August 30, 2012

Economic Is Just Another Word for Strategic

CBC News does a good job of summarizing a thorny topic in this article.

The PRC is on the prowl for investment opportunities abroad, notably in the energy sector. Canada's blooming oil sands industry are an alluring target for its state-owned industries to purchase. In fact, the purchases have already begun. "In recent years, Chinese energy investments in Canada have grown significantly, with Chinese state-owned companies purchasing minority and controlling stakes in Canadian oil and gas projects worth $16 billion in 2010 and 2011."

In the present case China has made an overwhelmingly attractive offer for Canadian company Nexen, above and beyond the textbook value of the company.

However, as the article states, this move may not so much be about purchasing Nexen, but rather about creating legal and political precedents for Chinese purchases in Canada, which has previously ruled against foreign acquisitions.

I raise several points of contention with the sale, leaving aside the obvious benefit to shareholders.

1. While shareholders seek short term benefit, what of the billions in R&D invested by Canadian tax payers? How will they get their due? While the benefits of a Nexen sale would be private, much of the costs are public. R&D is heavily subsidized by the federal government, and our lands are being significantly damaged by the oil sands industry. It seems that at the very least, it is Canadians that should reap the long term benefit of this industry. In this case shareholders are selling the goose that lays the golden eggs.

2. CNOOC is a Chinese state owned enterprise. Should we allow foreign governments to literally control Canadian economic and strategic assets? Would China allow Hydro Quebec to purchase Chinese damns?

3. Aside from the fact that the oil sands are gearing up to be a significant portion of our economic productivity, oil is a strategic resource, period. Hence its sale should be treated differently than other commodities. Is our government thinking about what the PRC may fuel with our oil?

There may be cases where a sale like this is warranted. But this definetly requires significant pondering, and not just about how this will affect the next federal election.

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