Thus far but no further

HAVING spent the past three years trying to woo Asian investors, Stephen Harper, Canada’s prime minister, would have looked foolish had he snubbed the first significant show of interest, a $15.1 billion bid by China’s CNOOC, a state-owned oil giant, for Nexen, a smallish oil company whose main property is in Alberta’s tar sands. But he also had to appease public opinion and some members of his own Conservative Party who opposed the takeover, either because CNOOC is state-owned or because of China’s human-rights record.

On December 7th Mr Harper tried to square the circle, approving the CNOOC deal and a smaller bid for a Canadian gas producer by Petronas, Malaysia’s state energy company, but adding that future acquisitions by government-controlled companies would face greater scrutiny. Deals such as the Nexen takeover that involve majority stakes in the tar sands will be banned, save in exceptional circumstances. “When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments,” Mr Harper said. The Toronto stock exchange, dominated by natural-resource companies, celebrated the Nexen deal with a rise in its index. Opposition parties saw little advantage in attacking the prime minister over the announcement.

Chinese firms had been quietly buying up small firms, and small stakes in larger companies. A $2.1 billion bid by CNOOC for OPTI Canada, Nexen’s smaller partner in a tar-sands project, was approved by the government without fuss last year. But the Nexen bid attracted widespread criticism. It did not help that a private Chinese-controlled mining firm operating in British Columbia has attracted opprobrium by importing temporary Chinese workers and paying them less than Canadian miners.

With the purchase of Nexen, China’s government will control almost 10% of oil extraction in the tar sands. That is likely to be the limit. A vaguely worded “net-benefit” test, which proposed deals must pass under the Investment Canada Act, gives the government plenty of wriggle room to reject foreign bidders on political grounds, as it seemed to do in 2010 when it rebuffed a bid by BHP Billiton, a London-based mining giant, for Potash Corporation, after the premier of Saskatchewan complained.

The “exceptional circumstances” required for future tar-sands purchases are vague. The industry minister, whose department reviews investments, refused to define the term or give examples of when the provision would be used. The aim may be to give Canada more bargaining power with foreign governments, says Daniel Schwanen of the C.D. Howe Institute, a think-tank. Canadians grumble that, although Chinese firms can buy Canadian mining and hydrocarbons companies, the reverse is not true. The effect of Mr Harper’s decision may be that less Chinese foreign investment, which totalled $75 billion worldwide last year, comes Canada’s way in future.

Original Article
Source: economist
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