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Turning away Chinese investment in Canada's oil patch would be "patently unwise," former Industry Minister Jim Prentice says.
Ottawa should be careful in spurning a potential massive customer for its energy products, particularly now that Canadian crude sells at a major discount due to surging production in North American and limited pipelines to ship that crude to new markets, he says.
"In such an environment, saying 'no thanks' to the largest new market opportunity, namely China, would be patently unwise – particularly in circumstances where the transactions do not imperil Canadian values or environmental and labour laws," Prentice says in a speech delivered at the Oil and Money Conference in London, England.
Prentice's remarks come amide a political firestorm that has surrounded two recent potential takeovers of Canadian energy companies by state-owned companies – Nexen by China's CNOOC and Progress Energy by Malaysia's Petronas – will come to define the role of foreign investment for years to come, Prentice says.
"This is where Canada will begin to decide how to treat foreign investments proposed by State Owned Enterprises," he says. "This is where a new way forward will be defined."
Ottawa recently rejected Petronas' $5.2-billion takeover of Progress Energy, though the company continues to meet with the federal government. A decision on CNOOC's $15.1-billion takeover of Nexen is expected to come on December 10.
Since both deals are worth more than $330 million they must be approved by Ottawa and pass the "net benefit" test. Many critics say the rules for approving takeovers lack clarity and Ottawa should do more to ensure foreign investors are clear on what is of "net benefit" to Canada.
Prentice says what's crucial for Ottawa in determining whether to approve foreign takeovers of Canadian energy companies is ensuring that once foreign capital makes its way into Canada – even if it comes from state-owned companies – it adheres to Canadian values.
"The fundamental point is that the Canadian government should not be – and, in my view, won’t be – concerned about the so-called 'ethnicity of money.' We can’t and shouldn’t try to force China or other countries to be like us. Closing doors to investment is no way to open minds," he says.
"The question must instead be whether the capital in question, once lodged in Canada, will adhere to market principles and to North American standards of governance and transparency. If so, then it should be welcomed. If not, then the investments should be scrutinized closely and potentially refused."
Ottawa should work to improve the rules on foreign investment, Prentice says, as the influx of foreign money into Canada is likely to continue – a trend he believes is good for the Canadian economy.
"Canada must and will remain open for business -- and that means open to foreign investment. Even a cursory review of Canadian history illustrates that the genius of Canada, as a massive country with a small population, has been its ability to attract foreign capital to help develop the country's resources," he says.
He adds that foreign capital in Canada has in the past been "recruited from every corner of the globe" and from a range of sources, from private capital to sovereign wealth funds and state-owned enterprises.
"In my view, none of this will change anytime soon," he says.