Kuwait Cancels $17 Billion Joint Venture with Dow Chemical

Kuwait on Sunday scrapped a deal to form a $17.4 billion petrochemical joint venture with U.S. firm Dow Chemical , state news agency KUNA said.

Courtesy: russiablog.org

(RIYADH, Saudi Arabia) - The cancellation of the deal, which had met opposition in Kuwait's parliament, is a blow to the largest US chemicals firm which had planned to use the proceeds to repay a large part of $13 billion in debt it will have to shoulder once its acquisition of rival Rohm & Haas closes in early 2009.

Several opposition MPs had threatened to quiz the prime minister in parliament if the deal was not scrapped before Jan. 1 when it was due to become effective.

The cancellation of the agreement after the start of the New Year would have made Kuwait liable to pay a penalty of up to $2.5 billion. Oil Minister Mohammad Al-Olaim last week defended the deal, saying it had passed through all proper channels and that Kuwait would greatly benefit from a partnership with Dow Chemical, one of the world's biggest chemical companies.

The Supreme Petroleum Council, at a meeting headed by Prime Minister Sheikh Nasser Al-Mohammad Al-Sabah, "arrived at the decision to cancel the contract", KUNA said.

State-run Petrochemical Industries Co (PIC) signed a deal earlier this month with Dow to launch the joint venture, K-Dow Petrochemicals, and was due to pay $7.5 billion. The deal was part of Dow's strategy to reduce its exposure to the cyclical nature of the commodity chemicals business.

The deal had angered some Kuwaiti parliamentarians who said the project was not economically viable in light of the global financial crisis and slumping petrochemical sales.

Four liberal MPs had threatened to question the prime minister, a senior member of the ruling family, unless the deal was scrapped.

Another move by some deputies to question Sheikh Nasser on another issue had prompted the cabinet to resign in November, though the ruler reappointed his nephew.

Parliament has a history of challenging the government with the same liberal MPs having opposed building the $15 billion Al-Zour refinery for which final contracts have not yet been signed despite an award in May.

Dow and other chemical makers around the globe face one of the worst slumps ever in chemical demand, due to recession in most developed countries and a sharp slowdown in emerging economies.

Earlier this month, Dow said it would close 20 facilities, divest several businesses and cut 5,000 jobs or 11 percent of its workforce. It also plans to temporarily idle about 180 plants.

Kuwait and Dow lowered the value of the joint-venture by more than 8 percent to $17.4 billion earlier this month after the Gulf Arab state asked to cut its contribution in light of a sharp slowdown in global demand.

The new company had been due to market petrochemicals and plastics such as polyethylene, polypropylene and polycarbonate, used in products ranging from plastic bottles and compact disks to computers and agricultural compounds. In July, Dow said it would acquire Rohm & Haas for $15.3 billion in a move to broaden its specialty product offerings.