In 1915, Royal Dutch Shell decided to establish an oil refinery on Curaçao and the installation were commissioned three years later. There were a number of geographic and political advantages to establishing a refinery on an island off the Venezuelan coast: the predicted market growth in the USA, the politically troubled Mexican oil production and the expected increase of traffic through the Panama Canal. A natural deepwater harbour and a stable political climate made Curaçao the obvious choice. Shell has been the largest employer on the island since 1918. Of the 44,344 inhabitants in 1929, 10,924 worked for the oil industry. This number peaked in 1952, with 12,631 employees. The refinery was an important source of fuel for allied forces in the Second World War. Economically, the refinery has been the mainstay of Curaçao since 1915: it generates currency necessary for vital imports and is thus crucial to the future economic development of the island. The refinery’s success is also its weak point. If, for some reason, this vital sector is threatened, the consequences for Curaçao are immediate and significant.
In the early years, both Shell and Exxon held drilling concessions in Venezuela, which ensured a constant supply of crude oil to the refineries in Aruba and Curaçao. Crude oil production in Venezuela was inexpensive. The integrated companies Shell and Exxon controlled the entire industry from pumping, transporting and refining to marketing the end product. The refineries on Aruba and Curaçao operated in global markets and were profitable partly because the of margin between the production costs of crude oil and the revenues realized on products. This provided a safety net for losses incurred through inefficiency or excessive operating costs at the refineries. The nationalization of the oil industry in Venezuela in 1975 was a setback.
The companies had to buy oil on the international markets at higher prices. As the Shell refinery on Curaçao was best equipped to process the Venezuelan heavy crude, the company was subject to Venezuelan oil politics when it came to price and supply. Coupled with high operating costs, these difficulties were the reasons the refinery on Curaçao continually operated at a loss.
Curaçao experienced an economic downturn in the early 1980s. Shell’s refinery on Curaçao operated with significant losses from 1975 to 1979, and again from 1982 to 1985. Persistent losses, global over-production, tougher competition and low market expectations threatened the future of the Shell refinery in Curaçao. In 1985, after a presence of 70 years, Royal Dutch Shell decided to end its activities on Curaçao. Shell’s announcement came at a crucial moment; the fragile economy of Curaçao had been stagnating for some time. Several revenue generating endeavours suffered even more during this period: tourism from Venezuela collapsed after the devaluation of the bolivar, the transport industry deteriorated with deleterious effects on the profits of the Antillean Airline Company and the Curaçao Dry Dock Company experienced major setbacks. The offshore industry (financial services) also experienced a downturn because of radical new tax laws in the USA. Significant intervention in the public sector was required to reduce budget deficits. The future did not look promising: a macro-economic study predicted economic stagnation for several years even if Shell stayed and other industries experienced growth. It was more likely that the Gross Domestic Product (GDP) would shrink by 20 percent, unemployment would rise to 35 percent and emigration would increase. It was clear that closure had to be avoided because the consequences could be disastrous.
Shell Curaçao approached the government with a proposal to continue exploiting the refinery as a joint venture subject to these four conditions:
|1.||A warranty of an extra supply of 50,000 barrels a day of Venezuelan heavy crude to optimize the capacity of the refinery.|
|2.||Control wages and a limit on the number of employees.|
|3.||Repealing the minimum tax of 16 million dollars a year, an amount paid to the government regardless of whether profits were made.|
|4.||A two-thirds participation by the government in the refinery, which Shell regarded as vital to realizing the first three conditions.|
The government was highly cooperative on the first three measures. The last measure, being a conditio sine qua non for Shell, was problematic.
The government felt that there were too many risks involved and there were not enough funds available to participate in a financial venture of this magnitude.
After negotiations reached a deadlock, consultations were held between the governments of the Netherlands, Venezuela and the Netherlands Antilles. The Venezuelan government wanted to keep the Curaçao refinery open for geopolitical reasons by involving the Venezuelan state-owned oil company Petróleos de Venezuela S.A. (PDVSA). This resulted in the transfer of all assets of Shell to the Island Territory of Curaçao and in a lease of the refinery and terminals to PDVSA, in the third quarter of 1985. The terminal in Caracasbaai, the Curaçao Oil terminal in Bullenbaai and the Schottegat refinery were transferred and consolidated in a Government entity Refineria di Korsou N.V. The assets and activities of the Shell Nederlandse Antillen Verkoopmaatschappij (SNAV), Shell’s marketing company, which specialized in selling petrol, diesel and butane gas and supplying petrol and kerosene to aircraft and fuel to public utilities and ships, were transferred to Curoil N.V. Shell’s tugboats were transferred to Kompania di Tou Korsou (KTK) and the Asfaltmeer became the property of Boeskabaai N.V. All shares of the above mentioned companies are owned by the Island Territory of Curaçao. Shell’s assets were transferred to the various parties for a symbolic sum; in return, Shell was indemnified from environmental damage claims. The settlement with Shell and the lease of the refinery to PDVSA ended a turbulent period in the history of the island; an era marked by unrest.