Kuwait Times

Published Date: December 29, 2008
By B Izzak, Staff Writer

KUWAIT: Kuwait yesterday decided to scrap a multibillion-dollar deal with the US giant Dow Chemical, ending what would have been another major political confrontation between the government and the National Assembly. The cancellation order was issued by the Supreme Petroleum Council (SPC). "The SPC met today under the chairmanship of (Prime Minister) Sheikh Nasser Mohammad Al-Ahmad Al-Sabah", who is the head of the Council, an official statement said. "SPC discussed the deal with Dow Chemical and reached t
he conclusion to scrap the deal and asked all concerned authorities to take necessary measures to implement the decision." the statement said.

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. The cancellation of the deal 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.

The Cabinet meanwhile issued a statement following an extraordinary meeting in which it said it has instructed the SPC to take necessary measures to scrap the deal with Dow. The statement said that the deal was reviewed from all aspects and affirmed its feasibility and benefits "under normal circumstances". But due to the major changes in the world economy, the serious impact of the global financial crisis on the assets of companies and the sharp slide in oil prices, going ahead with this deal involves hig
h risks, the statement said.

It added that based on this, the Cabinet instructed the SPC to take measures necessary to scrap the deal within the correct legal framework to preserve the country's interests. The statement also praised the efforts that had been taken by Kuwaiti officials in the oil sector and rejected undermining their dignity and honesty. It also criticized politicizing vital development projects and the exaggeration in the use of negative media campaigning that hurts the interests of the country and obstructs developme
nt projects. The Cabinet last week held a series of meetings but could not take a decision pending the finalization of technical and legal studies.

State-owned Petrochemicals Industries Co (PIC) signed the deal last month after it received the green signal from the SPC. Under the deal, PIC and Dow Chemical were to set up a 50-50 joint venture that would have established the K-Dow Petrochemicals firm. Kuwait was to pay $7.5 billion and Dow's contribution was in the form of plants and research centers.

The deal came under the spotlight early this month when the Popular Action Bloc threatened it would grill the prime minister if the government did not cancel the deal before the start of the New Year. The Bloc described the deal as a sellout and that its value was highly exaggerated, citing the fact that Dow Chemical's value had fallen from $51 billion last year to $17 billion now because of the global financial crisis. The call was supported by many other MPs who also questioned the benefits of the deal i
n the wake of the global financial crisis.

Only last week, Oil Minister Mohammad Al-Olaim defended the deal and said Kuwait was going ahead with it despite stiff opposition. The minister said K-Dow was expected to become a leading global petrochemicals company and that the partnership would allow Kuwait to become joint owners of more than 40 petrochemicals plants and other research centers. Sources however said that a number of leading officials in the oil sector were upset with the turn of events and some of them may quit their posts in protest ag
ainst political interference.

A number of MPs were quick to welcome the government decision. Independent MP Roudhan Al-Roudhan described the decision as a "positive step" while MP Saad Al-Khanfour called on the government for more reforms. Similar opposition by MPs has put the fate of a $15-billion project to build a new refinery at Al-Zour on the line, with many now expecting the government to scrap the venture after the Audit Bureau said it was not feasible.

Opposition by MPs has also obstructed the passage of a multibillion-dollar project to seek the assistance of foreign oil majors to develop the emirate's northern oilfields. The investment, known as Project Kuwait, has been stalled in parliament since it was first proposed in the mid-1990s. A number of senior officials in the oil sector, which provides 95 percent of public revenues, complained in a statement earlier this month of external interference and politicizing of the vital industry.

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 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.