Edited by Paul Harricks
Ontario Premier steps down
By: Sean Conway
Ontario Premier Dalton McGuinty surprised many at Queen's Park last week ( October 15th ) by announcing to his Liberal caucus that he will leave politics as soon as a leadership convention chooses his successor. That leadership convention has been called for the last weekend of January, 2013.
McGuinty, a 57-year-old Ottawa lawyer, has been premier of Canada's most populous province since October of 2003. He has led the Liberal Party of Ontario since December, 1996 and has won three of four general elections in which he has been party leader.
In making his retirement announcement, McGuinty told his colleagues that now was " the right time for Ontario's next Liberal Premier and our next set of ideas to guide our province forward". Highlighting his major accomplishments in office, McGuinty cited progress in areas like education, health care, the environment and tax reform.
But there was more than a retirement message from the departing Premier on the evening of October 15th. To the consternation of many, McGuinty also revealed at his press conference that he had asked Lieutenant-Governor David Onley to prorogue the current session of the Ontario Legislature. The Premier gave as his reason for proroguing the legislature his wish to conclude a negotiated settlement with Ontario's public sector unions away from the rancorous politics of the daily Question Period.
The legislature is now prorogued with the result that all legislative business has stopped until after the Liberal leadership convention in late January. Among the legislative proceedings shut down by this prorogation was an Opposition-led inquiry into two controversial power plants initially planned for the southwest GTA and now to be re-located to Sarnia and the Napanee area of eastern Ontario. It seems that energy issues are destined to follow the Liberals throughout their leadership campaign and beyond.
Among those who are considering a run for the leadership are the current finance minister Dwight Duncan, a long-serving MPP from Windsor,; Kathleen Wynne, the current minister of Municipal Affairs and Housing and a well-known Toronto MPP; and Gerard Kennedy, the former Liberal MPP and MP for Toronto High-Park and the first education minister in the McGuinty cabinet. Other ministers like Charles Sousa ( Citizenship ) and Glen Murray ( Higher Education ) are also known to thinking about joining the race.
Much speculation surrounds the leadership intentions of Energy Minister Chris Bentley and Health Minister Deb Matthews. Both Bentley and Matthews are London MPPs and both have been caught up in very controversial issues recently. Deb Matthews has been on the Queen's Park ' hot seat ' for months over dramatic revelations of maladministration at Ornge, Ontario's embattled air-ambulance system. And Chris Bentley, long considered a front runner to succeed Dalton McGuinty , has been bogged down in the nasty battle to locate power plants in the GTA. Their decisions will be critical to the outcome of this contest.
Once a new Liberal leader and premier is chosen in late January, that new premier may either meet the legislature with a new cabinet and a new program or, as happened federally in the spring of 1968, the new premier might follow Pierre Trudeau's example of going directly to the people for a new mandate in a general election. Either way, Ontario is in for some uncertainty over the next few months.
Canadian Government Rejects (on an Interim Basis) Petronas' Proposed Acquisition of Progress Energy
Just before midnight on Friday, October 18, Canada's Industry Minister announced his interim conclusion that Petronas' proposed C$6 billion acquisition of Progress Energy does not satisfy the "net benefit to Canada" test under the Investment Canada Act. Petronas is a Malaysian state owned enterprise (SOE). Progress is a Calgary-based natural gas producer.
The Minister's decision immediately became the subject of extensive coverage in major Canadian and international business newspapers and websites, with numerous commentators offering opinions and raising questions about whether the decision will cause a chill in foreign investment, whether the "net benefit" test is too vague, whether the review process unnecessarily lacks transparency, and the implications of the decision for proposed acquisitions by SOEs generally and for CNOOC's proposed C$15.1 billion acquisition of Nexen, which is currently under review, in particular.
Due to the largely confidential nature of the review process, many important facts relating to the Minister's decision are not public. However, based on our experience advising clients in relation to the Act, including SOEs on high profile acquisitions, and on information that is publicly available, we are able to offer the following insights:
- While we know the Minister's interim decision, we are not aware of either the undertakings that were put on the table by Petronas, or the Minister's particular concerns with the package that was presented. There is a range of possible concerns that could hold up approval, ranging from concerns about the sufficiency of the benefits provided to concerns about the transparency of the acquired business with the investor post-acquisition. As discussed below, it is even possible that the refusal could be solely related to timing – the government was simply not able to complete its review within the 75 day period and was not prepared to approve the transaction absent a completed review.
- The Minister's decision is interim, not final. Petronas still has 30 days to convince the Minister that its acquisition of Progress is likely to be of net benefit to Canada, which Petronas may seek to do by sweetening the undertakings it is prepared to offer. We understand that the CEO of Progress remains optimistic that the acquisition will ultimately be approved.
- It is possible that the Minister's interim rejection had more to do with process than with substantive objections to the acquisition. Some media reports suggest that Petronas had refused to consent to an extension of the review period mandated by the Act, and that the Minister responded by issuing an interim rejection minutes before the review period expired (if the Minister needs more time to consider a proposed acquisition, this is effectively his only option if the foreign investor does not consent to an extension, as the Minister would otherwise be deemed to approve the acquisition).
- The Canadian government has been grappling for some time with how best to deal with proposed acquisitions by foreign SOEs. Its approach to foreign SOEs is driven by two primary goals: (i) securing foreign investment that is vital to the Canadian economy, of which SOEs have been an eager and abundant source; and (ii) ensuring that acquired Canadian companies continue to be operated on a commercial basis, with transparent governance processes, and not to serve the geopolitical objectives of a foreign government. The Canadian government has provided some guidance as to the application of the net benefit test to acquisitions by SOEs, in the form of SOE guidelines that were issued in late 2007 following the acquisition of several iconic Canadian companies by SOEs. However, in our experience, the Canadian government's approach to SOEs is still evolving and has moved beyond its published position. We expect that more definitive guidance will be forthcoming with or shortly following the Petronas/Progress and CNOOC/Nexen transactions. In this regard, on Monday, October 22, Canada's Prime Minister stated that "The government does in the not too distant future have an intention to put out a clear and new policy framework regarding these sorts of transactions". In the meantime, we continue to believe that, given sufficient planning and patience, acquisitions of Canadian businesses by SOEs can continue to proceed.
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