PUBLIC VERSION

H. EO Supply Agreement—Increased Flexibility and Control for Ineos

Several amendments provide Ineos with increased flexibility and control over its
purchases and payments under the EO Supply Agreement.

Ineos’ right to access other supply options during times of diminished EO supply
from Dow has been expanded in order to respond to Ineos’ goal of increasing the practicality of
the swap option under the Agreement. An expanded set of circumstances under which Ineos can
seek other EO supply options, a significantly reduced (from seven days to two days) notice
period for Ineos to alert Dow that it is pursuing such an option, and a timeframe for the other
supply option that runs through the expected (if later than actual) duration of reduced supply will
minimize the effects on Ineos of any problem with Dow’s supply (amended EO Section 3.1).

I Summary

The proposed amendments to both Agreements further enhance Ineos’ already
strong position as an ethanolamines and branded MDEA competitor. The acquisition of Dow’s
Global Ethanolamines Business and Dow’s Gas Spec MDEA Business was strategic and
beneficial for Ineos, complementing Ineos’ existing EO and EO derivatives businesses, and was
beneficial to competition. The construction of a world-scale ethanolamines plant by Ineos in
Antwerp confirms that the divestiture created a vigorous and growing competitor. The proposed
amendments further bolster Ineos’ ability to compete. The purpose behind and pro-competitive
result of the amendments is discussed in greater detail in Confidential Appendix B (for the
GAS/SPEC Supply Agreement amendments) and Confidential Appendix D (for the EO Supply
Agreement amendments), which also show in “redline” format each of the actual changes to the

Agreements.

14




PUBLIC VERSION

in the production of ethanolamines at Ineos’ ethanolamines plant in Plaquemine, Louisiana.
Dow believes that the EO Supply Agreement, which was reviewed and incorporated into the
Order by the Commission, is consistent with the language and purposes of the Order. At the
request of Ineos in October 2001, Dow agreed to amend various terms of the EO Supply

Agreement (dated as of July 31, 2000), resulting in the “October 2001 Amended EO Supply

Agreement.”® In accordance with Commission procedure, Dow petitioned the Commission for
approval of the October 2001 Amended EO Supply Agreement and a consequent amendment to
the Order. After a thirty-day public comment period, the Commission approved the amended
Order on January 28, 2002.

Following further developments, and again at the request of Ineos, Dow has
agreed to amend the October 2001 Amended EO Supply Agreement. The “February 2005
Amendment No. 1 to the EO Supply Agreement” has been executed by Dow and Ineos, but will
not become effective until the Commission approves the proposed amendments (a copy is
provided at Confidential Appendix C). The purpose of the proposed amendments is to secure
continuing maximum availability of EO to Ineos and to limit the impact of future EO supply
interruptions (if any) at Dow’s Plaquemine EO plant. The proposed amendments should permit
Ineos to become an even more reliable supplier of ethanolamines and an even more effective
competitor to other ethanolamines producers. A summary of the amendments is provided at

Confidential Appendix D.

5 A copy of the existing EO Supply Agreement is provided at Confidential Appendix F.


PUBLIC VERSION

CONFIDENTIAL APPENDIX C
February 2005 Amendment No. 1 to the EO Supply Agreement

[REDACTED]


PUBLIC VERSION

CONFIDENTIAL APPENDIX F
Existing EO Supply Agreement as Amended October 2001

[REDACTED]


PUBLIC VERSION

CONFIDENTIAL APPENDIX D
Proposed Amendments to EO Supply Agreement

[REDACTED]




PUBLIC VERSION

The protections for Ineos built into the Unplanned Outage provision are intended
to make Ineos whole if such circumstances occur. And Dow certainly has its own strong
incentives for keeping the Plaquemine EO plant operational and avoiding Unplanned Outages or
any other decrease or interruption in supply. Specifically, Dow relies on the Plaquemine plant
for a key input into Dow’s EO derivatives businesses.

Cc. Negotiated Dispute Resolution

Amendments to both Agreements establish a negotiated dispute resolution system
that will quickly put high-level Dow executives into close communication with high-level Ineos
executives in order to efficiently diffuse and resolve any future disputes.

