Kuwait scraps $17bn deal with Dow

Kuwait has backed out of a controversial deal with Dow Chemical company because of the current economic conditions.

Mohammad al Olaim, the Kuwaiti oil minister, announced the deal last month.

Kuwait has cancelled a US$17.4 billion (Dh63.9bn) deal to create a petrochemical joint venture with the US company Dow Chemical. The controversial deal, which had run into stiff opposition from members of Kuwait's parliament, was scrapped because it was unfeasible under the current economic conditions, the state news agency Kuna said late yesterday. The decision to cancel the deal - among the biggest in the global petrochemicals industry in recent years - was taken at an extraordinary meeting of the Cabinet, Al Watan TV, a local television station, reported. The private station cited the global economic crisis and its impact on the Opec oil producer, which no longer saw an economic benefit from the proposed joint venture, as reasons for the decision. Under an agreement signed last month and approved by Kuwait's Supreme Petroleum Council, Kuwaiti state-owned Petrochemicals Industries was to pay Dow - the biggest US chemicals producer - $7.5bn for a 50 per cent stake in a joint venture company to be called K-Dow Petrochemicals. The deal was to take effect on Thursday. The transaction was especially significant for Dow, as it planned to use the proceeds to repay a large part of the $13bn debt it stands to shoulder once its acquisition of the US specialty chemicals maker, Rohm and Haas, closes early next year. But the K-Dow Petrochemicals agreement had angered deputies of Kuwait's liberal Popular Action Bloc, who had threatened to question the country's prime minister, Sheikh Nasser al Mohammed al Sabah, unless the deal was scrapped before a Jan 1 deadline. The Kuwaiti partner would have been liable to pay a penalty of up to $2.5bn if it decided to walk away from the project after that date. Nonetheless, the move caught industry experts off guard. Pat Rooney, the Middle East managing director of CMAI, a global chemicals consultancy, said he was "90 per cent sure" the deal would go through. "My understanding is the deal was cut with all the relevant authorities," he said. The decision could also have repercussions for future investment in Kuwait's key oil and petrochemicals sectors. "Clearly it would make a foreign investor nervous," Mr Rooney said. "Certainly, it seems to me to be an opportunity lost for the Kuwaitis." Dow officials could not be reached for comment yesterday. Worried about the growing criticism of the deal, Dow issued a statement last week saying K-Dow was "in the long-term interest of the people of Kuwait". Earlier in the week the oil minister, Mohammad al Olaim, said the government was "going ahead with the deal based on the signed agreement". Experts agree that the chemicals industry is in the midst of a downturn cause by falling demand, and predict capacity will grow sharply in the next several years, led by expansions in the Gulf. The poor prospects facing the industry would have bolstered the opposition's case against the venture, said Michael Corke, a vice president at the energy consultant, Purvin and Gertz. "It's not surprising that the present situation would give the doubters extra ammunition," he said. "It's very difficult when looking forward to avoid being completely overwhelmed with what's happening today." The petrochemical deal's cancellation was also symptomatic of long-standing political turmoil in Kuwait. Mr Rooney said the failure of the deal was part of a larger conflict within Kuwait's political system. Last month, a move to question the prime minister on another issue prompted the government to resign. But Kuwait's ruler reappointed his nephew, Sheikh Nasser, as prime minister. Kuwait's parliament has long struggled with the government for control of the oil and gas sector. [e-mail] [e-mail]