Kuwait Times

Published Date: December 01, 2008
By Jamie Etheridge

KUWAIT: Kuwait has revalued a $20 billion joint venture with Dow Chemical down to $16 billion. KPC has sent a delegation to the United States to renegotiate the deal, now expected to come in at around $16 billion, a source close to the deal told Kuwait Times. The Petroleum Industries Company (PIC) will now pay about $8 billion and a finalized deal is to be announced later this week. The Supreme Petroleum Council has already given the green light for the deal under the new financial terms.

My understanding is that Dow has already accepted the revaluing down from $20 billion to $16 billion," the source said. "Due to the global economic recession, the Supreme Petroleum Council advised PIC to renegotiate the value of the assets.

Last December, Kuwait's PIC joined forces with the US chemical giant to develop Kuwait's petrochemical industry. The two planned a 50-50 joint venture, to be named KDOW, which would transfer Dow assets in the US and Europe, including chemical plants, to the venture and PIC would pay out about $11 billion to Dow.

But the recent global economic downturn led to a collapse of the petrochemicals market and a drastic drop in Dow share prices. In early November, it was reported that Dow expected a 10 to 20 percent decline in sales over the next few quarters and that it might restructure part of its operations. The assets Dow would have sold to the joint venture had suddenly lost significant value. Last week, KPC Chief Executive Saad Al-Shuwaib acknowledged that the deal was being reviewed.

KDOW will manufacture petrochemicals used in automotive parts, computers, food packaging and plastic bottles and other consumer goods. Kuwait wants to develop its petrochemicals industry in order to bolster the value of its crude oil reserves and add revenues streams beyond crude oil that will help the country weather periods when global oil prices decline. Kuwait currently produces about 2.6 million barrels of crude oil per day. Kuwait's PIC already works with DOW via its subsidiary Union Carbide in the j
oint venture Equate. Based in Shuaiba, Equate is the largest petrochemical plant in Kuwait. The KDOW deal does not require parliamentary approval and has not been impacted by the recent political upheavals in Kuwait.