The honeymoon with GZE is over
Analysis from Antilliaans Dagblad
The honeymoon is over: the initial blind love of Curacao for Guangdong Zhenrong Energy (GZE) has cooled off and made place for a more rational, business-like approach of this partner for the next couple of decades. This can be concluded from a press release in which the Rhuggenaath-cabinet indicates that it has taken several decisions regarding the Isla-refinery dossier and GZE. While this way the dream shatters for some like a proverbial bubble, it makes more sense to keep both feet firmly planted on the ground. The future of Curacao is at stake and one cannot be careful enough with that.
The government in Fòrti has taken a number of important decisions, thereby showing that it is not on the leash of the Chinese state-owned company GZE, even though it has been promised the moon. The most important decision is that Curacao insists without hesitation on a thorough due diligence of GZE. As the Antilliaans Dagblad revealed earlier, a preliminary research by Ernst & Young in Hong Kong showed that there are still a lot of unanswered questions. Red flags. That was based on desk research before New Year’s Eve 2016-2017. The points of concern still have not been put to rest after all these months; reportedly because GZE walks away from the answers.
The question is then whether GZE is technically and financial able at all to modernize the Isla-refinery, expand it and let it produce in a cleaner way; let alone that it will be capable to build a completely new refinery at Bullenbaai, dismantle the old refinery and redevelop that seriously polluted ground. GZE does not own refineries, it does not have proven know-how or experience with refineries and it has never built one from scratch. Information about the annual accounts, the assets, debts, claims and ongoing legal procedures are not forthcoming. Furthermore, a recently leaked email shows that GZE currently is subject to a financial audit by the Chinese government that could result in a reorganization. GZE denies publicly that there is a ruling from the high court in Hong Kong about a trial that involves its daughter company Titan Petrochemicals that could force GZE to liquidate. In the meantime there are strong signals that such a verdict does exist, but that it is possibly not directly applicable to the Chinese state-owned company that is established on the mainland.
Still, there are serious risks. With the Project Curacao, as director/representative Bingyan Chen calls it, requires $4 to $6.5 billion, while GZE according to preliminary findings has an equity of barely $56 million. Investors like the Chinese Development Bank remained silent after an initial letter of interest.
Should Curacao do business with such a partner? A potential partner that gave a presentation in the highest democratic body of Curacao, the Parliament, as if everything has already been arranged; like they are able to take over all the Isla-installations from the Venezuelan oil company PdVSA tomorrow; like they are already in control of Curacao, or large parts of it, and that they will not only build an LNG-terminal for the production of liquid natural gas and a brand new refinery at the Bullenbaai, but that they will also turn the current Isla-location around the Schottegat into a Las Vegas-style new city with skyscrapers, an amusement park and countless casinos? This is too good to be true; the islanders determine the future of their Curacao and not a company like GZE. This is a possible partner, who thirteen months after signing a memorandum of understanding with then Prime Minister Ben Whiteman still is unable to show what it has in terms of technical and financial abilities to take away a large number of those red flags. That does not inspire trust. That is unfortunate, because many had high expectations. Now it turns out that it is not all champagne and caviar.
That the people were fooled with a pipedream is bad enough. Former Prime Minister Whiteman is primarily responsible for that, possibly driven by his despair that PdVSA and the government of Venezuelan President Nicolas Maduro would leave Curacao out in the cold. But his predecessor Ivar Asjes can also be reproached for the creation of a non-transparent structure around the multidisciplinary project team, with troublemaker Werner Wiels as its chairman. Wiels stumbled earlier as the top dog at financing institution Amfo and later as a commissioner at Aqualectra during the Schotte-government. Asjes did not only give him free reign, he also gave him carte blanche. According to reliable but for now unconfirmed reports Wiels blew 19 million guilders in a couple of years. That was public money from the government-owned Reffineria di Kòrsou, the owner of the refinery PdVSA leased, whereby RdK-director José van den Wall-Arnemann played a dubious role.
With the multidisciplinary project team, Wiels cost the country a lot of money – without any results as it appears now – but there was no real selection procedure either. Wiels badmouthed the KPMG-prospectus that was to go to the international market internally and rejected it in August 2015. Afterwards he went in 2016 for two months alone to China, and subsequently he let GZE in the door. The process of the search for a strategic partner therefore has not been above board. The openness that was a hard requirement beforehand has been run into the ground by Wiels. He dismissed the investment memorandum for Isla, saying that it was not complete. After Titan won the bid for the LNG-terminal as the preferred bidder – with a remarkable if not suspiciously low price – too low to turn it into a successful business case – GZE was suddenly presented like a rabbit out of a hat under the guise that “no guarantees were asked from Curacao.” Politicians in Willemstad let themselves be lulled into a sweet sleep.
The turning point came with the dismissal of Wiels and the appointment of Clift Christiaan – known for his no-nonsense approach at the Curacao Dock Company and for bringing in Damen Shipyards. The new supervisory board at RdK did not buy fairy tales either. There will have to be due diligence of the who, what, where, how and when of Guangdong Zhenrong. Due diligence was left out of the Heads of Agreement but it has been added again in the most recent addendum-agreements.
The Council of Ministers now has put GZE at arm’s length, awaiting the demanded essential documents and solutions for points of concern, but it keeps the talks going. That makes sense, but there is no longer a duty to negotiate with GZE. The Plan B is in fact a new trajectory in search for a backup that will hopefully be found in case the deal with the Chinese state-owned company comes to naught.
At the same time the government does not agree that GZE takes over the bid Titan won under dubious circumstances for the construction of the LNG-terminal. Legally that would not even be possible just like that towards the other multinationals that submitted a bid. But first of all Curacao wants to see which way the cat jumps and get to know more about that party that presented itself as Curacao’s savior.
Furthermore the government wants to make an effort to rekindle the dialogue with PdVSA and the governing center Miraflores in Caracas. Good communication and a good relationship with the neighboring country and its state-owned oil company are crucial anyway, in spite of the enormous internal problems in Venezuela. The country is struggling with a strong decline in production capacity of crude oil and refining and the adverse effects of the sanctions imposed by the United States.
Cooperation and willingness are a requirement for a safe transition of a very complicated project like the fire-susceptible refinery. RdK and the multidisciplinary team can do a lot in terms of the technical side, but considering the situation in Venezuelan politics a dialogue at the government-level is a must. Involving the Kingdom, at least the Ministry of Foreign Affairs, is not only desirable but also indispensable.
It has been said before, time is running out. In 2019 the already terminated contract with PdVSA expires. But time nor pressure from for instance the Chinese GZE should have improper influence on the process to arrive at the best solution for Curacao. That also applies to local politics. The governing parties have to keep a cool head and should not let themselves be played against each other. With common sense PAR, MAN and PIN have to take the lead from reliable expertise to replace the red flags with clean white smoke.
Source: Antilliaans Dagblad | Translated by Hilbert Haar
