Chinese SOE Snatching Foreign Energy Companies

During the last month of 2012, Christian Paradis, Canada's minister of industry, announced on behalf of the Canadian government the approval of the $15.1 billion acquisition of Nexen Inc. by China state-owned enterprise (SOE) China National Offshore Oil Company (CNOOC).

The CNOOC deal was heralded as the largest acquisition by a Chinese SOE, and the media suggested that with this transaction the Chinese communist regime indicates its intention to reduce its investment in U.S. bonds.

CNOOC pledged to abide by free market standards, including "transparency and disclosure; commercial orientation, including an adherence to Canadian laws and practices ... and employment and capital investments, which demonstrate a long-term commitment to the development of the Canadian economy," as stated in a Dec. 7, 2012, Government of Canada announcement.

It is not known if a national security review, often required under the Investment Canada Act, has been completed in the CNOOC-Nexen purchase, especially as Canadian secrecy rules prohibit anyone from discovering that such a review took place.

The CNOOC deal is not cast in stone yet, as Nexen has assets in the United States, the United Kingdom (U.K.), and the European Union (EU), and thus still needs approval from the U.S. Committee on Foreign Investment in the United States (CFIUS), Canadian regulatory agencies, and respective U.K. and EU government agencies.

"The U.S. approach is more specific, transparent, and integrated than the Investment Canada scheme. The U.S. CFIUS model also requires nine agencies to work together to carry out reviews," said Debra Steger, law professor at the University of Ottawa, in a Dec. 7, 2012, interview published by Maclean's.

Secrecy and Lack of Transparency

According to media reports, the Canadian government has not prevented the acquisition of a Canadian oil and gas company by any foreign SOE, because it could always find a net benefit for Canada. However, as of date, the government has not been transparent as to what it considers a net benefit and how it tests for the net benefit.

"There is no formal, transparent, judicial or quasi-judicial process. Rather, the process is an internal investigation conducted by Industry Canada officials in the case of a 'net benefit' review," Steger said in the interview.

There are actually two types of reviews: One is the net benefit review, and the other is the national security review. The latter could be ordered when the foreign buyer is an SOE. However, this type of review is shrouded in greater secrecy, and it is impossible to determine if such a review has taken place.

"In the case of a 'national security' review, the process is even less transparent ... and no written reasons are published. ... The national security process is shrouded in secrecy, there is no appeal, and ... no one knows what happened in a particular case or even if a national security review was conducted," Steger said.

Acquisition of Canadian Assets

The Nexen purchase isn't CNOOC's or other Chinese SOEs' first purchase of Canadian assets.

"In 2011, CNOOC made a major move into the oil sands by purchasing 100 per cent of OPTI Canada for $2.1 billion. Sinopec acquired Daylight Energy in 2011, and made a $4.65 billion investment in Syncrude in April 2010.

"China Investment Corporation (CIC), a sovereign wealth fund with an office in Toronto, made an investment of $817 million in a new oil sands joint venture with Penn West Energy Trust in May 2010; it also made a $1.5 billion investment in Canadian mining company, Teck Resources, in 2009. Petro China invested $1.9 billion in Athabasca Oil Sands Corp. in late 2009," according to Steger.

Concerning some of the above investments, Steger suggests that some of them were minority investments, and thus didn't fall under the Investment Canada Act requirement, even though some of the investments were for a large amount of money.

Chinese SOEs and the Trust Issue

The question remains, can the agreement between CNOOC and the Canadian Ministry of Industry be taken seriously?

"About two-thirds of the public (68%) say the U.S. cannot trust China too much or at all," according to a Pew Research Center Sept. 18, 2012, report.

"Unfortunately, as long as China is ruled by the communists, ... [their] words cannot be trusted," according to a commentary on the Eye Dr. DeLengocky website, a website by a Vietnamese doctor who immigrated to the United States in 1990

Quoting former president of South Vietnam Nguyen Van Thieu, Dr. Tayson DeLengocky said, "Do not listen to what the communists say, just look at their actions."

Public Relations Ploy

Concerning the takeover of Canadian assets by foreign SOEs, Stephen Harper, Canada's prime minister, announced that going forward, Canada would put in force tougher conditions, which would nix acquisitions like the CNOOC-Nexen deal.

"Prime Minister Harper's supposedly 'tough new conditions' for foreign takeovers are nothing more than a public relations ploy aimed at masking the fact that he has just allowed a foreign government to seize unprecedented control over Canada's energy resources," a Dec. 7, 2012, article on the Alberta Federation of Labour (AFL) website suggests.

The AFL doubts any sweeping overhaul is in the making, especially since the process will be outside the public eye, and the industry minister will still be in charge of the proceedings.

"CNOOC is not your typical oil company. It doesn't operate on market principles, and it isn't beholden to investors. If they [Canadian officials] had been serious about defending the interest of Canadians, they would have nixed the deal outright," according to AFL President Gil McGowan in the Dec. 7, 2012, article.

Trying to Nix the CNOOC-Nexen Deal

"The Harper Government approved the sale of Nexen to a Chinese government-owned oil company Friday in part because critics of the deal couldn't make a good case against it," a Dec. 9, 2012, article on the Calgary Beacon website suggests.

Arguments that China is a communist country are a political weapon, but not a sound argument to scuttle the CNOOC-Nexen acquisition.

The communist allegation cannot be seen as a valid reason for nixing the CNOOC-Nexen deal, as proponents will ask, "Then why does Canada do business with China?" For example, why does Canada continue to do business with the Chinese state? In 2011, Canada's trade deficit with the Chinese state was CA$32 billion and CA$24 billion from January 2012 to September 2012, according to the Asia Pacific Foundation of Canada.

Concerning the argument that Canada is handing over its natural resources to China, the Calgary Beacon article disagrees.

"Under Section 92A of the Canadian constitution, the provinces own the country's natural resources and are given the responsibility for managing them," according to the article.

Many of the opponents to the CNOOC-Nexen deal point to the flagrant industrial espionage the Chinese state has been committing for years. No one doubts that the Chinese state has been known for years as a violator of intellectual property rights and has been linked to online spying.

"The counter argument is that CNOCC is state-invested, not state-managed, ... [and] has plenty of Canadian shareholders. ... CNOOC has also pledged to keep on the existing Nexen management team, which suggests that using the Canadian entity to commit espionage may be tougher than it looks," according to the Calgary Beacon article.

Epoch Times, Friday, Jan. 11, 2013
Byline:  Heide B. Malhotra

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