OREANDA-NEWS. Negotiations between the government of Dutch-controlled Curacao and Chinese state-owned trading company Guangdong Zhenrong Energy (GZE) over a major refinery project have collapsed, Curacao government officials tell Argus.

The government and GZE disagree over whether the island's 325,000 b/d Isla refinery should be rehabilitated, or scrapped in favor of a greenfield plant, officials say.

Curacao's prime minister Eugene Rhuggenaath says the talks have been "suspended," and he will visit China "later this year," to discuss GZE's future in the project.

The refinery is currently operated by Venezuela's state-owned oil company PdV under a long-term lease that expires in 2019.

GZE and Curacao's government agreed in November 2016 to a $5.5bn upgrade of the refinery under a 40-year lease, after PdV indicated it would not renew its arrangement.

But GZE subsequently told Rhuggenaath it wanted to change the agreement to allow the construction of a new refinery at Bullen Bay.

This would require an amendment to the agreement, and would have to be approved by Curacao's parliament if a feasibility study supported this option, the prime minister said.

"The discussions broke down on this matter, as GZE is insisting now that the better option is a new refinery, while the government believes upgrading the existing plant at Schottegat is better," a Curacao official told Argus today.

GZE has not responded to a request for a comment.

The Chinese company is "disappointed" at the failure to reach an agreement, Rhuggenaath said, adding that the talks will continue when he visits China. He gave no date for the visit.

Curacao state-run RdK that owns the century-old refinery will be part of the prime minister's delegation to Beijing.

"If the investigations show that it is better to build a new refinery and not to modernize the current one, then parliament has to decide that," Rhuggenaath.

In addition to upgrading the existing refinery, GZE had planned to expand oil storage and build a regasification terminal.

PdV uses the refinery to process its crude into gasoline, naphtha, diesel, jet fuel, asphalt, base oils and lubricants, and to blend its diluted extra-heavy crude with light crude for export, partly to China.

The refinery will be fully operational by the end of September following a 21 May fire that damaged several units, RdK has said.

The plant is currently operating at 50pc of its capacity as the damaged units are repaired. The fire broke out when a crude distillation unit was undergoing repairs, and damaged several other units, the company says.

The refinery had been processing around 156,000 b/d before the fire, a Venezuelan energy ministry official said in May.

For its part, the Dutch government is "concerned" about the nature of an agreement on the Curacao refinery, and also about the future of a mothballed 280,000 b/d refinery in neighboring Aruba, the Curacao government official told Argus today.

"These refineries are important to the economy of the respective islands, and The Hague is concerned that bad deals could disrupt local economies and cause social chaos, requiring increased Dutch financial assistance and causing significant migration to the Netherlands," the official said.

US refiner Valero sold the money-losing San Nicolas facility in Aruba to state-run RdA after halting operations in 2012.

In June 2016, RdA leased the refinery for 15 years to Citgo, PdV's US downstream subsidiary. But the planned restart of the Aruba refinery in 2018 will be pushed back to 2020, the island's central bank said in May 2017.

A senior Venezuelan energy ministry official told Argus in May the deal is in jeopardy because Citgo cannot raise the capital to pay for it.

"We expect the Dutch government to have a significant influence on the nature of the arrangements for the future of the two refineries," the Curacao official said today.