The systems established in amended GAS/SPEC Article 24 and amended EO
Article 26 require Dow and Ineos to communicate and cooperate earlier and more often through
specified tiers of negotiation in order to resolve disputes and, ultimately, to avoid litigation.
More cooperative and effective dispute resolution will prevent unnecessary distractions that
could affect Ineos’ ability to compete in the production of MDEA and ethanolamines.

D. Minimization of Force Majeure Events and Effects

Amendments to both Agreements “raise the bar” on what constitutes a Force
Majeure Event. The amended definition of Force Majeure Event in both Agreements is
narrowed to include only “significant and material” breakages or accidents to machinery (thereby
limiting the possibility of invocation of a Force Majeure Event by either Party) and to include
only “similar” causes that were not specifically listed in the provision rather than simply “other”
causes. The amendments also limit the period of performance excused to a Force Majeure Event

in that it now commences upon notification by the Party experiencing the event, as requested by

10


PUBLIC VERSION

revising the capital contribution mechanism;

improving the dispute resolution system;

adjusting certain contract terms annually, which provides a substantial
economic benefit to Ineos;

responding to Ineos’ desire to reduce its purchases of MMEA (a by-
product of MDEA production);

increasing Ineos’ flexibility to access other supply options;

narrowing the conditions under which force majeure may be declared; and
improving communication and creating transparency through annual
budgeting and reporting, periodic meetings, and full reconciliation on

accounts and calculations.

As described more fully below, highlights of the amendments to the EO Supply

Agreement are:

A.

narrowing the conditions under which force majeure may be declared;
planning ahead to avoid disputes and maintain reliable supply to Ineos, as
with the “Unplanned Outages” section;

improving the dispute resolution system; and

shifting to pricing formulas that are more objective and transparent, and
thus less likely to create suspicion or disputes.

Improved Transparency and Communication

One goal of many of the amendments to both Agreements is to increase

transparency for Dow and Ineos and improve communication between them in order to reduce

the likelihood of disputes.


PUBLIC VERSION

I. Proposed Amendments Strengthen Ineos as a Reliable Ethanolamines and MDEA
Competitor

The amendments proposed herein are the result of extensive good faith
negotiations between Dow and Ineos, communications with the Monitor Trustee, and early
discussions with the FTC Bureau of Competition’s Compliance Division? The amendments
reflect the knowledge that Dow and Ineos have gained since the divestiture about the integration
of their businesses, the operation of the Agreements, and the requirements of their customers.
Dow is now better able to understand Ineos’ concerns and has been responsive by taking on
substantial additional obligations to Ineos. Ineos sought increased reliability of supply, and both
Dow and Ineos (collectively “the Parties”) are endeavoring to minimize the likelihood and
significance of future disputes. Both goals have been accomplished.

Through the proposed amendments that clarify, simplify, and make transparent
certain matters related to the Parties’ ongoing rights and obligations under each Agreement, Dow
and Ineos have laid the groundwork for a more stable relationship that will enable more
productive operations, result in fewer disputes, and require less time to resolve any disputes that
do arise. Dow’s ultimate goal in amending the Agreements was to not only resolve current
issues identified by Ineos, but also to do so in a way that would avoid future issues during the
course of the Dow-Ineos relationship.

As described more fully below, highlights of the amendments to the GAS/SPEC
Supply Agreement are:

e clarifying cost calculations;

° A copy of the proposed Settlement Agreement reached by Dow and Ineos with regard to the amendments to

the GAS/SPEC Supply Agreement and EO Supply Agreement is provided at Confidential Appendix G.


PUBLIC VERSION

CONFIDENTIAL APPENDIX B
Proposed Amendments to GAS/SPEC Supply Agreement

[REDACTED]


PUBLIC VERSION

unscheduled outages by taking on additional obligations. For example, the amendments allow
Ineos to more easily secure EO supply during such an event (amended EO Sections 3.1, 3.3).
The amendments also allow Ineos to secure supplemental EO at prices acceptable to Ineos.

