Aruba Hoping Suntan Oil Can Replace Crude

Exxon has shut down its oil refinery on this Caribbean island, and it looks as though Romulo Geerman is finally going to need his goats.

Geerman is president of the Industrial Oil Workers Union of Aruba. A cautious man of 31, he has always kept a herd of goats as an investment against the day when he might wake up without a job.

That day is imminent, not only for Geerman but for his entire union. On the last weekend of January, Exxon turned off for good the spigots at its Lago refinery here. The Lago payroll, about $50 million a year, will dry up as of Sunday.

For Exxon, the largest U.S. petroleum company, the closing of Lago is the end of an operation that has been gushing red ink. For the 60,000 people of Aruba, one of the six islands that make up the semi-independent Netherlands Antilles, it is the beginning of a calamity.

All at once, the island is losing its largest employer, 40% of its tax base and its only major source of income other than tourism and aid. In short, Aruba is faced with the dismal prospect of leaving behind decades of prosperity to suffer a more common Caribbean reality: economic underdevelopment.

Oranjestad still has a prosperous look--fresh paint, late-model cars, well-stocked stores. But it seems ominously impermanent.

“Things are going to get tough here,” Geerman said recently in his union office near the refinery. “The only thing that is going to remain for Aruba is tourism.”

Geerman and other leaders on the island estimate that the unemployment rate will rise to as high as 40%. Geerman, who used to work at the refinery, now receives his salary from the union. When the Lago paychecks stop coming at the end of March, so will his check from the union.

He said he is counting on his goats, a herd of nearly 300, to “make it a little easier for my family” when the hard times come.

Keeping goats, he said, is an old Aruban custom that faded during the island’s years of prosperity. His herd is one of the few that still graze the low, scrub-covered hills outside San Nicolas, the company town near the Lago refinery.

“People gave those things up, but I never did,” Geerman said. “Sometimes people take everything for granted. They think everything will be good for a lifetime.”

It has been nearly a lifetime since the Lago refinery began operating in the late 1920s. When employment was at its peak, in the mid-1950s, about 9,000 people worked at Lago, many of them foreigners.

Gradually, the plant was automated, and most of the foreign workers left. Lago has about 900 Aruban employees today, and, until the refinery shut down, about 1,000 others worked for companies under contract to Exxon.

The Aruba Chamber of Commerce estimates that the refinery closing and the “snowball effect” on other businesses will put 8,000 Arubans out of work altogether.

Arubans are mostly Dutch, with a touch of African, Spanish and Portuguese. Besides Dutch, they speak a kind of creole Spanish, called Papiamento, which contains elements of Dutch, Portuguese and other tongues.

The island is a jagged oblong of about 70 square miles, 15 miles off the coast of Venezuela. It is covered with cactus and brush and gets only about 20 inches of rain a year. Its water supply comes from a desalination plant.

For Exxon, Aruba’s main attraction was its proximity to Venezuela’s oil. But that is no longer enough. Venezuela’s heavy crude, which once could be refined by only a relatively few plants, can now be refined by many.

Venezuela used to sell its heavy crude to Exxon at preferential rates based on the market value of refined products rather than on the world price of crude. But, in 1983, Venezuela cut back the amount that it sent to Lago to 180,000 barrels a day, about half of the refinery’s capacity. Then, last October, Venezuela said it could no longer afford to sell any oil to Exxon at preferential prices. As a result, Exxon announced at the end of October that the refinery would be closed.

Larger Pattern

Bill Young, an Exxon spokesman in Miami, said the company calculated that its losses in 1985 would be as much as $100 million if operations had continued at the Lago refinery.

“We lost something on the order of $50 million there last year,” he said. “We just couldn’t find a way to make it economical.”

The closing of Lago is part of a larger pattern of trouble for Caribbean island oil refineries. The surviving ones are operating at about 50% of capacity, Young said.

Petroleum companies and oil-producing countries are refining increasing amounts of crude at modern plants located close to markets or production fields.

Shell, the British-Dutch petroleum company, says it has lost an average of about $75 million a year for the past three years at its refinery on Curacao. Curacao, 42 miles east of Aruba, is the largest island in the Netherlands Antilles.

Shell has hinted strongly that it will close the refinery unless the Curacao government buys a three-quarters interest in it and Venezuela increases the plant’s supply of crude. Curacao, which is more developed than Aruba, is less dependent on the Shell refinery than Aruba has been on Lago.

Milton Henriquez, Aruba’s finance commissioner, said the closing of Lago will cost the island’s local government about 40% of its tax revenue. Even with heavy reductions in payroll and public services, he said, the government will have a deficit of at least $20 million in 1985.

“We shall, of course, knock on the door of Mother Holland to help us with special aid in view of the crisis,” he said. The Netherlands is already giving about $70 million a year in aid to the Netherlands Antilles, mostly for public works such as roads and ports.

Under the Dutch constitution, the Netherlands Antilles are self-governing within the kingdom of the Netherlands, which has responsibility for the islands’ foreign policy and defense.

Henriquez and other Aruban leaders are scrambling for ways to keep the island’s economy afloat. One long-shot possibility is to find a petroleum concern willing to operate the Lago refinery. Exxon has offered to sell the plant for $1--to avoid the expense of dismantling it--and Henriquez said that meetings have been scheduled with prospective buyers.

Tourism Holds Promise

“I think they’re kidding themselves,” a foreign diplomat in Curacao said. “The facts of life are that they’ve got a refinery that time has passed by.”

The most promising avenue of economic recovery runs along seven miles of sparkling white beaches at the western end of the island. Since the late 1950s, Aruba has developed a small but thriving tourist industry with 12 hotels and more than 2,000 rooms.

And there is room for growth. Finance Commissioner Henriquez said he knows of “good prospects” for the construction of three or four new hotels.

Milton Ponson, chairman of the Aruba Chamber of Commerce, said that, even with rapid growth in tourism, the island is headed for hard times.

“We have had a quite elevated standard of living here,” Ponson said. “We must all adjust to a lower level, at least for some years.”