Changes to Canada’s rules governing investment by foreign state-owned enterprises may discourage Indian oil companies from participating in projects to ship natural gas from the North American country, India’s top diplomat in Ottawa said.
Indian state-controlled energy companies, seeking to meet domestic demand for the heating and power-plant fuel, want to source natural gas from Canada, Admiral Nirmal Verma, India’s high commissioner said today at a conference in Calgary. Revisions to the Investment Canada Act may stop companies from buying stakes in export projects, Verma said.
Canada plans to amend rules to broaden its definition of a state-owned company and give the government more power to shield domestic businesses from takeovers. There are at least 10 potential proposals to freeze and export liquefied natural gas in tankers from Canada, to tap higher prices in Asia as output from North American shale formations has lowered prices there.
The proposed changes “add considerable uncertainty for potential investments” in LNG, Verma said. “Indian companies look forward to opportunities to acquire equity interests in some of the upcoming LNG projects in Canada.”
Finance Minister Jim Flaherty introduced a law last month that would change the nation’s foreign-takeover rules to implement the policy on state-owned enterprises, which was announced in December.
The Canadian government said last year it would toughen scrutiny of acquisitions of Canadian companies by state-owned firms, after it approved the takeovers of Calgary-based oil and gas producer Nexen Inc. by Cnooc Ltd. (883) of China for $15.1 billion and the C$5.2 billion ($5.17 billion) purchase of Calgary’s Progress Energy Resources Corp. by Malaysia’s Petroliam Nasional Bhd.
The changes expand the definition of state-owned firms to include individuals acting under the direction or influence of foreign governments, and give Canada’s industry minister greater discretion to determine if such firms have acquired control of a Canadian business.
The amendments go further than anticipated in attempting to curb the activities of state-owned enterprises, according to a May 2 research note from law firm Osler, Hoskin and Harcourt LLP.
“People can structure things in a very clever fashion to make them look like a minority, but really they’re not,” Peter Glossop, a partner at the Toronto-based firm, said by telephone last week. “This does put people on notice that transactions are going to be scrutinized very closely.”
“India has mainly national companies,” Vivek Pandit, senior director at the New Delhi-based Federation of Indian Chambers of Commerce and Industry, said in an interview. “There is a regulatory hurdle in Canada about limiting the investment in national oil companies in Canada.”
Indian oil companies are in the “initial days” of looking at investment in Canadian LNG, said A.M.K. Sinha, director of planning and business development on the board of state-controlled Indian Oil Corp., the nation’s biggest refiner. Regulatory issues need to be resolved before the companies invest, Sinha said at a conference today in Calgary, declining to define his concerns. He also said pipelines are needed to carry Canadian energy products to the Atlantic coast.
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