(Adds details from GZE letter)
Jan 2 (Reuters) - The government of Curacao has scrapped a preliminary agreement with Chinas Guangdong Zhenrong Energy (GZE) to operate the island's aging Isla refinery, saying the company misrepresented itself and was unable to take on such a large endeavor.
GZE said the decision violated the terms of the agreement and the company may initiate arbitration to resolve the dispute, according to a letter from GZE to Curacao's government seen by Reuters.
Curacao and GZE signed a deal in 2016 to invest some $10 billion in upgrading the facility.
Curacaos government said GZE does not have the muscle to invest in the refinery and lacks unconditional support from the Chinese government.
GZE turned out to be the contrary of what it said at the time of signing the MoU (memorandum of understanding), Curacao said on its government website in a statement dated Sunday.
Curacao is looking for a viable alternative to guarantee the future of the refinery, it added.
GZE was not immediately available for comment. In its letter, the company refutes that it is unable to undertake the project.
"GZE does not understand and is very disappointed for the referenced letter from the Curacao government and others. GZE and its partners have made and are making promising progress towards the project financing," the letter reads.
Venezuelan state oil company PDVSA has for decades operated the refinery, which opened in 1918, under a lease agreement. But cash-poor PDVSA has been reluctant to invest some $1.5 billion that Curacao authorities requested several years ago to modernize the 335,000 barrel-per-day facility.
(Reporting by Sailu Urribarri; Additional reporting by Tibisay Romero,; Writing by Alexandra Ulmer; Editing by Lisa Shumaker)