Chinese oilsands takeover bid under review
Investment law says big deals must represent 'net benefit' for Canada
By Andrew Mayeda, Canwest News Service
December 19, 2009
The Harper government is quietly reviewing the $1.9-billion investment by a state-owned Chinese oil company in two oilsands projects, more than a month after the deal was originally supposed to close.
In an exclusive interview on Friday, Industry Minister Tony Clement confirmed that the government is reviewing PetroChina's proposal to buy a 60-per-cent stake in two projects in northern Alberta planned by Athabasca Oil Sands.
Following its announcement Aug. 31, the deal was hailed as a major endorsement by foreign investors in the oilsands, as well as a sign that China could be prepared to ramp up its investment in such projects, after lukewarm interest in recent years. At the time, the acquisition was expected to be completed Oct. 31, and company officials said they did not anticipate much objection from the federal government.
Clement declined to provide a timeline for the review. He said Canada welcomes foreign investment, but expects foreign investors to "play by the rules."
"I'm not going to particularize it to China or India or Botswana, for that matter," said Clement, when asked how comfortable the government is with Chinese investment in Canadian resource firms.
"We're a country that is and should be open to foreign investment, just as we expect other countries to be open for Canadian foreign investment.
"But they have to play by the rules. One of the most momentous things I did this year was sue an American company, U.S. Steel, because it's our position they didn't play by the rules," said the minister. This summer, Clement asked the Federal Court to order U.S. Steel to fulfil job commitments it made when it bought Stelco, the Canadian steelmaker.
Under the Investment Canada Act, Industry Canada reviews foreign takeovers worth more than $312 million. The law requires that such takeovers represent a "net benefit" to Canada. According to the department's website, net benefit is assessed based on a number of criteria, including the effect on employment and other economic activity in Canada.
But the PetroChina review will also be an important test of a new provision that allows the minister to review deals deemed potentially "injurious to national security."
Regulations to implement the provision came into effect Sept. 17.
The government rejects calls from industry to better define "national security," arguing such threats are constantly evolving. Last September, the chair of the U.S.-China Economic and Security Review Commission said the PetroChina deal should raise national security concerns in both Canada and the U.S.
The PetroChina transaction will also test guidelines, issued by the Conservatives in 2007, governing takeovers by state-owned enterprises. PetroChina is the publicly traded arm of state-owned China National Petroleum.
Under the guidelines, the department will review the "nature and extent" of control by the Chinese government, PetroChina's corporate governance and reporting practices, as well as whether the acquired projects will operate on a "commercial" basis.
A source familiar with the transaction said it's unknown when the deal will get the green light.
"The review is in the hands of Investment Canada and it is up to them when they make the decision. We are led to believe that the review process is proceeding in a normal fashion," said the source, who spoke on condition of anonymity.
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