Harper government reviewing CNOOC takeover bid for Nexen

The Canadian Industry Minister Christian Paradis has confirmed the review has started of China National Offshore Oil Company's $15.1 billion takeover deal with Calgary-based Nexen Inc.

On Wednesday Paradis said in an e-mail::

"I can now confirm that CNOOC has filed an application for review of its proposed acquisition of Nexen under the Investment Canada Act and I am conducting a review of the proposed investment,"

During the initial period the review will take 45 days but the period can be extended if more time is required. The review must decide if the takeover is of net benefit to Canada. CNOOC has already promised as part of the deal that Calgary would be the headquarters of its North and Central American operations and will keep all of Nexen's employees and management. This along with an attractive price for Nexen shareholders will no doubt help to show a net benefit to Canada. The price offered per share was over 60 per cent higher than the price at which shares were trading the day before the deal.

If the deal is approved this would be the largest ever Chinese foreign acquisition. Foreign takeovers are seldom rejected but during the six years it has been in power two takeovers were rejected the largest being the U.S. 40 billion bid of the Anglo-Australian mining giant BHP Billiton for Potash Corp. The Saskatchewan government was strongly opposed to the deal.

Some politicians in the U.S.have objected to the Nexen deal including Senator Charles Schumer who wants to hold up the deal to pressure China on trade policies. Nexen holds dozens of U.S. oil leases in the Gulf of Mexico. In fact many of Nexen's holdings are outside Canada.

An article by Greg Weston shows that the Conservative government faces growing concerns among some that the large takeover would open the door for a shopping spree for other Canadian energy resources. China has ample funds and a huge appetite for energy resources.

Weston asks how the Conservative can say yes to Nexen and perhaps no to the next deal with the Chinese. Personally I fail to see the problem. Cases are decided on their individual merits. All sorts of U.S. takeovers have been approved but one was disapproved by the Conservative government because it was thought not to be a net benefit of Canada. Decisions are not precedents for future decisions and hence the shopping spree argument is not really cogent.

Weston points out that if the Chinese were allowed to takeover Canadian Oil Sands they would then have majority control of Syncrude which is a consortium that has received billions in Canadian tax dollars and produces about 15 per cent of Canada's total oil consumption. There is something a bit odd about this worry about foreign ownership. If foreign ownership is a worry Canada is a bit late. The Canadian Association of Petroleum Producers estimates that two-thirds of the oil sands are already controlled by foreigners.

Harper has been in China inviting the Chinese to invest some of their ample capital in Canada. They are now doing so and with attractive terms for Nexen a company whose balance sheet was far from attractive and faces many development problems.

Harper wants international investors to see his government as open to business. Polls show that Canadians are uncomfortable with a major Canadian oil company being sold to the Chinese. The Conservative Alberta government however also supports the deal and there has been no significant public outcry against the sale as there was when Potash Corp. in Saskatchewan was threatened with a foreign takeover.

There likely will be more attempts by China to acquire or purchase interests in other Canadian companies. Each move will simply have to pass the test of benefit to Canada. It is quite possible that some future deals will be blocked on the grounds they give too much control of our resources to a foreign country and the deal is not a net benefit to Canada.

Mel Watkins on Foreign Investment in Canada

Mel Watkins was a key member of the Waffle group as well as author of the Watkins report. This article strikes me as quite weak, accurate enough on many points but completely idealistic and out of touch. The present global capitalism is hardly laissez faire. The world is replete with agricultural subsidies and and intellectual property rights that are meant to prevent competition and ensure profits. The hegemon's (US) economy is best described as crony capitalism in which success depends as much on connections to the elite as free trade and entrepreneurial skills.
There is tremendous regulation most of it in the interests of larger corporations.
When Mel Watkins talks of the real economy being one where efficient resource development benefits local areas-he must mean ideal! Of course resource development does usually in some ways benefit local areas but as in the Tar Sands it will also cause negative effects for others such as aboriginal people or any who depend upon water resources etc. that may be negatively affected by development. And where does efficiency come in? If all the environmental costs of oil development in the Tar Sands were figured in there might not be even a net benefit even in conventional economic terms. But this is irrelevant. The whole development is tied in to the needs of the US hegemon and political goals of becoming less dependent on "unreliable" oil. That is the real economy.
Watkins in the end does not even seem to call for public ownership. National ownership by which he means Canadian private ownership he sees as a necessary first step. THe reasons why Canadian capitalists are better than international capitalists is not clear to me. Historically many Canadian owned companies such as the now defunct Eaton's have been reactionary to the bone. The idea of a democratic socialist Canada seems to be banned from the discourse of this champion of the Waffle Manifesto. Maybe it is still there but just banned from being mentioned as too radical!



