Canada’s PETRONAS rejection: miscommunication or new reality?

Frank Turner, Christopher Murray, Peter Glossop

November 2012

China Business Law Journal

(Extract)

On Friday 19 October, the Canadian government advised Malaysian state-owned PETRONAS that it had not demonstrated that its acquisition of Progress Energy would be of “net benefit” to Canada. “Net benefit” is the standard that must be met under the Investment Canada Act (ICA) in order to receive federal government approval. This announcement caught many observers by surprise. It appears to be inconsistent with a recent series of approvals of investments involving state-owned enterprises (SOEs), as well as statements and actions by the Canadian government encouraging foreign investment.

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Due to the limited public information available, no conclusions can yet be drawn on whether the initial PETRONAS decision represents a shift in government policy. It is also not possible to say whether the decision makes it less likely that the government will approve the CNOOC/Nexen transaction.

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Coupled with the government’s promised ICA framework, the outcome of the PETRONAS case and pending CNOOC/Nexen transaction should provide guidance to foreign investors on obtaining ICA approval. In the meantime, investors should expect to commit to substantial undertakings and allow adequate time for the review process. If investors are not prepared to do so – or do not wish to assume the risk of a negative decision – then they should consider a minority investment that is not subject to ICA review.

This article was first shown in the November 2012 issue of China Business Law Journal and is reproduced with the kind permission of the editors.