Canadian Lawyer

48 M a r c h 2 0 1 4 w w w . C A N A D I A N L a w y e r m a g . c o m lEgal rEport/eNeRgY lAw Still tempting Canada is still attractive to state-owned enterprises, even in the energy sector, but government rules and the ambiguity around them make it tough to advise clients. by janet guttSMan C anada still tempts cash- rich state-owned enter- prises, even in the closely watched energy sector, but government rules and the deliberate ambiguity that surrounds them are making it hard to advise clients how to proceed and factoring into a steep investment slowdown. The slowdown, in a sector that needs billions of dollars to fund ambitious expan- sion plans, started in 2012, after Ottawa approved two big takeovers by state-owned enterprises, the $15-billion purchase of Nexen Energy by CNOOC, the Chinese National Offshore Oil Corp., and the $5-bil- lion purchase of Progress Energy Canada Ltd. by Malaysia's Petronas. But the govern- ment also said it will allow further takeovers in the oilsands sector by state-owned enter- prises in exceptional circumstances only, a line in the investment sand nobody wants to be the first to test. "Exceptional circumstances as yet have not been defined, and I don't think anybody expects them to be defined until there is actually an application or an interest by an SOE to buy some additional oilsands con- trol or additional oilsands business," says Colin MacDonald, a partner in the cor- porate commercial group at Borden Lad- ner Gervais LLP in Calgary, whose areas of expertise include government relations, competition, and foreign investment law. "What it doesn't prohibit is minority inter- est, or joint-venture interest. It also doesn't prohibit SOEs from making investments in any other sector of the Canadian economy, including energy outside of the Canadian oilsands business." State-owned enterprises also have the option of boosting the size of an investment they already have, without triggering new government reviews. "We've got a bunch of players that are already in there, and they can continue to fund by way of additional capital contributions the advancement of those projects without having to trip over any new Investment Canada rules," says Craig Hoskins, a partner at Norton Rose Fulbright in Calgary and an adviser to pub- lic and private corporations. He described the changes to invest- ment rules as they relate to state-owned enterprises as "an incremental increase" in the uncertainty that has always surrounded foreign takeovers in Canada rather than a deal killer. "If you wanted to do another corporate acquisition you'd be subject to Investment Canada rules, but since you've already got a sizeable interest in an early- stage project you are going to be bringing in capital to fund that." The net benefit test in the Investment Canada Act has long been one of the uncer- tainties for foreign firms seeking to invest in Canada, especially after the surprise 2010 rejection of BHP Billiton's bid for Potash Corp. of Saskatchewan Inc. The lack of clar- ity over what is meant by net benefit gives the government more flexibility, but also huaN traN

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