Canada: A Line Drawn In The Sands


On Friday December 7, 2012, Canada's Industry Minister, the Honourable Christian Paradis, announced that he approved the widely publicized proposed acquisitions by the China National Offshore Oil Corp. ("CNOOC") of Nexen Inc and Petroliam Nasional Bhd ("Petronas") of Progress Energy Resources Corp. The Minister found in both instances that the proposed investments were of "net benefit" to Canada. Details of the undertakings and plans submitted by the investors and agreed to by the Government were not released as they are considered confidential under the Investment Canada Act unless disclosed by the investors. Both CNOOC and Petronas had previously announced a number of undertakings and commitments they were prepared to make in seeking the Government's approval of their proposed investments.


In connection with the approvals of the acquisitions by CNOOC and Petronas, the Government released a policy statement and revised guidelines governing proposed investments by State-Owned Enterprises ("SOEs"). Underlying the importance and political sensitivity of these approvals and changes to the rules concerning SOEs, the Prime Minister held a press conference to outline the Government's new approach to such investments particularly as they relate to investment in Alberta's oil sands.

There are four changes in the approach to be taken by the Minister of Industry in assessing future investments by SOEs in Canada:

  1. Investments by foreign SOEs to acquire control of Canadian oil sands businesses will be found to be of "net benefit" only in an exceptional circumstance. Investments by SOEs in other parts of the Canadian economy will also face greater scrutiny. In particular, the Minister of Industry will closely examine:

    • the degree of control or influence a SOE would likely exert on the Canadian business that is being acquired;
    • the degree of control or influence a SOE would likely exert on the industry in which the Canadian business operates; and
    • the extent to which a foreign state is likely to exercise control or influence over the SOE acquiring the Canadian business.

    However, the Government also indicated it continues to welcome foreign investment in Canadian businesses by SOEs, particularly in non controlling minority interests and joint ventures where no changes are being suggested by the Government. Proposed investments will continue to be reviewed on a case-by-case basis.
  2. The SOE Guidelines now specifically refer to free enterprise principles and industrial efficiency as additional criteria to be used in assessing an investment by an investor who is owned, controlled or influenced directly or indirectly by a foreign state. The concept of "influence" is new to the Guidelines but is not defined in any manner. In addition, the Guidelines require that the investor satisfies the Minister of Industry of the investment's commercial orientation, freedom from political influence, adherence to Canadian laws and standards and practices that promote sound corporate governance and transparency.
  3. Previously announced revised review thresholds for significant transactions were confirmed. The review threshold will be increased to $1 billion over a four year period with a $600 million threshold proposed in the first year following proclamation of the regulations (which is expected some time in early 2013). The basis of the calculation of the threshold will also be changed from "asset value" to "enterprise value." However, the threshold for review of an investment by SOEs will remain at $330 million – asset value of the Canadian business – and increased only by the change in nominal gross domestic product in the previous year.
  4. The Investment Canada Act regulations will be amended to give the Minister more time to review complex proposed investments that could be injurious to national security.


The proposed new policy and Guideline changes to the approach that the Government of Canada will follow in assessing and reviewing investments by SOEs continues to provide the Government with considerable flexibility in determining if there is a net benefit to Canada flowing from the proposed investment but a line has been drawn for oil sands investments which seems very clear – only in exceptional circumstances would such an investment be approved. But what those exceptional circumstances might be has already caused the Government of Alberta to ask the federal Government for clarification. Note, however, that the rules concerning minority investments and joint ventures where there is no acquisition of control of a Canadian business have not been changed, and in many cases are not subject to "net benefit to Canada" review.

The new concept of "influence" built into the SOE Guidelines seems to broaden the definition of a SOE to include an enterprise that although not necessarily owned or controlled by a foreign state but is nevertheless influenced directly or indirectly by such country. How that might be measured or determined is not defined in the new policy statement.

Other questions will no doubt be raised as this new policy approach is more carefully scrutinized and the Minister of Industry reviews future investments by SOEs.

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