China’s Petroleum Investments in Canada
The foreign control of organizations located in Canada has been a topic of substantial debate in Canada. The preoccupations associated with the foreign control of organizations that were previously perceived as Canadian organizations have been steadily increasing over the past few decades. Many debate that half of all of the manufacturing operations in Canada are owned by foreign national originations. Conventionally, the foreign control of Canadian organizations was a heated issue in Canada during the decades of the 1960s and 1970s when it had been perceived that the United States investment in Canada had achieved hew record highs. The debates have also been continuing over the free trade agreement (Canada, 2014). The perspectives of foreign investment in Canada will be explored from the perspectives of Canada (2014), Canadian press (2014), Jones (2-014) and Krugel (2013).
Literature Review
The government of Canada has demonstrated its eagerness to entice foreign investment which is inclusive of Chinese foreign investment. The approbations and statements that have originated from the government with regards to substantial investment in the Canadian natural resources and the oil sands initiatives demonstrate verification that Chinese investment is appreciated in Canada. The review process that the foreign entities must be willing to submit is delineated in this document. There is a specific emphasis on Chinese investment in Canada. (Canada, 2014)
The Investment Canada Act usually has the requisite that any investor that is not of Canadian origin that has the desire of receiving direct control of an organization that is established as a Canadian enterprise must initially be the recipient of approval that originates with the Ministry of Industry in Canada. This is in the event that the global assets of the industrial concern exceed a value of S330 million. The acquisition of a Canadian organization by means of indirect control usually is not subjected to the review by the Ministry of Industry. In the event that a Canadian enterprise is acquired by means of the shares of a foreign corporation in the course of a global transaction, the ICA established particular regulations with regards to the definition of the word control. Primarily the attainment of a 50% or greater voting interest in a Canadian organization will automatically require revision by the ICA. In the second case, if the acquisition of a Canadian entity by a non- Canadian that possesses more than 33% and less than 50% of the voting interest of a Canadian business entity is assumed to be in administration of the establishment unless the evidence contradicts the appearances. The acquiring of an amount that is less than 33% controlling interest in an organization is not presumed to be the controlling interest in the organization (Canada, 2014).
The Investment Canada Act perceived that the implication of a Canadian enterprise that is conducted in Canada having an established address in Canada. In addition, the enterprise must have individuals who are associated with the organizations by means of their activities of labor. Furthermore, the establishment must have assets in Canada that are dedicated to the business. It is not a requisite that the Canadian Industry be administrated by Canadians. Acquiring a foreign owned entity that is operating in Canada is not required that the enterprise be of Canadian origin (Canada, 2014).
The Ministry of Industry, in addition to the personnel at the Investment review division has the established guidelines and the notes that enable the interpretation of the Investment Canada Act. These notes facilitate the understanding of what type of enterprises are qualified as Canadian businesses. The guidelines that are pertinent to the oil and the gas interests ensure that the acquiring of a working interests in the Canadian establishment where the exploration activities are being conducted, in the event that the activity have not had the outcome of retrieving oil reserves cannot be perceived as the acquisition in an enterprise. These activities are not the subject of review. Acquiring a working interest in a location that has recoverable reserves will be treated as the acquisition of an interest on an enterprise. These activities usually will have the outcome of being treated as a Canadian enterprise (Canada, 2014).
There is an examination that is considered in order to ascertain if a new benefit has been disseminated to the Canadian society by the operation of the enterprise. In the event that a proposed purchase or acquisition of a Canadian enterprise has the position of administration and the investment exceeds the threshold value of the assets, the Investor must complete an application that is directed toward the review of the enterprise. The Ministry of Industry and his personnel will evaluate if the enterprise has the probability of being a new advantage to the Canadian society (Canada, 2014).
The review process usually initiates with the transmitting of the application form. The application form serves as a description of the investor’s designs for the Canadian enterprise. The application form will provide details on the manner by which the investment will provide a new benefit to the Canadian nation. The Ministry of Industry is allocated forty five days in order to review the application. The forty five day period may be extended by either party for thirty days. In order to extend the application for an interval that exceeds thirty days, the permission from the investor is required. In actuality, the majority of investors transmit their applications in the two to four week period that is subsequent to the agreement of a confirmed transaction accord that involves the target organization. In accordance with information that was derived from Industry Canada, the average review interval is 2.3 months from the date that the application is received by the Ministry of Industry. The amount of time that will be required to review complex cases can vary from 2.5 to 3 months (Canada, 2014).
