Kuwait's government on Sunday scrapped a $17.4-billion joint venture with U.S. petrochemical giant Dow Chemical after criticism from lawmakers that could have led to a political crisis in this small, oil-rich state.
The Cabinet, in a statement carried by the state-owned Kuwait News Agency, said the venture, known as K-Dow Petrochemicals, was "very risky" in light of the global financial crisis and low oil prices. The move came just days before the Jan. 1 start-up date for the joint venture.
Kuwait's decision to scrap the deal to buy a 50% stake in Dow's plastics-making unit deprives Dow of $9 billion it planned to put toward the acquisition of Rohm & Haas Co. K-Dow was a key part of Chief Executive Andrew Liveris' plan to reduce Dow's reliance on commodity products and gain access to lower-cost petroleum, used to make chemicals.
Dow now might face a cash shortfall to complete its purchase of Rohm & Haas, said Sean Egan, managing director of Egan-Jones Ratings Co. "It is doubtful that Dow will be able to easily raise the funds," Egan said in a report, adding that Dow has been "skewered."
In its statement, the Cabinet said the "limits of the effects" of the meltdown on international companies cannot be forecast. The news agency said the contract was canceled by the Supreme Petroleum Council, the country's highest oil authority.
Dow Chemical said it was "extremely disappointed" with the Kuwaiti government's decision and was evaluating its options under the joint-venture agreement. "While disappointed in this outcome, Dow remains committed to its Middle East strategy," the Midland, Mich., company said.
The project, in which Kuwait was to hold a $7.5-billion stake, had been criticized in the country as a waste of public funds, and lawmakers threatened to question the prime minister in parliament if it was launched.