Dow and Ineos have created a new defined term in the EO Supply Agreement,
“Unplanned Outages,” and a provision regarding such circumstances in order to deal
preemptively with the Parties’ rights and obligations during unexpected, limited-duration plant
outages that could arise over the course of the Agreement (amended EO Article 30). The
addition of an Unplanned Outages provision is an example of the Parties’ efforts to plan in
advance for future contingencies while they are calm and not embroiled in crisis, in order to
avoid disputes escalating unnecessarily.!°

Dow’s obligations to supply Ineos during Unplanned Outages are described in
detail, and the pricing and other terms during Unplanned Outages are favorable to Ineos. During
the first five days of an Unplanned Outage, Dow must supply Ineos with EO as usual. After the
first five days, there are additional mechanisms to shift the risk of loss from Ineos to Dow. Ineos
also has increased flexibility to seek other supply options and honor its time-swap commitments
during an Unplanned Outage (amended EO Article 30 and Section 3.1). If an Unplanned Outage
(or Outages) lasts longer than prescribed time periods in a calendar year, Ineos may elect to
deem the excessive portion of the breakdown or outage not an Unplanned Outage, and thus Dow
would not be relieved of its ordinary obligations under the Agreement (amended EO Section
30.1). If Dow is unable to supply the required amount of EO to Ineos during an Unplanned

Outage, Ineos has additional rights that are very favorable to Ineos (amended EO Section 30.3).

'° While Dow sought the Unplanned Outages provision to deal specifically with a set of circumstances that could

arise involving very short-term interruptions of supply, Ineos was able to secure significant supply and
compensation guarantees in the provision, resulting in an amendment that benefits both Parties.


PUBLIC VERSION

CONFIDENTIAL APPENDIX E
Existing GAS/SPEC Supply Agreement

[REDACTED]


PUBLIC VERSION

apy TRADE CON,
LF veceven oni)

%

UNITED STATES OF AMERICA
BEFORE THE FEDERAL TRADE COMMISSION

In the Matter of

The Dow Chemical Company,

a corporation, and Docket No. C-3999

Union Carbide Corporation,
a corporation.

PETITION OF THE DOW CHEMICAL COMPANY
FOR APPROVAL OF CERTAIN AMENDMENTS
TO THE INEOS AGREEMENT

Pursuant to Section 2.41 of the Federal Trade Commission (“Commission”) Rules
of Practice and Procedure, 16 C.F.R. §2.41 (2005), The Dow Chemical Company (“Dow”)
hereby petitions the Commission to approve certain amendments to the Ineos Agreement, which
is incorporated into the Decision and Order (the “Order”) in the above-captioned matter.!

The proposed amendments have been agreed to by Ineos. This petition describes
the terms of the proposed amendments and explains how the proposed amendments further the
purposes of the Commission’s Order.

For the convenience of maintaining the public record, Dow is submitting this
petition in two versions—one that includes confidential and proprietary information (the

“Confidential Version”) and another that is the same as the Confidential Version, but with

' All capitalized terms used but not otherwise defined in this petition have the meanings ascribed to them in the

Commission’s Order.


PUBLIC VERSION

experienced by Ineos when it missed an important adjustment deadline, an oversight for which
Dow has agreed to make a retroactive adjustment not required by the existing Agreements.

A sample calculation of certain costs is included as a schedule to the GAS/SPEC
Supply Agreement for added clarity, eliminating the opportunity for ambiguity and suspicion
between the Parties.

In a significant economic concession by Dow, the Parties have agreed to a new
mechanism to determine Ineos’ capital contribution. In addition to the prospective application of
this mechanism, Dow has agreed to cover a prior Redacted capital improvement at the plant
that, through the negotiation of the amendments, Dow has now agreed to fund completely
notwithstanding the fact that Ineos derives a substantial economic benefit estimated by Dow to

Redacted

be around per year from this capital project.

F. GAS/SPEC Supply Agreement—Increased Flexibility and Control for
Ineos

Through several amendments to the GAS/SPEC Supply Agreement, Ineos gains a
greater voice and control in the operation of the Agreement.

