10/31/2014 04:23 EDT | Updated 12/31/2014 05:59 EST

Alberta Says Federal Rules Discourage Oil Patch Investment

Bloomberg via Getty Images
Zhong Hua, chief financial officer of Cnooc Ltd., from left, Wang Yilin, chairman, and Li Fanrong, chief executive officer, pose for a photograph during a news conference in Hong Kong, China, on Friday, May 23, 2014. China National Offshore Oil Corp., Cnooc's state-owned parent and operator of an oil rig in disputed waters that's stoking tension between Vietnam and China, said it is determined to finish drilling at the site. Photographer: Brent Lewin/Bloomberg via Getty Images
Alberta wants the federal government to reconsider changes to the Investment Canada Act that it says have discouraged foreign interest in the oil patch, according to a report in the Globe and Mail.

Almost two years ago, Canada approved a deal by China's state-owned CNOOC to buy Calgary-based Nexen.

After that sale, the federal government changed foreign investment rules for state-owned enterprises, saying any such investment would only be permitted in "exceptional circumstances."

“The government of Canada has determined that foreign state control of oilsands development has reached the point at which further such foreign state control would not be of net benefit to Canada,” Stephen Harper said after the $15-billion Nexen deal received approval.

"When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments."

Call for clarity

Alberta’s new leadership said those statements have muddied the investment waters in the oil patch, especially investment from China, according to a report in the Globe and Mail.

The costs of oilsands projects are rising and with oil prices falling, analysts say there is a need for foreign investment.

But interest from China in Alberta petroleum projects has come almost to a standstill.

Canada's approach seems to be interpreted as meaning that it is not possible for the state-owned companies to further invest in oilsands, a Sinochem representative said at a recent industry forum in China.

"The government succeeded instead in adding further ambiguity to an already opaque approvals process," according to a paper by Wendy Dobson for the School of Public Policy at the University of Calgary.

Ron Hoffmann, the province’s newly named senior representative for the Asia-Pacific Basin, is calling for more clarity to the rules, like what counts as a state-owned company.

Former MP Stockwell Day recommended that Ottawa listen to Alberta’s concerns.

“The federal government should always be open to possibilities in terms of working with the provinces on investment opportunities – they’re out on the front lines,” Day said in an interview with CBC News.

Support for limits on state-owned investment

Jack Mintz, director of the School of Public Policy at the University of Calgary, said he believes Harper was right to set limits on investment by state-owned companies.

“There’s no question that privately owned companies, companies that are not state-owned, tend to operate better,” he said in an interview with CBC’s The Exchange with Amanda Lang.

Mintz said state-owned players may not be taxed at the same rate as private firms or may enjoy special incentives that make them able to outbid other companies that might be more efficient. That’s what happened in 2012, he said.

“I think what happened in the oilsands was so much capital from state-owned enterprises was coming in offering premiums for businesses that were way above what anyone would offer in the private sector,” Mintz said.

Mintz said Canada has to scrutinize deals because large investors can affect the long-term health of a company.

“Foreign investment doesn’t just provide capital, it also provides management and technology and that’s really where the big benefits are, that’s why I think it’s very important we make sure we have access to world markets but we have to protect national security and make sure we have an even playing field,” he said.

He said the recent chill on investment is driven by more than just the regulatory regime. There are also problems such as market access (getting oil to market in the absence of pipelines), higher project costs and lower oil prices.

Chinese firms are also becoming more cautious as they have not seen return on their investment, Mintz said.

“Some of the investors, such as those coming from China have overpaid for assets and the rates of return haven’t been very good. The Chinese now have learned they have to be more careful in how they invest around the world.”

Also on HuffPost

The Craziest Photos Of The Oilsands