Nexen decision a tipping point for Canada – by Derek H. Burney and Fen Osler Hampson (Globe and Mail – October 5, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Derek H. Burney is Senior Strategic Advisor for Norton Rose Canada LLP and a former Canadian Ambassador to the United States. Fen Osler Hampson is Distinguished Fellow and Director of Global Security at CIGI and Chancellor’s Professor, Carleton University.

The decision on CNOOC ‘s proposed acquisition of Nexen will be a key litmus test on whether the government intends to “walk the talk” on diversification. Approval – along with clear limits on future foreign investments – not only makes sense, but is clearly in the national interest, if the government seriously intends to broaden economic ties with the fastest-growing, second-largest global economy.

Concerns about state-owned enterprises not adhering to market principles have some legitimacy, as do the undeniable facts that the Chinese political system is different and plays by different quasi-market rules. Furthermore, Canadian firms have nothing like open access to invest in China on oil sands development or in virtually any other sector.

But Canada needs foreign investment to develop its huge resource base, and China has unmatched capacity to participate. With less than 5 per cent of the oil sands leases, Nexen is a relatively small player. The majority of its assets are outside Canada. CNOOC is making tangible capital commitments to invest in developing its leases in Canada, and to employ Canadians in this development.

As demonstrated by its decision to establish its North American head office in Calgary, CNOOC will also make significant commitments to the communities hosting its facilities. It is also important to underscore that the operations of Nexen under CNOOC ownership will be fully in accordance with all Canadian laws and regulations. Ownership does not give any firm a licence to misbehave. On the contrary, CNOOC’s behaviour in Canada will be monitored closely and will impact on future investment aspirations. The Chinese know that.

The 35-per-cent public float of CNOOC will be listed on the Toronto Stock Exchange, as well as the New York and Hong Kong stock exchanges, to provide a higher degree of governance transparency than is the case of some other SOEs already operating in Canada.

Polls suggest a good deal of opposition to this transaction, but polls can easily be manipulated in order to elicit a negative, if not knee-jerk, response.

The “net benefit” definitions of Investment Canada rules, along with the national security and SOE nuances added to the legislation, remain deliberately opaque and give the government considerable latitude on decisions.

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