Pirates of the Caribbean 4: Valero Energy

Valero Energy Corp., the U.S. oil-refining company with first-quarter sales of $151,566.36 a minute, is going to reopen its refinery in Aruba now that the government has given it a tax break, Amigoe reports:

The oil refinery of Valero will be re-started within 90 days. The intended date for complete resumption of the activities is September 1st. Valero will invest 50 million dollars (90 million florins)… The reason given for this so-called turn around was ‘the considerably improved economical situation’. The concluded new tax arrangement for Valero last January and the abolishing of the sales tax on exports, which the parliament had both approved last week, also were of great importance for the re-start, according to Valero and Premier Eman.

The refinery was due to start paying property taxes this year, Amigoe said in February. I’m sure it’s just a coincidence that the refinery was shut down just months before this bill started to accumulate.

On the other hand, you can kind of understand Aruba greasing up its tuchus for Valero, or whoever has the refinery, given the facility’s importance as an employer. Let’s turn it over to the island’s economic development office (PDF), which cites 2007 figures:

As for manufacturing including oil, the refinery counts for approximately 13 percent of Aruba’s gross domestic product. It directly employs 695 people, and accounts, directly and indirectly, for 12 percent of Aruba’s employment.

The refinery is in San Nicolas. The people who live there are just 20 km away from the resorts, banks and government jobs of Oranjestad, but financial intermediation (13% of the island’s economy in 2007) has little use for journeyman boilermakers.

Tax breaks like this are a tough deal for the host country. The World Bank said (PDF) in 2007 that one of the refinery’s other tax breaks — no taxes for imports related to refinery expansion (other than furniture*) caused “a significant misallocation of capital across competing uses.” It said the tax rate for investments in refinery expansion was 12%, while other types of investment were taxed at rates from 25% to 49%.

So here we go: Valero gets its refinery running, Gulf Coast diesel spreads promise to shrink (ouch, say our friends at Citgo), Aruba gets some jobs.

And lest I forget, there is a very weird last line of the Amigoe story.

Eman stated before this newspaper that Petrobras, Pemex and in particular PdVSA and the combination Pacific Rubiales/Ecopetrol were interested in the refinery.

We’ve all heard of Pdvsa’s interest (nagahapn) and Petrobras (maybe) and various Chinese companies. But Pemex? Or Pacific Rubiales and Ecopetrol? For real?

*Now we know why Valero office workers in San Nicolas don’t get chairs. (Yes, I am kidding.)

2 thoughts on “Pirates of the Caribbean 4: Valero Energy

  1. Steve

    The source for this crude is Venezuela, correct? Didn’t PDVSA run this refinery at one time? (and Shell, for decades before that) If so, why did PDVSA leave?

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