Petronas: Can Ottawa pls explain why it needs absolute discretionary power on foreign takeovers?

Because if it can’t explain, maybe it doesn’t really need it


(Bazuki Muhammad/Reuters)

The Harper government’s unexpected, last minute (check the time stamp) decision to reject Petronas’ bid for Progress Energy has once again demonstrated that the “net benefit” test for foreign takeovers is without meaning. The government rejected the bid because it felt like it and because it could; there are no other reasons.

The Conservatives appear to be mounting a communications counter-offensive, including this remarkable piece by Globe and Mail columnist John Ibbitson, based on a chat with a mysterious “senior figure in the government, speaking on condition of anonymity.” Here’s the key paragraph:

While ivory-tower economists insist investment is investment, other governments have acted to protect strategic assets from falling into what they consider the wrong hands. The Harper government’s approach has similarly evolved. The door isn’t shut to foreign investment from state-owned companies, the government official said. But those companies must be transparent in their dealings and, to put it bluntly, there must be something in it for Canada: head-office jobs retained, or new money for research and investment, or the like.

My favourite bit is the first sentence. The idea that “investment is investment” isn’t wrong, it’s just that it comes from people who don’t speak on condition of anonymity, so it can be safely ignored. Following right up is the classic “everyone else is doing it” non sequitur, as if bad policies are magically transformed into good policies if enough people adopt them.

We are told that the concern is about state-owned companies, but we are never told why state-owned companies are a concern in and of themselves. We are presumably supposed to imagine that state-owned companies might behave badly, but, again, it is never explained what form this bad behaviour might take, nor why existing laws and regulations are not enough to prevent it.

And the last part, on the imposition of conditions, is just silly. The benefits we get from participating in international markets are due to competitive pressures. Why bother to innovate if you can count on government protection?

The most remarkable thing about this file is that no one can come up with an actual reason for rejecting a foreign takeover—and no, “everyone else does it” is not an actual reason—but there are any number of people who think that the government should have absolute discretion to do so.


Petronas: Can Ottawa pls explain why it needs absolute discretionary power on foreign takeovers?

  1. Cons absolutely suck at business.

    They are great at protectionism though.

    And U-turns.

    Stock market is calling it a ‘Harper Haircut’…..enjoy

  2. It’s probably some of those externality things you don’t like to think about, Mr. Gordon.

    Things like how “competitive pressures” in real speak means “Canadians lose their jobs, or get paid less”

    Sure, globally, and in the long term, it’s better if we all wind up specializing in the things we’re best at. Unfortunately, we don’t live globally, and in the long term we’re all dead. Your idealized theoretical market needs to give way to the practical realities of having to put food in our mouths every day.

    • You do realize that when jobs go to other countries, the benefit is that Canadians pay less for the goods produced there than they would if those goods were produced with higher wage labour inputs? So the benefit of trade is that you pay less to put food on your table. Similarly, if the cost of inputs decline, firms can lower the cost of the good for consumers to expand their market share.

      The same argument you’re making could be applied to technological progress. Do you go back to a switch board because it creates Canadian jobs? No, and does that mean some Canadians are unemployed? Yes. But it’s for the benefit of Canadians as a whole.

      • 1. You do realize shipping ain’t free, right?
        2. Higher or lower prices make no difference if you’re unemployed and can’t afford it anyway.
        3. Technological progress within a nation is different from efficiency maximizing globally. We improve our technology within our nation, people who were unemployed can get retrained and employed at the new technology — and we all benefit from the benefits of technology. We lose jobs because we’re competing with a culture that simply pays less for administration personnel? We gain nothing.
        4. No, it’s not a benefit for Canadians as a whole. It is perhaps a benefit for people globally, as a whole, which is what I acknowledged — but that gives absolutely no assurance that it is of any benefit specifically for Canadians.

  3. “It ain’t over till it’s over.”

    • Yes, they can just jolly well wait eh? Damned foreigners expecting us to treat them in a business-like manner. Who do they think they are?

