OTTAWA - The Harper government bought itself some more time to deal with a political hot potato, extending a review of the controversial $15.1-billion bid by a Chinese state-owned company to acquire Calgary-based oil and gas producer Nexen Inc (TSX:NXY).
Industry Minister Christian Paradis said in a news release issued Friday evening that the Investment Canada Act review of the proposed purchase has been extended by 30 days until Dec. 10.
Extensions under the Act are not unusual, Paradis noted and can again be prolonged with the consent of the acquiring company, in this case China National Offshore Oil Co.
Because it's the second time the Nexen-CNOOC review has been extended, the latest delay couldn't have taken place without CNOOC's permission.
Another extension was widely expected by market players and political observers, but nonetheless it suggests the political ramifications of the proposed takeover have the Conservatives bewildered on how to proceed, said Peter Julian, the NDP's natural resources critic.
"Anytime in politics when people are making decisions on a late Friday night it’s because they’re scared of public reaction," he said in a phone interview.
”They desperately want to rubber stamp it, and because they know that public opposition is growing they’re just trying to buy more and more time.”
The Nexen deal has generated direct and indirect concerns from a number of quarters and even Prime Minister Stephen Harper has said the takeover bid "raises a range of difficult policy questions,'' indicating there's a national security angle that factors into Canada's relationship with China.
The Canadian Security Intelligence Service, Canada's spy agency, raised a red flag on foreign investment by state-owned firms in general in its annual report this year, although it didn't name specific countries.
The NDP has raised a wide range of concerns specifically regarding Nexen, including concerns over national security, environmental and human rights. The New Democrats have also called the federal review process too secretive.
Harper is even dealing with members of his own caucus, such as Alberta MP Rob Anders, who have voiced displeasure.
Ottawa sources say the Harper government is torn between its eagerness to court foreign investment and new markets in Asia, and its distaste for government-run companies.
"One of the most pointed concerns is, this country spent the better part of a generation moving away from the Crown or the state-owned enterprises because we recognized it's simply not an efficient way to run an economy," one Conservative MP told The Canadian Press on condition of anonymity. "So there is some hesitation to allow a state-owned enterprise from a foreign acquisition come in and buy a sizeable Canadian asset."
A source close to the matter said CNOOC was prepared for a lengthy review when it made its move in July, given the size and significance of the transaction. The person added the Chinese company still expects the deal to close by year-end.
Industry Canada took 103 days to approve Swiss-based Glencore's $6.1-billion deal to buy Viterra earlier this year. That transaction still hasn't closed because it's waiting on Chinese government approval.
Under the Investment Canada Act, deals involving WTO member countries valued at more than $330 million must be a "net benefit" to Canada.
Just what constitutes a "net benefit" exactly is unclear, but Harper has said clarifications are coming soon.
U.S. politicians on both sides of the aisle have cautioned Ottawa against turning over natural resources to a Chinese state-owned company. Critics fear that CNOOC may answer more to Beijing than it does the market.
And the deal involves a Canadian national treasure, oil.
In an apparent bid to ease Ottawa's concerns, CNOOC has pledged to keep the head office in Calgary, seek a listing on the Toronto Stock Exchange and place some $8 billion of its assets under the control of Nexen's management in Canada. It has also promised to carry on Nexen's social responsibility programs in Canada and around the world.
"The proposed transaction is undergoing a rigorous review under the Investment Canada Act," Paradis said in a statement. "A determination will be made based on the six clear factors that are laid out in detail in section 20 of the Act and the Guidelines on Investment by State-Owned Enterprises.
"The required time will be taken to conduct a thorough and careful review of this proposed investment."
Now that the government has until early December to complete its review, the plan may be to quietly announce approval of the deal sometime during the Christmas holidays, suggested Julian.
”I think the way this government works and its lack of respect for the public means that they’re going to be looking to rubber stamp it sometime during the Christmas season, hoping that public reaction will blow over.”
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