Laissez-faire isn't working
Canada's non-policy on foreign takeovers is sheer folly -- we need to act in our own interests, and those of the world

Mel Watkins
Citizen Special


Thursday, June 28, 2007



Forty years ago, in Canada's centennial year, eight economists laboured in Ottawa to produce a report for the Pearson government on foreign ownership and what to do about it, this being a matter much on the public's mind. Though it was disowned by the government when it was published in early 1968 and, by default, named the Watkins Report after its chief author, a young and little-known economist, in the subsequent decade its key recommendations, to create the Foreign Investment Review Agency and the Canada Development Corporation, were implemented.

The elections of Margaret Thatcher, Ronald Reagan and Brian Mulroney meant the death and undoing of such interventionism in Canada and elsewhere, in the name of laissez-faire and globalization and the fuller reign of the market.

But if you live long enough, the wheel turns full circle and the old becomes new again. So it is that the business press is now dominated by stories about takeovers and mergers and rising foreign ownership in Canada. What is to be done?

There are, as always in such matters, two answers: do nothing and do something. With Stephen Harper at the helm, do nothing is the policy of choice. But as policy goes, it seems to miss the point of what is happening.

Canadian economic development has from the outset been dominated by resource development for export. There is a logic to Canadian capital finding its strength in those sectors where Canada has its comparative advantage. It would seem to make sense, if the Canadian business class and the Canadian state are serious about playing the capitalist game, that it would create and nurture national champions in its resource sector.

But, as York University political economist Daniel Drache puts it, Canada is a careless country. Rather than creating national champions, if one emerges anyway, like Inco slowly over the years, we stand idly by and actually invite its takeover. In the 21st century, with resources such as oil and gas and uranium and nickel becoming the jewels of the global economy, Canada's non-policy is sheer folly. The great liquidity created by escalating commodity prices is being used to deprive Canada of ownership of its own resource industries. Somehow, this does not compute.

Companies themselves have become mere commodities to be bought and sold on a day-to-day basis. The relationship between that casino economy and the real economy of efficient resource development creating local benefit is obscure. Forty years ago the concern was with American ownership. Now our companies are targeted by Brazil, Russia, India and China, but our corporate and government elites remain passive.

It so happens that all of these countries have state-owned companies in the petroleum sector. Once upon a time we had PetroCanada but it was privatized. Now the response of the Harper government is not to reconsider state ownership but to worry that other countries' state enterprises may not be "neutral." This does rather miss the thrust of what is now happening in the world.


We now know something else that we didn't know before, and that is that the exploitation of resources, notably oil, can spell the end of the world at least as we know it. The fact is that the history of Canadian resource development is also the history of environmental degradation. What was once a local issue, a matter of national shame, is now a global matter in which everyone has a stake.

Countries that are resource-rich, it might be thought, have a special obligation to control development in the name of the global good. Alienating resources into the hands of giant corporations run from elsewhere and, in the last resort, accountable to no one, is unlikely to be helpful.

As mergers and the increasing concentration of capital sweep the world, it may just make sense not to embrace globalization yet more tightly but to contemplate some de-linking, some loosening of the ties. National ownership is a necessary first step. It builds a better base for Canadian companies to go outside Canada but, frankly, given what such companies are already doing to aboriginal rights within Canada and human rights abroad, this should not be seen as a priority.

It turns out that managing Canadian resources wisely in the interest of Canadians may be the best way to serve the good of humanity.

Mel Watkins is professor emeritus at University of Toronto and adjunct professor at Carleton University. He headed the federal government's Task Force on Foreign Ownership in the 1960s.