June 6, 2019 / 6:52 PM / a month ago

Ontario's abrupt move to end beer sales contract threatens investments

TORONTO (Reuters) - The Ontario government on Thursday passed legislation to end a contract with a beer retailer in Canada’s most populous province calling it a monopoly, but business lobby groups say the abrupt cancellation discourages investment.

Ontario’s Progressive Conservative government’s surprise proposal last month adds to its list of controversial decisions since coming to power last year, including spending cuts to healthcare and education. The new government is trying to rein in borrowing, which at C$346 billion ($259 billion) in net debt makes it the world’s biggest issuer of sub-sovereign debt.

Privately owned Beer Store is a joint venture between Molson Coors Canada, units of the world’s largest brewer Anheuser-Busch InBev and Japan’s Sapporo Holdings Ltd. It struck a 10-year deal in 2015 with the previous Liberal government to sell beer in Ontario.

The Beer Store accounted for 70% of beer sales by volume in Ontario, according the province. Beer sales in Ontario totaled C$3.3 billion in 2017-18, accounting for nearly 36% of overall Canadian beer sales, according to Statistics Canada.

Canadian and U.S. business lobby groups say the legislation creates uncertainty and dissuades long-term investment.

“Canceling a contract sends an alarming message to the business community in Ontario and beyond which could potentially deter investment,” Rocco Rossi, chief executive of the Ontario Chamber of Commerce, said in a letter to the provincial government.

The government tabled the legislation last month, with Ontario Finance Minister Vic Fedeli saying it would give consumers more choices, improve conditions for small businesses and reduce beer prices.

He did not give a date for when it would become law.

The U.S. Chamber of Commerce said on Tuesday that the move risks sending a negative signal to U.S. and other international investors about the business climate in Ontario. Several media reports have cited legal experts saying it could cost up to C$1 billion in penalties and compensation for breaking the contract.

“One of the fundamental principles of a market based economy is that you have reliable legal contracts,” said Professor William Mitchell of the Rotman School of Management. “And when you add on uncertainty about the reliability of legal contracts, you damage the business environment.”

Global investors would move elsewhere, he added. “If we get into that sort of situation where each government undoes what the prior government does, we are going to look like a real unstable place to do business,” Mitchell said.

Reporting by Tyler Choi; Editing by Richard Chang

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