Harper Says Canada Needs Foreign Investment Discretion

Prime Minister Stephen Harper says Canada shouldn’t be totally transparent on the rules it uses to review investment by foreign state-owned companies.

Harper, who has faced pressure to clarify last year’s decision to stem investment by state-owned companies in Canada’s oil sands, said it would be “foolish” not to have a “margin” of discretion in the review process, beyond formal rules.

“It is absolutely necessary, when the investor is a foreign government, for the government of Canada to be able to exercise its discretion and have direct conversations with those foreign investors,” Harper said. “When you are dealing with large state investors -- foreign governments as the investor -- I think it would be foolish for the Canadian government to provide absolute clarity.”

Harper imposed new rules last year for investment in Canada’s oil sands, limiting takeovers of Canadian companies by state-owned enterprises. Since then, announced deals in the oil and gas sector have shrunk to $7.3 billion this year from $55 billion in 2012, including Cnooc Ltd.’s $15.1 billion acquisition of Calgary producer Nexen Inc.

Investment by Chinese state-owned companies in Canada’s energy industry, which amounted to C$33 billion in the seven years ending in 2012 according to Canadian Imperial Bank of Commerce, “has now essentially stopped,” Jim Prentice, vice chairman of the bank and a former Canadian industry minister, said in a speech last month in London.

‘Measure of Clarity’

Prentice called for “a measure of clarity” regarding Canada’s position on investment from state-owned companies, according to a text of the speech.

The government in December approved Cnooc acquisition of Nexen as well as the C$5.2 billion purchase of Progress Energy Resources Corp. by Petroliam Nasional Bhd., Malaysia’s state-owned energy.

At the time the government said it will “carefully monitor” deals involving state-owned enterprises in the world’s 11th-largest economy and will “act to safeguard Canadian interests” when it appears that such acquisitions will “undermine the private sector orientation of an industry.”

Shares of smaller oil-sands developers such as Calgary-based Athabasca Oil Corp. are lagging behind peers after the government introduced rules to block state-owned buyers from purchasing oil-sands companies. Athabasca stock has declined 37 percent since the rules were made public on Dec. 7, versus an 8.8 percent gain on the Standard & Poor’s/TSX Energy Index.

‘Considerable Uncertainty’

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, Admiral Nirmal Verma, India’s high commissioner to Canada, said in May at a conference in Calgary. The changes “add considerable uncertainty,” Verma said.

Speaking to business students in Toronto today, Harper said that while the nation is open to foreign investment he wouldn’t want to see entire sectors of the economy be “predominately” owned by foreign states.

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