For instance, a certain price definition is amended to give Ineos control over the
determination of this component of the product price formula. Ineos also has the flexibility to
reduce its purchase of MMEA (a by-product of MDEA production), as Ineos sought through the
amendment process to reduce its MMEA offtake, and negotiate with Dow to find a beneficial
way to deal with excess MMEA that may be created due to fluctuations in Ineos’ customers’
requirements (amended GAS/SPEC Sections 2.2(d) and 2.4). And the amendment to GAS/SPEC
Section 3.1 allows Ineos additional supply options.

Through other amendments, Ineos will gain the ability (1) to verify Dow’s pricing

calculations for certain costs and benefit from periodic and ongoing adjustments and

12


PUBLIC VERSION

Ineos as a change from the prior language, “for the duration,” of the event (amended GAS/SPEC
Section 14.1; amended EO Section 16.1).

The amendments to the EO Supply Agreement go even further with additional
protections for Ineos during Force Majeure Events. The proposed amendment to Section 16.9
strengthens the protections granted to Ineos in the October 2001 amendment to that Section.
Dow will now be obligated to indemnify Ineos against the costs, expenses, and losses incurred
by Ineos during any five days of the Force Majeure Event, rather than during the first five days.
Ineos pursued, and achieved, this greater right of indemnification because in the past Dow has
generally been able to meet a large portion of Ineos’ EO needs during the first five days of a
Force Majeure Event. Ineos will now be able to receive indemnification for any five days it
chooses, i.¢., those days on which its needs are not being met by Dow.

E. GAS/SPEC Supply Agreement—Clear, Certain and Transparent
Pricing

Motivating the changes to the pricing and cost terms in the GAS/SPEC Supply
Agreement is the desire for simplicity and transparency. The amendments related to pricing
allow Ineos control and choice in price determinations, clarify an important cost determination,
and result in better pricing for Incos.

For instance, certain cost definitions are amended in order to clarify that
calculations should be made by quarter in response to Ineos’ concerns that monthly cost
calculations cause pricing spikes.

The definition for certain contract terms is also amended to reflect yearly
adjustments for cost determinations (amended GAS/SPEC Supply Agreement Section 3.2),

resulting in product price adjustments for Ineos. Yearly adjustments will avoid the situation

il


PUBLIC VERSION

In both Agreements, transparency is enhanced through changes to how prices are
determined. In particular, several of these pricing formulas are now more objective and readily
verifiable, and thus less likely to lead to suspicion and disputes.

Communication should also be improved by the introduction of Article 31 in the
GAS/SPEC Supply Agreement, which provides for representatives of Dow and Ineos to meet on a
regular basis to discuss issues regarding the facility, product, and operations under the
Agreement. The importance placed on regular communication should reduce the likelihood of
disputes and the possibility of interruption of Ineos’ supply to its customers. In fact, Dow and
Ineos representatives have already begun meeting quarterly while approval of the amendments is
pending.

Amendments to both Agreements increase the confidentiality protections of
Dow’s and Ineos’ proprietary business information exchanged in order to make certain
calculations under the Agreements (amended GAS/SPEC Section 18.6; amended EO Section
20.6). Such heightened protection allows Dow and Ineos to exchange information more freely
and comfortably.

B. Greater Supply Reliability and Protection for Ineos

Several of the amendments to both Agreements are intended to provide greater
protection to Ineos during times of interrupted supply from Dow.

The amendment to GAS/SPEC Supply Agreement Section 2.3 gives Ineos
additional flexibility to secure EO supply at times when Dow cannot assure supply.

Several of the proposed amendments to the EO Supply Agreement deal with the
effect of “Force Majeure Events,” unscheduled outages, or other similar events on Ineos. Dow’s

intention with these amendments is to grant additional protections to Ineos during such






PUBLIC VERSION

total volume from these sites.> Indeed, as early as July 2001, Ineos joined the ranks of the
Global Top 50 chemical producers (ranked by Chemical & Engineering News).®

