On Friday 19 October, the Canadian government advised Malaysian state-owned PETRONAS that it had not demonstrated that its acquisition of Progress Energy would be of “net benefit” to Canada. “Net benefit” is the standard that must be met under the Investment Canada Act (ICA) in order to receive federal government approval. This announcement caught many observers by surprise. It appears to be inconsistent with a recent series of approvals of investments involving state-owned enterprises (SOEs), as well as statements and actions by the Canadian government encouraging foreign investment.
The implications
Although the PETRONAS/Progress deal is the third disapproval since 2008, it was the first disapproval involving an SOE and the energy sector. If the decision stands, and reflects government policy, it could have a chilling effect on investors (especially SOEs) in Canada. PETRONAS is continuing its bid for Progress and is appealing the government’s initial decision. For now, the rejection seems to reflect an unfortunate miscommunication, rather than a change in policy.
The Canadian government is working on a new ICA framework expected to include further details on how SOEs may satisfy the “net benefit” test. The government is also expected to announce final decisions in the PETRONAS and CNOOC/Nexen transactions at about the same time. This could occur by mid-December. Despite the existence of the ICA, Canada is very open to foreign investment, reflected in the recent signing of an investment treaty with China. Such initiatives will assist the resource sector in accessing the capital it requires, as well as expanding Canadian export markets.
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Frank Turner is an M&A partner in Osler’s Calgary office. He can be contacted on +1 403 260 7017 or by email at fturner@osler.com
Peter Glossop is a partner at Osler’s Competition Group and advises on ICA matters. He can be contacted on +1 416 862 6554 or by email at pglossop@osler.com
Chris Murray leads Osler’s Asia-Pacific initiative and advises Asian enterprises on Canada investments. He can be contacted on +1 416 862 6701 or by email at cmurray@osler.com
