September 6, 2012 / 9:48 PM / in 5 years

Canada PM says CNOOC's Nexen bid to be closely studied

VANCOUVER (Reuters) - Canada will study CNOOC’s $15.1 billion bid for oil producer Nexen particularly closely because the deal is large and the Chinese oil company is a state-owned enterprise, Prime Minister Stephen Harper said on Thursday.

Canada's Prime Minister Stephen Harper speaks during an event announcing the establishment of the Naats'ihch'oh National Park Reserve, in Norman Wells, Northwest Territories August 22, 2012. REUTERS/Chris Wattie

Under the terms of the Investment Canada Act, Ottawa must examine the bid to determine whether it is of net benefit to Canada. Some members of the Conservative government are uneasy about the idea of a Chinese firm buying Canadian assets.

“Our definition of net benefit will be very broad in terms of the overall interest of the Canadian economy and in the long term,” Harper said at a Bloomberg summit dealing with Pacific region.

“In making this decision, because of the size and nature of the proposal ... the government has to put in place a pretty clear policy framework that indicates why it would or would not accept this decision or subsequent such decisions.”

Canada says it needs at least C$500 billion ($510 billion) in foreign investment in the oil-rich tar sands over the next decade.

One obvious source of the money is China. This concerns those who say Chinese state-owned enterprises have business advantages such as easy access to credit and an ability to ignore the need to make a profit.

“There are many issues at play. One of the issues that does make this somewhat different, and it is a different category under the (Investment Canada) Act, (is) the fact that we’re dealing with a state-owned enterprise,” said Harper.

“And it’s not whether it’s Chinese versus whether it’s British or American. Under the law, the fact that it’s a state-owned enterprise leads to a range of different considerations than if it were a genuine private investment.”

Conservative critics and some business commentators say Canada should only approve the CNOOC bid if China opens up its economy and makes it easier for Canadian firms to operate.

“To the extent there’s some distrust on that side, I think it’s incumbent upon the Chinese to indicate, as the relationship goes forward, their willingness to play by the same rules,” said Harper. Government officials claim Canadian resources companies are sometimes discriminated against in China.

The prime minister visited China in February to promote the benefits of buying Canadian oil.

During the trip the two sides announced they had concluded negotiations on a foreign investment protection agreement and would start talks on deepening bilateral trade.

“The Chinese are acutely aware that the trade and investment flows are disproportionately in their favor and I think they recognize that that has to change,” said Harper.

“Obviously in terms of what they want from us, we will also be seeking things from them,” he added, but did not give details.

Critics complain that the “net benefit” test is too vague and does not oblige the government to explain its reasons for how it treats foreign takeover bids.

Harper made a similar promise about a more specific policy framework after Canada shocked markets in 2010 by rejecting BHP Billiton’s bid for fertilizer maker Potash. Ottawa never did release the new guidelines.

($1=$0.98 Canadian)

Writing by David Ljunggren; additional reporting by Louise Egan and Randall Palmer; Editing by Bob Burgdorfer

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