Conference Board of Canada chief economist Glen Hodgson said that the federal government’s review of the Nexen takeover was an opportunity to develop policy for future acquisitions, particularly when it comes to state-owned enterprises that can have a “distorting force” on the Canadian economy.
“I think it’s better to get the policy framework right, than to have a decision out,” Mr. Hodgson said on the eve of Industry Minister Christian Paradis’ (L’Érable-Mégantic, Que.) decision to extend the review last week. “Stretching it to November probably wouldn’t hurt, and it may well allow the government to shape an overall better policy... . Think about the criteria that you’d actually apply to the Nexen deal, and then think about whether it’s time to review the whole act.”
The CNOOC announced its $15.1-billion bid for Calgary-based oil sands developer Nexen on July 23. Nexen shareholders, offered a 60 per cent premium on their shares in the company, approved CNOOC’s offer on Sept. 20, but Prime Minister Stephen Harper’s Cabinet will have the final say on the foreign takeover.
Under the Investment Canada Act, the Industry Minister has 45 days from the date of application to determine whether a foreign acquisition is of net benefit to the Canadian economy. CNOOC applied for review on Aug. 29, and Mr. Paradis announced on Oct. 11 that the government was extending the review by 30 days. The government now has until Nov. 10 to approve or reject the offer, which will give CNOOC 100 per cent control of Nexen. Further extensions require approval by the Industry minister and the applicant.
Mr. Hodgson said that the government should use the extra time to make foreign acquisition conditions more transparent, and prepare for future acquisitions.
“Here’s a chance to get the policy framework right. If you need another month, take the month, but don’t take six, because then you’re gumming up the perception of Canada as an investment friendly destination,” Mr. Hodgson said.
Mr. Hodgson recommended that the government place conditions on CNOOC to operate as a commercial enterprise, and include a national security test within the net benefit test for foreign investment.
CNOOC included a number of concessions in its initial offer, including establishing headquarters in Calgary, boosting capital investment in Nexen, and retaining Nexen’s management team.
Brian Lee Crowley, managing director of the Ottawa-based Macdonald Laurier Institute think tank, agreed that the government needed to take more time to consider the implications of the deal.
“I think that the Nexen deal cannot be looked at in isolation. It’s very clear that there are a number of other Chinese state-owned enterprises that will be in the market immediately, looking to buy other pieces of the oil patch,” Mr. Crowley observed.
“We have to assume that this is potentially the first such transaction of many, and we must ask ourselves what the consequences of that might be, and if those consequences are ones that we would be happy with.”
Mr. Crowley said he was particularly concerned that the government would approve the deal without requiring CNOOC to make further concessions.
“I think we would be communicating to the Chinese a position of weakness, which I think the Chinese would be quite happy to exploit. I think it’s very important that we indicate to the Chinese and others that we will look very seriously at Canada’s national interest,” warned Mr. Crowley, who said that the national security considerations should outweigh economic considerations.
“We have to ask ourselves whether or not Chinese state-owned enterprises are primarily economic actors or primarily representatives of the Chinese state. If it’s the latter I think that’s a completely different kind of transaction,” Mr. Crowley said.
The United States government is taking an increasingly hard line on Chinese companies operating within the U.S. in the lead up to the Nov. 6 presidential election. On Sept. 28, U.S. President Barack Obama cited national security concerns when he blocked China-based Ralls Corp. and Sany Group from acquiring and developing wind farms near U.S. naval facilities in Oregon.
It was the first time that the U.S. government had rejected a foreign investment since 1990, although in 2005 CNOOC was forced to abandon its $18.5-billion bid for U.S. oil and gas company Unocal due to strong opposition from the U.S. Congress and the Committee on Foreign Investment.
The committee, which is currently chaired by Treasury Secretary Timothy Geitner and reviews the national security and economic implications of foreign acquisitions, may attempt to block CNOOC from acquiring Nexen’s U.S. assets in the Gulf of Mexico.
National security concerns over Chinese firms operating in Canada re-emerged last week after the U.S. House Intelligence Committee released a report accusing Chinese telecom companies Huawei and ZTE of manufacturing equipment that spies on U.S. communications. The report advised against doing business with the two companies.
Huawei has headquarters in Markham, Ont., and research and development facilities in Ottawa. The firm supplies hardware to Bell, Telus, and Sasktel, and is eligible to bid on federal contracts.
Ray Boisvert, former assistant director of the Canadian Security Intelligence Service (CSIS), told The Hill Times that there were national security concerns with CNOOC’s bid for Nexen, but not on the same level as concerns with Huawei.
“As one investment deal, I don’t think anybody could find any strong objection in the sense that it’s a direct threat to national security,” Mr. Boisvert observed. “But if you wanted to pause and take a look at it in the context of a number of other investments made by Chinese state-owned enterprises in the oil and gas sector, you might start identifying a trend, and you might start wondering if this is okay. Do we want a good portion of the oil and gas sector to be owned by essentially one country?”
Mr. Boisvert, who will speak on national security and the Nexen takeover at an Oct. 17 Macdonald Laurier Institute event in Ottawa, said the government was “wise” to take more time to review the deal.
Mr. Boisvert said that numerous assessments of Chinese state-owned enterprises and People’s Republic of China (PRC) espionage activities were conducted during his time at CSIS, but he could not confirm whether the agency had done any work specifically on CNOOC following its takeover bid. Mr. Boisvert left the agency in April after a 28-year career to start his own security consulting firm.
“You now have a number of monolithic state-owned enterprises which are now gobbling up a big chunk of some strategic areas,” Mr. Boisvert said. “[T]here are national security considerations when you look at strategic resources, and I think oil and gas is at the top of the list. It’s certainly at the top of the list of the PRC.”
Original Article
Source: hill times
Author: CHRIS PLECASH
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