Kuwait has vowed to fight a verdict that ordered it to pay more than US$2 billion to Dow Chemical over its failure to go ahead with a petrochemical venture with the US company.
Kuwait to fight $2 billion Dow Chemical award
Kuwait has vowed to fight a verdict that ordered it to pay more than US$2 billion (Dh7.34bn) to Dow Chemical, one of the largest corporate arbitration awards, over its failure to go ahead with a petrochemical venture with the US company.
The International Chamber of Commerce's international court ruled that Kuwait has to pay Dow a total of $2.16bn in damages after pulling out of a major petrochemicals joint venture in 2008, the United States company announced late last week.
The $17.4bn "K-Dow" joint venture with state-owned Petrochemicals Industries Company (PIC) was unilaterally cancelled as the credit crunch raised financing costs and pushed the global economy into recession, sapping demand for plastics.
"The company's management is discussing with lawyers all of the legal proceedings that are available," Maha Mulla Hussain, PIC's chairman and managing director, told the state-run Kuwait News Agency.
The last-minute decision by Kuwait to pull the plug on K-Dow was just the latest in a series of major foreign investment projects that have failed to get off the ground in Kuwait.
The decision drew relief from Dow, while Sheikh Jaber Al Sabah, Kuwait's prime minister, expressed his "anguish" via the state-run Kuna news agency.
"This outcome brings resolution and closure to the issue," said Andrew Liveris, Dow's chairman and chief executive.
The country's power and energy sectors are woefully underdeveloped, as political deadlock has prevented the government from signing off on major projects.
Earlier this year, the Az Zour power plant, a public-private partnership that will generate 1,500 megawatts of power and desalinate about 100 million imperial gallons of water, was awarded to a consortium of International Powerand Sumimoto after a drawn-out process.
The plant addresses Kuwait's chronic shortages of electricity, which have made summer blackouts a common occurrence.
The country also faces other shortages and is forced to import refined oil from abroad to feed its power plants.
Two massive projects, the 615,000 barrels per day (bpd) Az Zour refinery and the Clean Fuel Project, have both been cancelled once.
Now Kuwait is launching its third attempt to increase its refining capacity to a total of 1.4 million bpd, and produce fuel clean enough to export to developed markets.
At an estimated combined cost of $30bn, the projects are unparalleled in Kuwait, and would rank among the biggest of their kind in the region.
Invitations to pre-qualify were launched last month, but the political headwinds are likely to set in later, when winning bids have been accepted and parliament has to sign off the investment.
In spite of its limited decision-making powers, the national assembly has made life difficult for the executive branch over the years, hoping to gain more influence in the process.
So far, it has successfully stalled the refinery projects.
Politics has also stalled a long-standing provisional deal with ExxonMobil to increase production capacity in the country's Northern Fields by 700,000 bpd. The project was on the drawing board for decades but was never started, and international oil companies are still waiting for the resurrection of the project.
The fractious nature of Kuwaiti politics has led to the dissolution of four governments over the past six years, and the current parliament is considered by some to be the most volatile to date.
Hopes of foreign investors now rest with Hani Abdul Aziz Hussein, the new oil minister.
A technocrat who has been active in the country's hydrocarbon sector for many years, he is respected among the political classes. It remains to be seen whether he will be given the time to succeed where others have failed.
iPad users can follow our twitterfeed via Flipboard - just search for Ind_Insights on the app.