Analysis : Canada takes hard line on natural resources, no matter the cost

Sat Oct 20, 2012 5:46pm EDT
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By David Ljunggren

OTTAWA (Reuters) - Canada signaled a tough line on control of its natural resources with its surprise rejection of a Malaysian bid for gas company Progress Energy Resources Corp., putting concerns about state-owned firms above fears of damaging an already dented international reputation.

In a ruling with huge repercussions for CNOOC Ltd's proposed $15.1 billion takeover of Nexen Inc, Industry Minister Christian Paradis said the C$5.2 billion ($5.3 billion) bid by Petronas would not be of "net benefit" to Canada.

Although Paradis gave no reasons, Prime Minister Stephen Harper is facing legislators unhappy with the idea of doing business with China and also of letting foreign state-owned enterprises buy Canadian energy assets.

The decision - announced at three minutes to midnight on Friday and missing the deadlines for all Canadian newspapers - surprised senior officials in the government and was a painful reminder to markets of how Ottawa vetoed BHP Billiton Ltd's proposed takeover of fertilizer maker Potash Corp in late 2010.

After the Potash decision the government spent many months trying to reassure markets that Canada was still open for business. That effort continues today.

Yet for all the talk of attracting investment, some firms are clearly less welcome that others, particularly state-owned enterprises such as Petronas and CNOOC, which critics complain do not play by market rules.

"We've joined a list of countries in which a lot more resource nationalism is being practiced ... starting with Potash, muscle had started to be exercised a little bit," said John Manley, a former industry and finance minister who now chairs the Canadian Council of Chief Executives.

"And I think that's something that is not a total disaster but it does cry out for some clarification so investors know what they're dealing with," he told Reuters.   Continued...

Petronas advertising boards are seen near the grandstand ahead of the Malaysian F1 Grand Prix at the Sepang circuit outside Kuala Lumpur April 7, 2011. REUTERS/Tim Chong