New era: PDVSA

The first lease of the refinery with its terminals between Refineria di Korsou N.V. and PDVSA was concluded in October 1985 and lasted five years. Refineria Isla (Curazao) S.A., an affiliate of PDVSA, was charged with the operation of the refinery. The contract was based on the agreement that the governments would stimulate and develop the remaining economic sectors of the island, to create a safety net, should the refinery close at the termination of the lease. It was evident to the management of Refineria di Korsou N.V. that these good intentions could not be attained in such a short period. Great efforts were made to ensure the continuity of the refinery, resulting in a four-year extension of the lease in 1987, that expired in 1990.

This renewed lease was linked to the ‘Protocol of Willemstad’, an arrangement between the Netherlands Antilles and Venezuela with close involvement by the Netherlands. It included a commitment by the signatories to ensure long-term viability of the refinery. To this end, a study was conducted under the auspices of the Consultation Mechanism. The Netherlands Antilles had been urging the Dutch government for years to dispatch a diplomatic representative to their embassy in Caracas, a suggestion not supported in the Netherlands. The Consultation Mechanism was created as a concession to the Netherlands Antilles and comprised representatives from the Netherlands Antilles, Aruba, Venezuela and the Dutch embassy in Caracas. It was charged with protecting and promoting the interests of the Netherlands Antilles and Aruba in relation to Venezuela.

In 1994 the parties signed a more extended contract. Refineria di Korsou N.V. leased the refinery to PDVSA for a period of 20 years ending in 2014. In this contract was agreed and executed the Isla Refinery Upgrading Program (IRUP) and that a third, qualified party would undertake significant investments and build and own new installations in line with the BOO (Build, Own and Operate) concept.

The IRUP consisted of two group projects, being Margin Improvement Projects (MIP’s) and projects to enhance Safety and Environment Projects (SEP’s). MIP’s were paid for by PDVSA, whilst the SEP’s are paid for by Refineria di Korsou N.V. Execution of the projects started in 1996, with the bulk of the project executed in 2001 and 2002. The last unit, VGO Mild Hydrocracker, was taken into operation in 2005. The original estimate was $320 million, divided into 2/3 (210 million) for PDVSA and 1/3 (110 million) for Refineria di Korsou N.V.

The utility supply to the refinery was outsourced to the Independent Power Producer (IPP) Curacao Utilities Company (CUC) under a Build Own and Operate (BOO) scheme. The existing utility facilities were integrated with the existing installations and are now operated from a new modern control room. The project became operational in 2005.

The existing lease agreement originally intended to end in 2014 was extended in 2000 with an additional 5 years, ending now in 2019 as a result of the negotiations with PDVSA and the IPP.

Now we are in the process of studying what to do with the refinery, either upgrade or other alternatives.

See “Future Development” for more information.

In the following picture the contractual relationship is shown. The lease agreement is between Refineria di Korsou N.V. and Petroleos de Venezuela S.A.

Contractual relationship