"Shahin" and "Al-Daw"
Kuwait paid a heavy price in the “Dow” case in December 2008, when the deal was abruptly canceled after the project agreement had been signed between Kuwait Petrochemical Industries Company (KPIC) and Dow Chemical. In 2008, following the announcement of the deal, opposition from several members of the National Assembly intensified, with some threatening to question the Prime Minister if the agreement was not canceled before it took effect on January 1, 2009. Although the Dow project was not submitted to the National Assembly for a vote of approval or rejection, the situation involved political pressure and threats of parliamentary questioning. Consequently, the Council of Ministers decided to cancel the deal before the matter could reach a vote within the Assembly. The Council of Ministers then held an extraordinary meeting and decided to cancel the deal just days before its scheduled implementation. Subsequently, Kuwait Petrochemical Industries Company paid approximately $2 billion in penalties as part of a final settlement following an international arbitration award, equivalent to 600 million Kuwaiti dinars.
There is no doubt that Kuwait’s investment image at the time was damaged by resorting to international courts after canceling a previously signed agreement. This resulted in financial losses for the Kuwaiti side and had a negative impact on the reputation of Kuwait’s international investment environment.
The important lesson linking the “Dow” case to any new strategic project, such as the recently announced “Shahin” project deal, is that investment requires not only economic feasibility but also political decision-making stability. In such major economic steps, the primary and crucial requirement for a state to sign billion-dollar agreements is international confidence in the investment environment. The losses from backing out of or canceling a deal are not merely financial; there are negative repercussions for confidence in Kuwait’s investment climate.
The terms of the “Shahin” project deal stipulate that ownership of Kuwait’s oil pipelines and operational control over them remain entirely with Kuwait Oil Company (KOC). The pipelines are leased and re-leased, with Kuwait retaining a 51% stake in the joint venture and the investment alliance holding 49%, aimed at providing liquidity to finance capital projects.
What do the “Dow” and “Shahin” deals have in common? Perhaps the most important lesson linking the two deals, as mentioned above, is that any new strategic project or international investment requires not only economic feasibility but also political decision-making stability. In such major economic steps, it becomes clear that the cost in such cases is not merely financial, but extends to international confidence in the investment environment.
If the National Assembly were in place today with the same composition it had in 2008, newspaper pages would be crowded with heated parliamentary sessions, motions of no confidence, and investigations. The project might not have been rejected, but it could have been delayed for many months. Such delays would likely have pushed it through a more difficult and controversial political phase, consuming many months of time.
Following the announcement of the “Shahin” deal, reactions varied between supporters and opponents, involving both those well-versed in the subject and those unfamiliar with it.
We conclude that the problem is not always in signing or canceling a contract, but rather in how the decision is managed from its initial steps, and in the transparency of explaining and disseminating information through all available channels. The question remains valid and pertinent: Would the “Shahin” project deal have become another “Dow” scenario if the National Assembly were present today with its current composition? I leave the answer to you.
Iqbal Al-Ahmad
