary continuation to continue operating the facility – which it has done for 34 years – until Klesch can fully take over, assuming control after a transitional period.

Earlier in December, the short-term agreement between PDVSA President and Venezuelan Oil Minister Manuel Quevedo and RdK representative Marcelino de Lannoy reportedly included a pledge to invest in maintenance during 2020 at the ageing refinery.

Regardless, being effectively removed from Curacao is yet another blow for PDVSA, which has been devastated by US sanctions, as well as by poor management and underinvestment in a competitive market.

Although PDVSA made some improvements to Isla, critics say the company did not do much to help the island. Curacao received minimal PDVSA rent payments and taxes, while petrol for local drivers is far from cheap.

Shell of the past

Way down from its peak workforce of 10,000, the refinery employs around 1,000 people out of Curacao’s 75,000-strong labour market. Some former refinery workers have emigrated to look for work around Rotterdam in the Netherlands – the kingdom within which Curacao is a constituent country.

Elsewhere in the ABC Islands, a refinery in neighbouring Aruba to the west and a PDVSA storage facility in Bonaire to the east have also been caught in the Washington-Caracas crossfire.

Curacao’s economy has been contracting for three years, in part due to the collapse of trade with Venezuela. The island has not enthusiastically welcomed some 20,000 asylum seekers from the Latin American nation, who now make up well over one-tenth of Curacao’s population.

Curacao grew wealthy as a commercial hub that historically prospered for its role in the slave trade. Its biggest economic sector is now tourism – which attracts people to pristine beaches, underwater riches and attractive colonial architecture around the capital, Willemstad.

Royal Dutch Shell originally owned the Isla facility. But when the refinery sunk into disrepair in troubled economic times, the oil company transferred the refinery to Curacao’s government for one symbolic Antillean guilder in 1985 – indemnifying the company against possible legal action over environmental damage.

Curacao Shell history
The Shell era at Isla resulted in the creation of toxic waste lakes, soot pollution and offshore oil residue [Ben Piven/Al Jazeera]

The new purchase agreement for the refinery, signed on December 22, includes oil storage terminals, a utilities plant and a lease on the land.

It also gives Klesch the Bullen Bay oil terminal on the western coast of Curacao, which can hold around 18 million barrels imported from Venezuela – just 65km (40 miles) by sea – and is connected by pipeline to the refinery.

Isla refines crude into petrol, as well as polymers, asphalt and lubricating oils. The petrol is exported to other Caribbean countries and elsewhere in the hemisphere.

Curacao’s government nixed a proposed long-term Isla lease last year with Chinese state-owned Guangdong Zhenrong Energy over concerns about a lack of financing. So, there are no guarantees that the current effort with Klesch will succeed, especially given the environmental outlook.

Klesch, which runs Germany’s Heide refinery, aims to turn Isla around and bring all its units back online. The company confirmed to Al Jazeera that an agreement had been signed with RdK, Curacao’s government refinery company, but said the deal has yet to close.

Local Papiamentu-language news site Vigilante earlier this year described Isla’s spokesman, Earl Balborda, as trying to paper over liquidity shortages at Isla.

Balborda, Curacao’s former Minister of Traffic, Transport and Urban Planning, said he was not in a position to give perspective on the Klesch deal.

However, he told Al Jazeera that “the refinery has been the foundation of the island’s economic development” and added that “the industry is changing, but if Curacao adapts accordingly, the refinery can continue to be a major source of economic growth and jobs”.

But in response to climate worries, Balborda shared little concern for the environmental fallout. “The government stipulates the rules of the game,” he said.

“No operator wants to be a burden to the community,” Balborda added. “This transition into lower emissions will however take time and require investments.”

GreenTown Curacao is a local group advocating sustainable alternatives for the refinery.

“If the government would have done what was suggested, and would have studied how to continue after the refinery were to close,” said a statement given to Al Jazeera, “Curacao would not have been in this predicament.”

Source: Al Jazeera