VZCZCXRO4843
PP RUEHDE RUEHDIR
DE RUEHKU #1745/01 3521310
ZNR UUUUU ZZH
P 181310Z DEC 07
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 0455
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0484
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 0399
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 KUWAIT 001745 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EB, NEA/ARP, EAP 
 
E.O. 12958: N/A 
TAGS: EPET EINV ETRD KU CH IN
SUBJECT: DOW'S BILLION-DOLLAR PETROCHEMICAL JOINT VENTURE: 
KUWAIT'S LARGEST FOREIGN INVESTMENT 
 
 ¶1. (SBU) Summary:  In a December 16 meeting with econoff, 
Kuwait Petroleum Corporation (KPC) CEO Saad Al-Shuwaib told 
econoff that a newly announced joint venture between 
state-owned KPC subsidiary Petrochemicals Industries Company 
(PIC) and U.S.-based Dow Chemical Company represents Kuwait's 
largest ever foreign investment and a key opportunity for 
Kuwait to diversify its economy, expand its presence in 
high-growth emerging markets, maximize the value of its 
hydrocarbon resources, and create jobs for Kuwaitis.  The 
50-50 JV will be modeled on the success of PIC's Kuwait-based 
Equate joint venture with Dow but will have a more 
international orientation.  Al-Shuwaib expects the company, 
headquartered in the U.S., to be established in late 2008 
with about 5,000 employees and projected revenues of about 
USD 11 billion.  This company will partner with Sinopec and 
possibly Shell in a USD 5 billion refinery and petrochemical 
complex in China's Guangdong province, a project approved the 
Chinese government during Shuwaib's recent visit to China. 
Al-Shuwaib said the new venture will overtake Saudi Arabia's 
SABIC to become the world's largest petrochemical company. 
KPC is also separately exploring a possible joint venture 
with Reliance Industries for a refinery in India.  End 
Summary. 
 
KPC CEO returns from fruitful Asian tour 
---------------------------------------- 
 
¶2. (SBU) On December 16, Econoff met with KPC CEO Al-Shuwaib, 
who had just returned from a two-week tour of China, India, 
Vietnam, Japan, Korea, Singapore, and Taiwan to meet with 
customers and explore investment opportunities.  (Note: Japan 
and Korea are the largest customers for Kuwaiti crude, and 
KPC's growth strategy is clearly oriented towards Asian 
markets.)  Al-Shuwaib highlighted the recent announcement of 
the approval by the Chinese government for KPC and Dow, in 
partnership with Sinopec and probably Shell (or possibly BP), 
to build the USD 5 billion 250,000 b/d Nansha refinery and 
ethylene plant in China's Guangdong province that will 
process 100% Kuwaiti crude.  Al-Shuwaib also confirmed press 
reports that KPC has begun talks with Reliance Industries 
about a joint venture to build a new refinery and 
petrochemical plant in India, saying he was optimistic that a 
deal would be reached in 2008. 
 
Details of the JV 
----------------- 
 
¶3. (SBU) Announced publicly on December 13, the new 50-50 
joint venture between PIC and Dow to be established in 2008 
will be headquartered in the United States and employ about 
5,000 people including staff from each of the parent 
companies.  It will manufacture and market polyethylene, 
ethylenamines, ethanolamines, polypropylene, and 
polycarbonate.  To create the company, Dow is selling PIC 
portions of its production facilities in Alberta, Canada; 
Bahia Blanca, Argentina; and Tarragona, Spain for USD 9.5 
billion, 50 per cent of the asset value of the new venture. 
Production units in Texas and Louisiana are also expected to 
be included.  Projected revenues for the first year of 
operations are projected to be USD 11 billion, and the JV 
will responsible for building and operating the Nansha 
refinery/petrochemical project in China. 
 
Significance for Kuwait 
----------------------- 
 
¶4. (SBU) This deal represents Kuwait's largest foreign 
investment to date.  It gives Kuwait an opportunity to 
diversify its economy (somewhat) away from its overwhelming 
dependence on crude oil exports while maximizing the value of 
the country's hydrocarbon resources through the production 
and marketing of value-added products.  It gives KPC/PIC 
access to Dow's world-class technology, expertise, and 
international presence, especially in emerging markets.  PIC 
CEO Maha Mulla Hussain is quoted in a press release as 
saying, "This will give the new JV company the distinct 
advantage of full integration from feedstocks to derivatives 
while meeting growing customer demand in emerging markets." 
All of the new facilities created under this venture will 
also create reliable downstream markets for Kuwaiti 
hydrocarbon feedstock.  Of course, the creation of new jobs 
for Kuwaitis is also an important benefit as the GOK 
struggles to create new public sector positions for a 
fast-growing Kuwaiti labor force.  It is still unclear how 
many Kuwaitis would actually be employed by the JV. 
 
KUWAIT 00001745  002 OF 002 
 
 
 
Significance for Dow 
-------------------- 
 
¶5. (SBU) For Dow, the venture provides a reliable supply of 
relatively cheap feedstock and reduces the company's exposure 
to the volatile commodities end of the petrochemical 
business.  Dow's press release also alludes to the benefits 
of reduced capital intensity (per Dow's "asset-light" 
strategy) and an infusion of cash to make new acquisitions at 
the market-facing specialty chemicals end of the 
petrochemicals value chain. 
 
JV builds on success of existing Dow-KPC partnership 
--------------------------------------------- ------- 
 
¶6. (SBU) The new JV will be build upon the successful model 
of Dow and PIC's Kuwait-based Equate joint venture.  Equate, 
the first major joint venture undertaken by KPC, was started 
in 1995 by PIC and Union Carbide, which was subsequently 
acquired by Dow in 2001, to produce ethylene, polyethylene, 
and ethylene glycol.  The venture has been a major success 
story for Kuwait, creating hundreds of jobs and billions of 
dollars in revenue since it became operational in 1997. 
Revenues reach USD 986 million and net profits reached USD 
566 million in 2006.  Equate is currently undergoing a USD 2 
billion expansion to create new aromatics and olefins 
production facilities. 
 
********************************************* * 
For more reporting from Embassy Kuwait, visit: 
http://www.state.sgov.gov/p/nea/kuwait/?cable s 
 
Visit Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
********************************************* * 
MISENHEIMER