By Marianna Parraga
WILLEMSTAD (Reuters) - Lighting up the night sky with flames from its chimneys, Curacao's giant Isla refinery is at the center of an increasingly acrimonious dispute over the island's economic and environmental future.
Run by neighboring Venezuela's state oil company PDVSA, the smoky, 335,000-barrels-per-day facility is the second-biggest in the Caribbean but has long been plagued by technical problems.
Now some residents say PDVSA should give up the refinery when its contract expires in 2019 -- freeing up land in the heart of the capital Willemstad, removing the distinctive smell of sulfur emissions and an eyesore that puts off tourists.
"The refinery has already had its day," said Edgar Leito, who worked at Isla for 39 years, including as its health, safety and environment manager. He recently formed a political group that is lobbying to have the aging refinery dismantled.
Isla, opened by Shell during World War One, puffs out clouds of toxins and contributes little to local tax income, but supports many families via hundreds of jobs.
The economy of Curacao, an autonomous part of the Netherlands 40 miles off the Venezuelan coast, has become less dependent on oil refining over the last decade and wants to expand its banking, shipping and tourism sectors.
But Isla remains a vital asset for PDVSA. It represents more than 10 percent of the company's global refining capacity, while a tank depot next to the facility can store up to 16 million barrels of crude and has become an important staging point for Venezuelan oil shipments to China.
Unlike most coastal facilities in the OPEC member, the terminal and the neighboring island of Bullenbaai can receive large tankers, including VLCCs (very large crude carriers).
"PDVSA will lose a lot of money if it gives up Isla. It would have a logistical and commercial impact because there are no other available refineries in the Caribbean that could replace it," said one shipping operator who works with the Venezuelan company and asked not to be identified.
Officials at the refinery said last year that President Hugo Chavez's socialist government was planning to pump $1.5 billion into a modernization program for Isla.
But Venezuelan Oil Minister Rafael Ramirez said that investment was not guaranteed, and that PDVSA could withdraw from the plant amid a dispute between Curacao's government and Caracas over allegations of U.S. spy flights.
In 2009, Chavez accused the Netherlands of allowing the U.S. military to use a base on Curacao to launch planes spying on Venezuela. Officials in the Dutch Antilles say the base is used by the United States only for anti-drugs operations.
The Dutch Antilles government has also hit back, saying PDVSA has not met the terms of a deal to clean up Isla, and a Curacao court has ruled PDVSA must upgrade the plant. Some locals say they have seen little benefit from the refinery.
"It costs me almost $80 to fill up my car. No one understands why we have to pay so much for gas when we have a refinery here," said one Willemstad resident, Evelyn Pena.
Neighboring Venezuela boasts the world's cheapest petrol.
Environmental activists in Curacao have accused PDVSA of breaches including contaminating soil and failing to handle waste materials properly -- allegations the company denies.
Opponents of the refinery have high hopes for the future of the land, which is the site of an old slave market. Leito said the European Union could help Curacao find investors.
"It could be converted into a cluster of alternative energy projects, or into a big dome for stage shows," he told Reuters. "One month we could have a concert by Shakira, the next by Juan Luis Guerra."
(Writing by Daniel Wallis; Editing by Dale Hudson)