The feds are getting high marks for their handling of the Nexen takeover, but observers say the government will need to use policy to make up for a potential drop in foreign investment by state-owned enterprises.The Harper government has clearly signalled its preference for private foreign investment after announcing that it plans to introduce new rules aimed at limiting controlling ownership by foreign state-owned enterprises (SOEs) in the oil sands.
Already subject to the net benefit test laid out in Sec. 20 of the Investment Canada Act, investments giving foreign SOEs controlling interest in Canada’s oil sands will in the future be granted “on an exceptional basis only,” according to the latest guidelines from Industry Canada.
In addition to determining whether or not an acquisition is of net benefit to the Canadian economy, the Industry minister will also assess foreign SOEs based on their commercial orientation, participation by Canadian citizens within the corporate structure, and whether the acquisition will have a positive impact on R&D and capital expenditure in Canada.
The government also intends to keep the Investment Canada Act review threshold for foreign investments by SOEs at $330-million, while raising the review threshold for private foreign investment to $1-billion.
Glen Hodgson, senior vice-president and chief economist for the Conference Board of Canada, approved of the government’s position on foreign SOEs.
“We’re generally pleased with the decision because SOEs are different. They could be agents of foreign policy for foreign governments, and the rules are for setting out the elements of what a commercially based organization should look like and how it should behave,” Mr. Hodgson said, acknowledging that the restrictions could mean a short-term decrease in annual foreign investment in Canada.
“It may deter, but it might be the kind of deterrence that we need,” he said. “It hasn’t created an absolute barrier to investment in Canada, but it’s created a speed bump.”
Mr. Hodgson, former vice president of policy for Export Development Canada, said that the “next big question” for the government would be to address any potential decrease in foreign investment due to the SOE restrictions.
“If we’re not going to embrace foreign capital from state enterprises, what are we doing to ensure that we have adequate Canadian investment going into all parts of the economy,” said Mr. Hodgson. “What are we going to do now to ensure that we can mobilize Canadian savings and turn them into investment in resources, manufacturing, and services?”
The Canadian economy received nearly $607.5-billion in foreign investment last year, while outward investment totalled almost $684.5-billion.
Chinese investment in Canada has increased rapidly over the past decade, from $219-million in 2001 to $10.9-billion in 2011.
While the conditions around the approval of the Nexen takeover have not been officially disclosed, The Globe and Mail reported last week that the government had sought between $5-billion and $8-billion in further investment in oil and gas development by CNOOC as a condition for approving the takeover.
If the new guidelines are discouraging foreign investments in the oil sands, it wasn’t reflected last week as Chinese SOE PetroChina announced a $2.2-billion bid for 49.9 per cent of Calgary-based natural gas developer Encana.
John Capobianco, senior vice-president with lobbying firm Fleischman Hillard, said that the government’s handling of the Nexen deal and the introduction of new guidelines for foreign SOE investment in Canada provided greater clarity for investors.
He acknowledged that the government may see a short-term drop in foreign investment because of the announcement, but said that investors will need to think about how they can make offers more appealing to Ottawa if they want controlling interest in an operation in a strategic resource sector like the oil sands.
“They really have to make a case and believe that if they’re going to make the play for a Canadian resource company, or any Canadian operation, that in their mind it has to be considered exceptional for what they think will benefit Canada — not themselves, so much, because that’s obviously a given,” he observed.
Mr. Capobianco, whose firm successfully lobbied against Australian company BHP Billiton’s $39-billion hostile takeover bid for Saskatchewan’s Potash Corp in 2010, did not expect the decision to do long-term harm to Canada’s ability to attract foreign investment.
“The Prime Minister has single-handedly been responsible for more international, bilateral trade deals than any other prime minister in recent history. I think that strategy will certainly help in the long run, and will encourage foreign investment in areas and ways that are far more appropriate and less threatening to the Canadian economy,” he said.
Original Article
Source: hill times
Author: CHRIS PLECASH
No comments:
Post a Comment