Foreign takeover limits scaring away investors, says Prentice

Canada's new rules on foreign takeovers by state-owned firms are scaring away needed investment, threatening oil patch development and hurting the economy, former Conservative minister Jim Prentice warned Tuesday.

The CIBC senior executive and former Harper government industry minister, regarded by many as a potential future leadership candidate, issued the blunt assessment in a speech in London, U.K., that contains some indirect criticism of his former colleagues.

In particular, the speech singles out the government's decision late last year to all but limit investment by state-owned enterprises in the oil patch to minority stakes.

The policy shift followed months of agonizing over the proposed takeover of two Alberta energy firms — Nexen Inc. and Progress Energy — by Chinese and Malaysian state interests, respectively, which were eventually approved.

When assessing acquisitions of Canadian assets by foreign enterprises, Industry Canada must generally determine whether such acquisitions result in a "net benefit" for Canada, but after the controversy surrounding the Nexen and Progress Energy deals, the government said it would no longer allow foreign state control of Canada's oil resources.

From then on, the acquisition of more than a 50 per cent stake in a Canadian oil-sands business by a foreign state-owned enterprise would be found to be of net benefit, "only in an exceptional circumstance," Prime Minister Stephen Harper said in a statement in December 2012.

Companies looking elsewhere

Prentice said he supports the policy but warned it has already caused negative blowback — and that Ottawa needs to do a better job convincing potential suitors the country needs and welcomes their business.

"Not everyone is getting the message that Canada remains open to the world," Prentice says in speaking notes released to The Canadian Press. "In fact, some are coming to believe the opposite."

He cites his experiences at CIBC in noting that large companies from non-market economies have been thinking twice about basing their international energy operations in Canada.

"These companies have their eye on Canada, but they don't want to be rejected," Prentice said in the speech.

"And if these companies don't wind up (basing) their operations in Canada, they will do so in London, Houston or another energy or financial capital."

Those large firms are in the vanguard of the transformation of the global energy marketplace and want to locate in a stable, Western country, Prentice says — and Canada is scaring them off.

Foreign investment down

Investment in Canadian energy firms has fallen off the map since the policy announcement, he said.

Foreign investment in Canada has dropped precipitously this year — $2 billion so far in 2013, down 92 per cent from $27 billion during the same period last year, Prentice says. Mergers and acquisitions to date in 2013 have fallen to $8 billion, compared with $66 billion for the same stretch of 2012.

Just as troubling, he says, is the fact that investment from Chinese state-owned enterprises — arguably the major target of the new policy — has now "essentially stopped."

The policy is not the only reason investment has fallen dramatically but is a contributing factor, Prentice said in an interview as he urged the government to assess the impact of the changes.

"The facts are clear that there has been a dramatic reduction in inbound foreign investment in the Canadian energy space, so we need to be careful to understand why the levels have dropped off so markedly," Prentice said.

In the speech, the former minister also voices concern about Ottawa's failure to conclude trade agreements in Asia, saying the country is facing increased competition in the energy sector, from the U.S. and Russia, in particular.

"When it comes to energy, Canada is not being sufficiently attentive to its future interests," he says. "It's a fiercely competitive world out there. Relationships need to be developed. Negotiations need to be pursued and concluded."

Build more pipelines

The speech to the Oil and Money conference in London presents an overall vision for transforming Canada from a continental energy player to a global energy powerhouse, a vision that includes improved trade relations with Asia and a major expansion of infrastructure — pipelines, in other words — to get Alberta oil to far-flung markets.

Prentice is urging Ottawa to do all it can to secure trading relations with emerging economies, particularly in Asia, which he says will absorb virtually all the added demand for oil after 2020. Other countries are solidifying those relationships and Canada can't afford to be left behind, he says.

As well, Canada must make sure it can get its landlocked resources to market by building pipelines in virtually all directions — notably, the Keystone XL route to the U.S. Gulf Coast, the Northern Gateway line to the West Coast for shipment to Asia, and the TransCanada west-to-east project to Quebec and Saint John, N.B.

He says that Canadian oil production is projected to double over the next two decades to about six billion barrels, but finding markets and getting the oil to market is not assured.

"It requires foresight, smart choices and hard work," Prentice says in the speech, "and it requires action."