The amount of the net benefit evaluation is conducted in the level of wide policy and economic assessments that are incorporated in the policy systems and the investment Canada Act. This information includes the as Canadian address of the headquarters of the establishment, the outcome of the acquisition on the capital expenses and the anticipated levels of employment that will be required. The continuing opportunities that will be created by the enterprise will be necessary with regards to the role that Canadians will perform in the functions of the enterprise (Canada, 2014).
The guidelines that have been published categorize two more standards that the government will take into consideration. These considerations are in the event that the investor represents a state owned enterprise. In the circumstance of the investor operating a state owned enterprise. A review of the commercial perspective and the corporate governance will be required in addition to a review of the investment. The intention of the review is not to provide discouragement by the investors who acquire state owned enterprises, inasmuch to provide assurance that the commerce that are acquired will function within the criteria that has been established for other categories of commercial endeavors (Canada, 2014).
Considering governance, the attention will be placed on whether the Canadian enterprise will continue to follow the Canadian criteria of corporate governance. These criteria may have the requisites of dedication with regards to disclosure and transparency, the autonomy of the board of directors and the autonomy of the audit personnel. The Canadian government has the requisite that the state owned enterprise maintains the Canadian criteria of governance (Canada, 2014).
Considering the business direction of the state owned enterprise, the Minister of Industry will evaluate if the Canadian enterprise that is being acquired has the potential of operating in a commercial form with regards to the direction of exports, the location of processing and the role of Canadians in the commercial functions within the jurisdiction of Canada. The evaluation of the commercial orientation will include the characteristics of innovation, development and research and the correct context of capital spending that will be required for the maintenance of the Canadian enterprise with regards to the sustenance of a globally competitive characteristic (Canada, 2014).
Endeavors
The investments usually gain approbation inasmuch as the investors have the willingness to engage in binding endeavors that are correlated with the sustenance and the development of the Canadian enterprise. The conventional endeavors have the requisite of non- Canadian investors to maintain production, employment capital and research expenses for a period that extends from three years to five years. There have traditionally been no continuing restrictions on the non- Canadian investors subsequent to the period that is delineated for the endeavors. In the event of the non- Canadian making an investment in a state operated enterprise, the endeavors that are corresponding to the business direction and the corporate governance will usually endure for the period of time that the state owned interpose is in administration of the Canadian concern (Canada, 2014).
The IRD has the responsibility of supervising the endeavors with regards to compliance with the Guidelines: Administrative Procedures. These parameters ensure that an assessment of the production will conventionally be conducted for a year and a half subsequent to the application of the investment. The parameters are considering the initial anticipation and continuing economic conditions. This is taking into account that there are no important commitments that are unfulfilled. In that case, there will be no additional supervision that takes place. The Guidelines: Administrative Procedures also delineate that in the circumstance that the compliance of a commitment is apparently the outcome of the situations that are out of the control of the investor, there will be no accountability on behalf of the investors. In actuality, it is frequently feasible to reach concordance with regards to replacement endeavors or variances. These contingencies apply if it becomes apparent that the initial endeavor cannot be achieved (Canada, 2014).
At the end of August 2009, The Athabasca Oil Sands declared that PetroChina made a proposition with respect to attaining administration of two of the recently initiated oil sands projects in the Western region of Canada in exchange for $1.184 billion. The government of Canada provided approval on the transactions at the end of December 2009. This time for approval is within the parameters of time for the examination of substantial investments (Canadian Press, 2014; Jones, 2014; Krugel, 2013).
PetroChina has provided a variety of commitments that include the following endeavors:
- Additional expenditures of $250 million would be made in Canada.
- The level of employment would be augmented in Canada in proportion to the production of the two oil sand initiatives during the following thirty six months.
- In the period of the following sixty months, a headquarters would be maintained in Alberta for the administrative concerns that are connected with the oil sands initiatives.
- Provision of assurance that consensuses of the Canadians are placed into senior administrative positions of the managing concerns that are connected with the projects.
- Identification of opportunities for the application of PetroChina‘s technological professional knowledge in order to augment the production and the efficiency that are correlated with the oil sand initiatives and to maximize the field production of the projects.
PetroChina would not retract its listing from the NYSE and the Hong Kong Stock Exchange as a registered entity. The characteristic of possessing certain publically traded stocks in addition to the requisite of disclosure and transparency of the primary stock exchange concerns would facilitate that the Canadian commercial sectors would possess a business direction and the adequate corporate governance criteria that are required by the guidelines that have been established for state owned enterprises (Canadian Press, 2014; Jones, 2014; Krugel, 2013)..
