Dow: Kuwait deal will go on

Petrochemical joint venture between Dow Chemical and Kuwait's state oil firm, K-Dow Petrochemicals, will start operations on Jan 1.

Dow Chemical's US$17.4 billion (Dh63.9bn) petrochemical joint venture with Kuwait's state oil firm will go ahead as planned and is in the best interests of the country, the company said yesterday in response to calls from some Kuwaiti politicians for the deal to be scrapped. The US firm and the Kuwait Petroleum Company (KPC) signed an agreement at the beginning of this month to launch a new petrochemical company, with KPC required to make a net payment of $6bn to buy part of Dow's business.

The new company, K-Dow Petrochemicals, will start operations on Jan 1 and produce sophisticated plastics and other petrochemicals at plants in Kuwait and existing Dow Chemical facilities across the world. The agreement has been criticised by members of the Kuwaiti parliament, who say it is too expensive and not in the best interests of the government. The chairman and chief executive of Dow Chemical, Andrew Liveris, said yesterday: "In recent weeks there has been much discussion and debate about whether a fifth partnership to establish a new joint Kuwaiti-American company - K-Dow Petrochemicals - is in the long-term interest of the people of Kuwait. I know from personal experience that our Kuwaiti partners negotiated with tenacity and resolve to assure the company we were building together would be one that would be worthy of the immense talent and energy [of the] Kuwaiti men and women who would become its foundation."

Dow said the deal had been approved by all necessary government bodies, including the Kuwaiti Supreme Petroleum Council, and had even been revised at the last minute in favour of Kuwait. At the signing of the agreement, Mr Liveris predicted the company would have annual sales of $11bn. The dispute over the Dow deal is the latest chapter in a long-running conflict between parliament and the government over oil policy, with politicians often opposing the participation of foreign oil companies.

The main group opposing the deal, the Popular Action Bloc, threatened last Sunday to drag the prime minister before the legislature for questioning if it was not abandoned before the January start date. The group said Kuwait was paying too much for the deal, since the valuation of Dow Chemical's business had dropped significantly since a partnership was first proposed last year. "The deal has been mired with an exaggeration in its value and with highly inflated commitments, for the benefit of the other (Dow) party," the group said.

However, cancelling the deal could prove expensive for Kuwait. According to the agreement, any party that unilaterally scraps the deal must pay a penalty of $2.5bn to the other party. Kuwait's government has been on the defensive since signing the deal. The political fight is taking place on a backdrop of a larger dispute between the government and parliament involving the legislature's right to question the prime minister.

On Monday, the oil minister, Mohammad al Olaim, said the government had "sought the assistance of the best international consultants to assess the deal" and was prepared to go forward. "The deal has passed through proper channels after thorough studies," he said. "We are going ahead with the deal based on the signed agreement." * with AFP [e-mail]