Government should block aquisitions from state-owned companies

Wednesday, November 21, 2007

Shawn McCarthy

Source :  Globe and Mail

The federal government has approved the takeover by Abu Dhabi National Energy Co. of PrimeWest Energy Trust, [PWI.UN-T] but the state-owned company will face new federal hurdles in its acquisition spree here.

Industry Minister Jim Prentice said Tuesday the $5-billion deal for Calgary-based PrimeWest — which unitholders are expected to approve Wednesday — was deemed to be a "net benefit" to Canada under existing foreign investment rules. He also approved the company's $540-million (U.S.) purchase of Calgary-based Pioneer Natural Resources Canada Inc.

But the minister said that, within the next month, he plans to release new guidelines that will govern all future acquisitions by state-owned companies as well as shareholder-owned foreign investors.

The new policy will ensure that "for state-owned enterprises as with other foreign direct investment, issues of transparency and commerciality and governance are dealt with," he said.

In an interview, Mr. Prentice said that, under the current investment review, foreign acquirers are not judged according to whether they operate as market-oriented corporations with clear financial reporting and robust governance rules.

The new guidelines will impose that test, and provide explicit language that Ottawa will reject any acquisition that is seen to compromise national security.

However, the minister stressed that the Conservative government welcomes direct foreign investment, including acquisitions from state-owned companies that operate according to market rules.

"Our standard of living and our capacity to compete is linked to our capacity to recruit foreign direct investment. And frankly we've been very good at it," he said.

State-owned companies from China, the Middle East and Russia are increasingly active players on the world stage, and are being joined by cash-rich sovereign wealth funds from those countries that have explicit mandates to invest abroad.

Liberal MP and industry critic Scott Brison said the government should block acquisitions from state-owned companies in the natural resources sector, saying the matter is one of "economic sovereignty."

"Canadian companies can compete with foreign companies, but it's tough for Canadian companies to compete with foreign treasuries," he said.

The Abu Dhabi National Energy Co., also known as Taqa, has made three acquisitions in Canada, totalling $7.5-billion (Canadian), and has said it has $20-billion to deploy on acquisitions and increased production in Canada. Based on its three deals to date, Taqa North, as the Calgary-based subsidiary is called, would rank in the top 10 Canadian producers of natural gas, and among the top 12 in production of gas and oil.

Taqa is 75-per-cent controlled by the government of the oil-rich emirate, while 24 per cent of its shares trade on the Abu Dhabi securities market, which is open only to residents. The company says it is developing a corporate governance system based on international best practices.

Taqa's chief executive officer Peter Barker Homek Tuesday welcomed the government's approval and is looking forward to integrating the three companies, which include the former Northrock Resources Ltd., which the company acquired this year.

He said the Abu Dhabi company will serve as a model for state-owned oil and gas companies that are increasingly active in the global marketplace.

"Taqa is the first state-backed enterprise to become a top 10 oil and gas company outside its country of origin, and we believe that it can become the model for how such enterprises conduct themselves in foreign markets," Mr. Barker-Homek said in a statement Tuesday. "Though we're a global company, we pride ourselves on acting locally, and are quickly earning a reputation as an exemplary corporate citizen — as measured by transparency, accountability, health and safety standards and social responsibility — in every market we enter."