A. Amendment of GAS/SPEC Supply Agreement

As part of the divestiture of the Dow Gas Spec MDEA Business, Dow and Ineos
entered into the GAS/SPEC Supply Agreement under which Dow supplies Ineos with
GAS/SPEC solvent, solvent additive, and solvent and MDEA. Dow believes that the GAS/SPEC
Supply Agreement, which was reviewed and incorporated into the Order by the Commission, is
consistent with the language and purposes of the Order. In response to issues raised by Ineos,
Dow and Ineos have agreed to amend the GAS/SPEC Supply Agreement, dated as of July 31,
2000 (and amended as of January 11, 2001).’ The “February 2005 Amendment No. 1 to the
GAS/SPEC Supply Agreement” has been executed by Dow and Ineos, but will not become
effective until the Commission approves the proposed amendments (a copy is provided at
Confidential Appendix A). The purpose of the proposed amendments is to secure maximum
availability of GAS/SPEC solvent and MDEA products to Ineos at fair prices and reduce any
unnecessary financial burden on Ineos. These amendments will enable Ineos to become a more
reliable supplier of MDEA and a more effective competitor in that business. A summary of the
amendments is provided at Confidential Appendix B.

B. Amendment of EO Supply Agreement

As part of the divestiture of the Dow Global Ethanolamines Business, Dow and

Ineos also entered into the EO Supply Agreement, by which Dow supplies Ineos with EO for use

5 INEOS Oxide, Snapshot, at http://www.ineos.com/businesses/buss frame. htm.

& Patricia L. Short, Ineos Springs into the Top 50: British Chemical Producer Makes Money Out of
Unfashionable Commodities, Chemical & Engineering News, Aug. 27, 2001, at 23-25.

7 A copy of the existing GAS/SPEC Supply Agreement is provided at Confidential Appendix E.


PUBLIC VERSION

Til. Conclusion

The terms of the February 2005 Amendment No. 1 to the GAS/SPEC Supply
Agreement with Ineos and February 2005 Amendment No. 1 to the EO Supply Agreement with
Ineos further the purposes of the Commission’s Order. Accordingly, Dow respectfully requests

that the Commission approve the proposed amendments as expeditiously as possible.

Respectfully submitted,

Brian Byme
Alina D. Eldred
Cleary Gottlieb Steen & Hamilton LLP

2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

Counsel for The Dow Chemical Company

15


PUBLIC VERSION

CONFIDENTIAL APPENDIX A
February 2005 Amendment No. 1 to the GAS/SPEC Supply Agreement

[REDACTED]


PUBLIC VERSION

is to ensure the continued operation of these businesses in the same businesses in which they
were engaged at the time of the acquisition by Dow of Union Carbide Corporation, and to
remedy the lessening of competition resulting from the acquisition as alleged in the
Commission’s complaint.

At the outset, it is important to note that these divestitures have achieved the
purpose of the Order. Indeed, Ineos has recently announced a large-scale expansion of its global
ethanolamines business, which is a tribute to the success of the divestitures. In particular, in
December 2004, Ineos Oxide announced its intention to expand its EO and EO-derivative
capabilities in Antwerp, with production commencing in early 2007.” The Antwerp expansion
will include a new 160 ktpa ethanolamines plant, equivalent to Ineos’ entire U.S. capacity.
Moreover, Ineos is a vibrant and growing chemical company that now has over €5 billion in
sales and over 10 million tons of volume;’ and the Ineos Oxide division (located in Antwerp,

Belgium; Plaquemine, Louisiana; and Freeport, Texas) is a €535 million business with 269 ktpa

2 INEOS Oxide CEO Bill Reid stated that “[tJhis is an important step forward in establishing INEOS Oxide as

one of the largest EO and derivative producers in the world. These investments have been under consideration for
some time as we have approached maximum plant occupacities [sic] both at Antwerp and our EOA facility at
Plaquemine Louisiana. Timing is now right to implement these initiatives, permitting us to support the growth plans
of our customers.” Press Release, INEOS Oxide: EO and Derivatives Expansion at Antwerp (Dec. 10, 2004), at
http://www.ineos.com/news/newsframeset.htm. At the same time, Ineos Oxide announced it was adding a fourth
reactor to its alkoxylation capabilities in Antwerp, and expanding the production capability for ethylidene
norbomene (ENB) at Antwerp. Press Release, INEOS Oxide Adds 4th Alkox Reactor (Dec. 10, 2004), at
http://www. ineos.com/news/newsframeset.htm; Press Release, INEOS Oxide Expands ENB Capacity (Dec. 10,
2004), at http://www.ineos.com/news/newsframeset.htm.

