OTTAWA — Prime Minister Stephen Harper ended months of market uncertainty by approving the foreign takeovers of Calgary-based Nexen Inc. and Progress Energy Resources Corp. _ but insisted future appropriations by state-owned firms in the oilsands would become the exception rather than rule.
China's CNOOC and Malaysia's Petronas, both Asian state-controlled enterprises, received the OK late Friday as part of a wide-ranging update of foreign-takeover rules.
In future, all state-owned enterprises seeking to buy large Canadian companies will face greater scrutiny about how they operate and how much control their home governments would have over how they do business.
Harper said foreign-state control of oilsands development in particular has reached the point where further control would not be beneficial to Canada.
"When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments,'' Harper said at a hastily called news conference.
"The government's concern and discomfort for some time has been that very quickly, a series of large-scale controlling transactions by foreign state-owned companies could rapidly transform this (oilsands) industry from one that is essentially a free market to one that is effectively under control of a foreign government.''
STORY CONTINUES AFTER GALLERY..
Harper noted that just 15 companies operate in the oilsands, exposing the industry to greater risk of foreign control after only one or two transactions.
The China National Offshore Oil Co., or CNOOC, launched a friendly $15.1-billion bid for Nexen and its Long Lake oilsands project in July, providing a series of guarantees to the Canadian government on job creation, head office location and corporate governance.
In a statement, Industry Minister Christian Paradis said he was satisfied that the deal would be a net benefit to Canada.
Initially, Malaysia's Petronas $6-billion bid for Progress Energy, which is developing natural-gas lands in northeastern B.C., was rejected by the federal government and the company later revised its proposal.
Paradis said the company made "significant commitments'' in several areas that satisfied him the deal was in net benefit to Canada.
In revising the guidelines for state-owned enterprises, the Conservatives answered complaints the rules were too vague to provide certainty for investors.
At the same time, they responded to Canadians' concerns about the implications of allowing foreign-owned firms to play a major role in Canada's natural resources sector.
Harper's announcement was welcomed by Alberta Premier Alison Redford, who had supported the deals.
"We are pleased that the federal government appears to have listened to our input and made a careful examination of the circumstances unique to these proposed arrangements, as did my government, and came to the same conclusion: the benefits are great, and any issues can be mitigated,'' she said in a statement.
The federal government made three major changes to the foreign investment guidelines Friday.
First, they increased the threshold for review under the Investment Canada Act for takeovers by foreign private investors to $1 billion from $330 million.
But the $330-million threshold will remain in place for state-owned enterprises.
They also gave the minister of industry the ability to extend the time available to conduct a national-security review of proposed investments.
The CNOOC deal did not trigger a security review.
But the biggest change comes for state-owned enterprises, with the government elaborating extensively on how proposed bids from those companies will be handled in future.
They set out five specific elements that investors will need to demonstrate in order for the government to consider approving a proposal.
At the top of the list is that the investment is commercially oriented and that the investor is free from political influence.
New Democrat natural resource critic Peter Julian was immediately dismissive of the announcements, saying there should have been consultations with Canadians.
"Today they're trying to sugar-coat something that I think will be a rather bitter pill,'' he said.
"This is a farce. While Conservatives admit that under the new rules this transaction is not a net benefit to Canadians, they have approved it anyway.''
But the head of a major business lobby applauded the decisions, noting Canada needs foreign capital.
"The decision to approve the acquisitions of Nexen Inc. and Progress Energy Resources Corp. sends a positive signal to investors in Canada and around the world,'' John Manley, president of the Canadian Council of Chief Executives, said in a statement.
"Canada's population is small relative to those of the other major advanced economies, and we have a tremendous need for capital to develop our industrial base and achieve our potential as a leading exporter of energy and advanced energy technologies.''
Shares in Nexen (TSX:NXY) and Progress (TSX:PRQ) fell Friday after news broke that a decision was likely pending and investors placed their final bets on what the outcome would be.
Nexen stock closed down $1.58 or about six per cent at $23.29 on the Toronto Stock Exchange, while Progress shares closed down 88 cents or about four per cent at $19.37.
CNOOC has agreed to pay $27.50 per share for Nexen, while the Petronas-Progress deal is for $20.45 per share.
Canada's spy agency raised a red flag on foreign investment by state-owned firms in its annual report earlier this year.
Though CSIS didn't name specific countries or companies, it said certain state-owned enterprises have pursued what it called opaque agendas or received clandestine intelligence support for their pursuits in Canada.
CNOOC and Nexen also had a pre-existing relationship. Last year, CNOOC scooped up Opti Canada, Nexen's beleaguered minority partner in its troubled Long Lake oilsands project. The two firms also worked together in the Gulf of Mexico.
Chinese companies have been buying up resource assets around the world to secure supplies of energy, minerals and other raw materials.
State-owned firms such as PetroChina, Sinopec and CNOOC, have generally preferred to take non-operating stakes in oilsands projects, relying on their Canadian partners' technical expertise to develop the resource.
Taking partial ownership has also been seen as a way for the Chinese companies to make their investments more politically palatable.
However, earlier this year Athabasca Oil Sands Corp. sold its 40 per cent stake in the MacKay River oilsands project to joint-venture partner PetroChina, giving a Chinese oil giant full control of an oilsands asset for the first time.
Earlier this week, Petronas and Progress said if the deal was approved they would increase the size of their plans to ship liquefied natural gas from the West Coast.
The companies said if the deal were to be approved it would increase the planned size of a liquefied natural gas terminal by about 60 per cent.
The Council of Canadians criticized Friday's decisions, partly on environmental grounds.
"We are deeply concerned by the takeover because investment, foreign or otherwise, is the last thing we need more of in the tar sands and shale gas,'' said chairwoman Maude Barlow.
"We need to be phasing out dirty energy, not handing over huge concessions to multinational corporations.''