Harper’s takeover rules far from clear

One week after the Harper government announced its decision to approve the takeover of Nexen Inc. by China National Offshore Oil Company (CNOOC), are we any closer to understanding why this deal is of “net benefit’’ to Canada?

And despite Prime Minister Stephen Harper’s assurance this is the end, not the beginning, of an era, what guarantees are there that this is not the first of many such takeovers by the Chinese government in its relentless quest for a growing share of the world’s resources?

The fact of the matter is Canadians have little or no more insight as to why the government feels that Nexen will be in better hands under Chinese government ownership than they did the week before the announcement.

Nor do we have a clear idea what are the rules governing foreign takeovers of Canadian companies going forward, despite promises made two years ago following the rejection of BHP Billiton’s $38-billion takeover bid for PotashCorp.

Industry Minister Christian Paradis issued a onepage press release after markets closed Dec. 8, saying that “under the existing guidelines, (CNOOC’s) proposed transaction to acquire control of Nexen is likely to be of net benefit to Canada.’’

Paradis said that CNOOC has made “significant commitments to Canada in the areas of governance, including commitments to transparency and disclosure; commercial orientation, including an adherence to Canadian laws and practices as well as free market principles; and employment and capital investments, which demonstrate a long-term commitment to the development of the Canadian economy.”

(By sheer coincidence, Paradis put out exactly the same press release approving the Petronas takeover of Progress Energy the same day as the Nexen takeover was approved. Only the names were changed. Also on the same day, the long-awaited takeover of Viterra by Glencore International was approved by the Chinese commerce ministry. Coincidence?)

What those commitments are is not being revealed on the grounds of commercial confidentiality. What are the consequences if the commitments are not met? Are there effective means of enforcing such consequences? Your guess is as good as mine.

Of course, as many commentators have noted, it would be hypocritical for the Harper government to change the rules on the CNOOC-Nexen deal in the middle of the game.

So, the reasoning goes, the government had no choice but to approve the deal under the old rules.

Then again, the government rejected the PotashCorp takeover bid, using the same nebulous “net benefit’’ test.

In other words, the government puts the deal into a “black box’’ at Industry Canada and months later out pops a decision. Or so we are led to believe.

The reality is that the decision is ultimately made by cabinet and Harper himself after much toing and froing between the bureaucrats, academics and industry types, not to mention some judicious lobbying by proponents and opponents of the deal.

As to how or why decisions are made, don’t bother to ask. In the words of the Wizard of Oz: “Pay no attention to that man behind the curtain.”

As for the new foreign takeover rules, the details are skimpy at best. Takeovers of Canadian oilsands companies by state-owned enterprises (SOEs) will be approved only under “exceptional circumstances.”

Takeovers by SOEs with a transaction value of $330 million or more will be reviewed; $1 billion is the threshold for transactions between publicly traded or privately held companies.

This we are told will staunch the flow of foreign takeovers of Canadian resource companies, especially by SOEs. But will it? I, for one, am skeptical.

China is sitting on trillions of dollars of foreign currency reserves, which are earmarked for acquisitions of foreign companies that have what China needs: Copper, gold, iron ore, precious and base metals, oil and natural gas, fertilizers, like potash, and agricultural commodities, etc.

China, alone among the world’s nations, recognizes that we are in a fight for control of the world’s resources and will not stop until the needs of its 1.3-billion-plus population are met.

The Nexen takeover is just the first many such bids for our resources.

It’s naive in the extreme to think that our flimsy foreign investment rules will long deter the Chinese government from launching future acquisitions.