3 INEOS Oxide, Snapshot, at http://www.ineos.com/businesses/buss  frame.htm; Press Release, INEOS Oxide:
EO and Derivatives Expansion at Antwerp (Dec. 10, 2004), at http://www.ineos.com/news/newsframeset.htm.

4

Ineos Parent Company, Snapshot, af http://www.ineos.com/aboutus/aboutusframe.htm.




PUBLIC VERSION

certain confidential and proprietary information redacted and Confidential Appendices A through
G redacted (the “Public Version”). Pursuant to Section 21 of the Federal Trade Commission
Act, 15 U.S.C. §57b-2, and the Commission’s Rules of Practice 4.10-4.11, 16 C.F.R.
§§4.10-4.11, Dow hereby requests that certain information provided in this petition and all of the
information and documents provided in Confidential Appendices A through G be treated by the
Commission as strictly confidential and not be made available to the public. Portions of this
petition and Confidential Appendices A through G contain commercially and competitively
sensitive information relating to the Dow Global Ethanolamines Business and the Dow Gas Spec
MDEA Business, which were divested to Ineos. Disclosure of the information contained herein

to the public will prejudice Dow and Ineos.

I Proposed Amendments to Ineos Agreement

Pursuant to paragraphs III.A and IV.A of the Order, on February 12, 2001, Dow
divested, absolutely and in good faith, as an ongoing business, the Dow Global Ethanolamines
Business and the Dow Gas Spec MDEA Business to Ineos in accordance with the Ineos
Agreement. Since the divestiture, Dow believes it has complied with its obligations under the
Ineos Agreement, including the supply agreement by which Dow supplies GAS/SPEC solvent,
solvent additive, and solvent and MDEA to Ineos for use in the production of MDEA-based

specialty amines for gas processing industries (the “GAS/SPEC Supply Agreement”); and the

supply agreement by which Dow supplies ethylene oxide (“EQ”) to Ineos for use in the
production of ethanolamines at Ineos’ plant in Plaquemine, Louisiana (the “EO Supply
Agreement”),

As stated in paragraphs IIL.C and IV.C of the Order, the purpose of the

divestitures of the Dow Global Ethanolamines Business and the Dow Gas Spec MDEA Business


PUBLIC VERSION

CONFIDENTIAL APPENDIX G
Proposed Settlement Agreement (February 24, 2005)

[REDACTED]


PUBLIC VERSION

recalculations to the prices Ineos pays for product (amended GAS/SPEC Section 29.1); (2) to
participate in an annual review and reconciliation process where payments are reconciled with
certain costs for the previous year, which could result in a credit back to Ineos if the amount it
was charged exceeds the recalculated amount (or a credit to Dow if the opposite is true)
(amended Section 29.2); and (3) to review Dow’s annual operating plan for the Freeport MDEA
plant and provide input on the future direction of that plant (amended Article 30). The last
provision is designed to alleviate Ineos’ concerns about the planning process and future capital
spending process for the Freeport MDEA plant because regular meetings mandated by the
Agreement will keep Ineos involved and knowledgeable about potential significant changes to
the plan and allow Ineos to voice input on the plan.

With regard to one particular product quality issue, Dow and Ineos have agreed to
work together to resolve possible product discoloration problems.

G. EO Supply Agreement—Fixed Formula Pricing

Several amendments to the EO Supply Agreement will result in relevant prices
being determined by objective fixed formulas, rather than by definitions of certain costs (which
had caused confusion and pricing discrepancies in the past). Certain cost definitions have been
amended and are now based on objective and verifiable inputs. With these changes, it is no
longer necessary for the Parties to obtain potentially sensitive competitive information from each
other in order to make certain cost-based calculations.

New EO Supply Agreement Section 5.7 describes “Principles of Calculation” by
excluding EO purchase and ethanolamines production figures that occur outside the normal
course of business from calculations of average course of business figures. This exclusion will

impact relevant forecasts and should reduce the prices paid by Ineos.

13