      • You have to think long term. I did some research. Malaysia is hosting the 2020 APEC conference.

        Harper is concerned about the form fitting local sarong currently proposed for the Leaders’ Group photo. It’s a sticking point in the negotiations.

        Even you, I doubt, would want a wardrobe misfunction.

        • LOL better that than a govt malfunction which is what we seem to be getting all the time now.

          In spite of the fact I now can’t get the image of Harp in a sarong out of my mind! Thanks a bunch?!

    • Harper can’t decide which coin to flip – loonie or toonie. Is the royalty structure for natural gas the same as oil?

      • If you were to look historically at Progress Energy Resources (PGR-T) stock price, like the bid for Nexen, the price offered corresponds fairly closely with the pre-recession peak (June 19, 2008 – $23.35).

        The N.A. problem with gas is the current glut, hence current depressed prices.

        Gas royalties were revisited a few years ago, with a sliding rate depending upon price, but different royalty structure.

        • Thanks – there was a reference to it in another article and I realized I knew nothing about gas royalties.

  4. Library of Economics and Liberty: “In his Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815), Ricardo articulated what came to be known as the law of diminishing marginal returns. One of the most famous laws of economics, it holds that as more and more resources are combined in production with a fixed resource—for example, as more labor and machinery are used on a fixed amount of land—the additions to output will diminish.”

    I know nothing about oil/gas industry out West, and I can’t be assed to research it at moment, but I have been thinking about marginal returns since Petronas announcement. Is Fed gov’t focusing too much on oil/gas industry?

    Also, China and Malaysia are third world countries that are making an effort to produce wealth for their citizens. I don’t agree with sovereign wealth funds or state owned companies but those countries are trying to create wealth and acquire knowledge for their own people and we should help them. As long as the companies follow our domestic laws, I don’t see what problem is with foreign ownership. Instead, we have rich Canada denying third world people opportunity to improve their lot in life because there is nothing in it for us.

    • The problem with Petronas is it is not making effort to produce wealth for all Malaysians, but it sure is helping a small group of corrupted government officials and their close friends in this very lucrative enterprise.

  5. “But those companies must be transparent in their dealings and, to put it bluntly, there must be something in it for Canada:”

    I am always astounded at the naive stupidity of people who insist that corporations play nice, or do anything other than build profit for themselves.

    Transparent? From this government ?

  6. I think it would be worthwhile highlighting the apparent (to me at least) inconsistency of Andrew Coyne’s latest column (of which our moderator appears to embrace via twitter)

    In writing today (Tues NP) on the net benefit test of Progress (and its mainly gas) , Coyne ends with:

    Of course, the fundamental assumption at work in the “net benefit” test is that the assets in question do not belong to the people who wish to sell them — in the present case for nearly twice what they were fetching before — but have somehow been expropriated, without compensation, by the state. Every time some media type laments that “we” are selling “our” assets, that is what they are doing. Every time the government, to the applause of these realists, engages in “hard bargaining” with foreign investors, it is bargaining with someone else’s chips.

    So, compare that with what he wrote about CNOOC and oil just three weeks earlier:

    There is no intrinsic significance to oil, whatever impressive-sounding labels (“strategic resource”) might be slapped on it. In any event, what CNOOC is buying is not the oil, but the right to extract it. Until it does, the oil remains under the ground and under Crown ownership.

    So, it seems to me, in the case of gas, it belongs to Progress, but in the case of oil, it belongs to Nexen.


    • Oops, should read:

      So, it seems to me, in the case of gas, it belongs to Progress, but in the case of oil, it belongs to the Crown.

  7. Good, let those fucking despots exploit people in their own country. Keep saying no. Canada does not sell out, keep your money.

  8. “The government rejected the bid because it felt like it and because it could; there are no other reasons.”

    This leads me to the troubling conclusion that the government’s motive for everything that it does is because it feels like it and because it can. All is sacrificed on the altar of short-term political expediency and/or reflexive ideology.