Update Country Report Curaçao 20 Feb 2019

Event

In early February the government's preferred bidder to operate the Isla oil refinery withdrew from discussions. The government must now revive the bidding process to select a new partner, further delaying the prospect of increased revenue from the refinery.

Analysis

The government had not formally confirmed the identity of the preferred bidder, but local press had named it as Motiva, the US-based offshoot of Saudi Arabia's Aramco. In a press statement, the refinery noted that the preferred bidder had withdrawn because of delays in agreeing the deal and after a review of other opportunities.

This is a blow for the government, which has been urgently seeking a new operating partner to replace Venezuela's state-owned oil firm, PDVSA. Refining activity at Isla has dropped sharply as a result of Venezuela's slowing oil production, while a legal dispute with ConocoPhillips led PDVSA to shut down activity altogether for several months in 2018.

Although some limited refining has now restarted, the government will be keen to secure a new partner before PDVSA's lease expires at the end of the year. Following the withdrawal of its preferred bidder, the government will now need to re-open negotiations with its remaining candidates in order to secure an agreement.

Ongoing negotiations will be complicated by corruption allegations linked to the bidding process. Although no formal details have been released, the selection process was frozen in January pending the outcome of an internal investigation, and three refinery officials were suspended.

This is likely to be the delay cited as the reason for the top bidder's withdrawal, but it may also be concerned about any reputational risk attached to the project. These concerns could also be shared by the other bidders, who may wish to delay any agreement until the corruption investigation has concluded and they can assess any implications.

Impact on the forecast

It now appears unlikely that the government will secure a new partner to take over the rest of PDVSA's lease in the first quarter of 2019. The government will resume discussions with other candidates, while the possibility of a new ten-year operating agreement with PDVSA becomes more likely. This will keep refinery revenue subdued for the remainder of the year, weighing on prospects for real GDP growth.