Considering that the wine industries are composed of relatively small business concerts, they are not applicable under the Investment Canada Act. The Investment Canada Act was one of the federal laws issued in Canada that governs direct investment in Canada. The most recent implementation of the Investment Canada Act was ratified in 2013. One of Prime Minister Brian Mulroney’s first enactments with the newly appointed Progressive government in 1985 was to enact the ICA legislation. The Investment Canada Act enables the Canadian government to prohibit the foreign investments if they are of a substantial size and do not provide a net advantage to the Canadian economy. In 2014, the Canadian regulations consider any Investment that is over $354 million to be a significant size for the Canadian government‘s intervention (Canada, 2014).
The Investment Canada Act was intended to demonstrate Canada’s openness and went hand in hand with a narrow approval of the FIRA (Foreign Investment Review Agency). This agency was delegated the name of the Investment Canada Act. The FIRA had initially been established in order to enable the liberal government of Pierre Trudeau to open Canada to US investors. The proponents of nationalism in Canada provided a criticism with the efficiency of FIRA that provided an observation that the law was scarcely applied in order to prohibit this type of investment. The commercial community and the Progressive conservative party gave criticism by proposing that the Investment Canada Act hindered the production of the global economy (Canada, 2014).
The ICA had been applied in order to prohibit the purchase of MacDonald, Dettweiler & Associates to Alliant Techsystems in the United States in 2008. Another sale of a large Canadian company was prohibited with the acquisition of the Potash Corporation by BHP Billiton for $38 billion in 2010. The foreign Investment in the Canadian economy rose substantially from $100 billion to over $500 billion in the year 2006 (Canada, 2014).
National Security
The investment Canada Act also ensures the revision of any of the non- Canadian investments that could be considered to be detrimental to national security. This is irrespective of the values of the assets or the enterprises of the Canadian enterprise, the income levels or the ratio of interest in the establishment that has been attained. There are no implications of national security that are defined within the Investment Canada Act. In addition, the Canadian government has not emitted any category of informal supervision on the implication of the term. Notwithstanding, not dissimilar from other categories of jurisdictions, the Canadian government does not make assumptions that the participation of a state owned enterprise would provide reason for concern with respect to national security challenges. There have been a variety of purchases of state owned enterprise that have not infringed upon national security concerns. The investment that was performed into Teck Resources by China Investment Corporation did not provide cause for concern with regards to Canadian national security issues. The unsolicited offer that originated with Jilin Jien Nickel’s administration request of the Canadian mining concern Canadian Royalties did not raise any suspicions (Canada, 2014).
It is perceived that the Minister of Industry is improbable to commence national security interest examinations with the exception of extremely extraordinary situations. Inasmuch as the Canadian government maintains a wide context of discretionary supervision in ascertaining that necessary actions that are required to be implemented in order to provide protection for Canada’s national security concerns, the majority of the cases will probably include Canadian enterprise that conduct extremely sensitive strategic and military endeavors. The acquiring of concerns that pertain to the natural resources industries would not be perceived as providing impetus to the national security preoccupations. The exception with regards to natural resources may be the exploitation of uranium deposits (Canada, 2014).
The senior administrative Canadian officials have repetitively delineated that the Investment Canada Act would not be applied in order to restrict the foreign investment in the nation of Canada. In the circumstance of China Investment corporation’s’ investment in the acquisition of administrating Teck Resources, the Finance Ministry stated that the investments that are conducted by state owned non- Canadian companies are welcome, inasmuch as they maintain their intents limited to a commercial context. In accordance with the media reports, the Finance Ministry stated that the Investment Canada Act would not be transformed into a hindrance for the potential future investments that originate from the Chinese Wealth Fund (Canada, 2014).
Conclusion
Although the evaluation of the requisites for the non- Canadian investment examinations will evolve into being an integral component of the planning of future transactions, in actuality, the processes of the investment Canada Act and its requisites for the provision of endeavors have not been transformed into hindrances for the foreign investment in Canada. Considering that the Investment Canada Act had become effective almost thirty years ago, there have been more than sixteen hundred investments that have been examined. There have only been two investments that pertain to Anglo- American Interests and Anglo- Australian interest that have been prohibited. A substantial number of substantial Chinese investments have been reviewed during the period encompassing 2009 – 2014 and none of the Chinese proposals have been subject to rejection by the procedures of the investment Canada Act.
References
Canada (2014). Industry Canada. Government of Canada.
Canada (2014). Investment Canada Act. Government of Canada.
Canadian Press. (8 June 2014). Athabasca’s Dover Oil Sands project conditionally approved by regulator. Huffington Post Canada.
Jones, J. (30 August 2014). Athabasca closes sale of Alberta stake to PetroChina for $1.184 B. Business News Network.
Krugel, L. (13 December 2013). Encana, PetroChina form partnership to develop natural gas in Alberta. Huffington Post Canada.
