Kuwaiti legislators have demanded an investigation into collapsed joint venture proposal between Dow Chemicals of the US and the government-owned Kuwait petrochemicals company.

Media reports said MP Jamaan Al-Harbash has asked his colleagues to conduct a thorough investigation on the Dow Chemical project.

Dow Chemicals, meanwhile, has threatened to sue the state-owned Kuwaiti company for breach of contract and to claim damages of around $2.5 billion.

Reports also pointed to allegations of commission to the tune of $750 million paid for striking the deal, even as Dow claimed there are other prospective partners in the Gulf other than the Kuwaiti company.

Al-Harbash also said it was important that the actual reason behind the decision of the Supreme Petroleum Council (SPC) to sign the deal and later withdraw from it should be brought to light.

On 28 December, Kuwait's Supreme Petroleum Council (SPC) announced its decision to scrap a multi-billion-dollar deal with the US chemicals giant Dow Chemical

"The SPC met today under the chairmanship of Sheikh Nasser Mohammad Al-Ahmad Al-Sabah," an official statement said.

"SPC discussed the deal with Dow Chemical and reached the conclusion to scrap the deal and asked all concerned authorities to take necessary measures to implement the decision." the statement said.

While the cancellation of the deal is a setback for the US chemicals giant, a delay in the cancellation would have meant a $2.5 billion penalty on the Kuwaiti government, sources said.

The cancellation of the deal has hit Dow Chemicals' plan to use the proceeds to repay a large part of $13 billion debt needed to be raised for the acquisition of Rohm & Haas.

The Kuwaiti cabinet, meanwhile, said the deal was reviewed from all aspects and affirmed its feasibility and benefits "under normal circumstances." Major changes in the world economy, the serious impact of the global financial crisis on the assets of companies and the sharp slide in oil prices have added to the risks of going ahead with the deal, the statement said.