CNOOC-Nexen: the ghost of the National Energy Program stills haunts Ottawa
Approving Nexen takeover won't undermine free-market control of the oil patch, according to prime minister Harper.
Oil & Gas
mergers and acquisitions
OTTAWA—The spectre of the National Energy Program has struck again.
During the five months the Harper government spent agonizing over the CNOOC takeover of Calgary’s Nexen, Conservatives repeatedly came back to their entrenched hatred of the historic Liberal policy.
How, they said, could Ottawa possibly be expected to allow a foreign government to gain control over the country’s natural resources when they had just spent the past three or four decades prying their own government’s fingers off Canada’s oil?
Petro-Canada—and all that the Crown corporation came to represent about state control of the West’s oil—was finally fully privatized less than a decade ago.
And there was no way Conservatives would allow a foreign government to head back down that road, MPs told Stephen Harper.
When Harper came out to explain why he could allow CNOOC to take over Nexen, but that further state control of oilsands would be off limits, his key rationale echoed their thoughts to a T.
The CNOOC-Nexen deal wouldn’t undermine free-market control of the oil patch, he said. But other proposals from state-owned enterprises very well could.
“To be blunt, Canadians have not spent years reducing the ownership of sectors of the economy by our own governments only to see them bought and controlled by foreign governments instead,” Harper told reporters in one his longest news conferences in recent memory.
“That was never the purpose of the Investment Canada Act. It is not an outcome that Canadians would ever support. It is not an outcome any responsible government of Canada could ever allow to happen. We certainly will not.”
So as Harper sought to present his complex decision as an elegant and pragmatic solution to the challenge of growing foreign interest in the oilpatch, 40 years of Conservative politicking served as a springboard.
“It’s ideological in the sense that it’s looking back to the National Energy Program and Petro-Can, and saying ‘we’re not going to go back to the future,”’ said Fen Hampson, director of global security at the Centre for International Governance Innovation.
The problem with looking at the global economy through “Canadian sunglasses”, Hampson said, is that state-owned enterprises and other government-influenced investment funds are a huge source of foreign financing.
Their importance—through sovereign wealth funds and government-controlled pension funds as well as state-owned enterprises—is only going to grow. And not just from China and other emerging markets, but also from the Middle East, posing major quandaries for Conservatives.
But while Harper was clear that future out-and-out control of Canadian energy interests by foreign state-owned enterprises would no longer be easily acceptable, he did not entirely refuse to take their money under other circumstances.
While his formal statement to media stressed that oilpatch takeovers by foreign state-owned companies were off limits, the details issued by Industry Canada had a different emphasis.
“Non-controlling minority interests in Canadian businesses proposed by foreign SOEs, including joint ventures, will continue to be welcome in the development of Canada’s economy,” the government documentation states.
That’s where Harper’s revisions to the foreign investment regime are indeed elegant and pragmatic, said Howard Balloch, a former Canadian ambassador to China and now chairman of Canaccord Genuity Asia Ltd.
“We aren’t shutting the door on them. We’re saying we’re going to be more careful,” Balloch said in a phone interview.
Joint ventures are already commonplace in the global energy industry, including in Canada, and Harper’s new approach is signalling that that’s the way to the future, Balloch said.
“It clearly is trying to push state-owned enterprises into non-controlling minority interests,” he said.
Foreign companies that want a piece of Canada’s resources will just have to structure their deals in a way that doesn’t put them in the driver’s seat, he said.
And that’s something China can probably live with, he added.
“China is not interested in a stealth takeover of Canada. They’re interested in these resources because they’re a resource-hungry economy.”
Whether it’s something the Canadian public can live with is another question.
The backlash was significant before Harper’s decision was even announced, and stretched across the political spectrum.
Sensing a vulnerability, the opposition NDP had already launched a funding drive within 90 minutes of the decision being made public.
With his abnormally lengthy news conference to explain his reasons and take all questions on Friday night, Harper essentially kicked off a nuanced public relations campaign to persuade the naysayers that he is on the right track.
“I think Canadians understand that China is a very large economy, and in fact in the not so distant future China is going to be the largest economy in the world, and therefore represent significant opportunities for Canadians,” Harper said. “At the same time, they understand the Chinese economy, the Chinese political system, the Chinese society is extremely different in a way that presents significant challenges. And what they expect their government to do is to act in a way that will take advantage of the opportunities that are offered to us, without exposing us to the risks.”
Or, as Professor Warren Mabee at Queen’s University put it, “he’s intent on having his cake, and eating it too.”
©The Canadian Press