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Dow Chemical in Indonesia Case

             In 1975, Dow Chemical started to seek for a participation in a petrochemical facility in Indonesia. The initial propose was based on a joint venture with Pertamina, the state oil company. However, by 1976, as Pertamina fell into financial difficulties, the government assumed its debts and took the control of its operations. Under the new administration, Dow was offered a possibility of a "Contract of Work" rather than the joint venture initially proposed.
             Dow's original plan was modified to adjust to the government's requirements and a new proposal was presented. According to the company, in order to ensure the success of the project, Dow and the government would have to support the project with their respective resources. The government would sell ethane and fuel gas to the project "at prices such that the venture could be economically competitive", and provide local know-how and protection from import-competition. In turn, Dow would be responsible for the petrochemical technology, training, market development expertise, key expatriate staff, and financial resources. .
             Dow also emphasized some trading and economic factors that would constitute opportunities for the project. First, Indonesia represented a large market (its population was estimated at more than 130 million). The domestic market was currently being supplied by imported petrochemicals taxed at 24%, which put upward pressure on prices. Second, petroleum exports accounted for almost two-thirds of Indonesia export earnings and government revenues. Finally, the Indonesia's currency was overvalued by 20% in relation to the dollar. .
             According to Dow, the project's benefits to Indonesia include:.
             • Foreign exchange savings and earnings: Dow estimated that ten years after the start-up of the first plants the project would have saved Indonesia a cumulative net exchange sum of US $ 1.450 million.
             • Value added to hydrocarbons in Indonesia: Dow pointed that at full capacity the chemical complex would add an annual value of US $ 190 million to the hydrocarbons used as feedstock and fuel.

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