KUWAIT CITY – 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 startup date for the joint venture.
In its statement, the Cabinet said the "limits of the effects" of the meltdown on international companies cannot be forecast. KUNA 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, Michigan-based company said in a brief statement.
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.
Such a move could have led to Sheik Nasser Al Mohammed Al Sabah's impeachment, sparking a new political row in the country just weeks after the Cabinet resigned in protest after an effort by a group of Islamist lawmakers to question the premier over corruption allegations within the government.
Sheik Nasser was reappointed to his post though he has yet to form a new Cabinet.
Dow, one of the world's largest chemical companies, and Kuwait's Petrochemical Industries Co., a subsidiary of the Kuwait Petroleum Corp., had hoped the joint venture would help them capture a larger share of the global chemicals market and boost profitability. The company was to be headquartered in the Detroit area.
But the sharp drop in crude oil prices — from mid-July highs of nearly $150 per barrel to under $40 currently, has hit Kuwait and its oil-rich Gulf Arab neighbors, hard.
The Kuwaiti stock exchange has fallen by about 35 percent since the beginning of the year, and some investors have criticized the government for what they said was a lack of action to stave off the impact of the global meltdown.
Dow has also faced difficulties, and announced earlier this month that it was cutting about 11 percent of its work force, closing 20 plants and selling off several businesses to cut costs amid the financial downturn.
As criticism over the deal mounted in Kuwait, Oil Minister Mohammed al-Eleim defended the venture as profitable, saying it was carefully studied by international consultants for over two years.
The Cabinet said in its Sunday statement it "rejected" politicizing the issue which is harming the country by impeding development projects.