The Nexen Deal?

Milton Friedman has been correctly identified as one of the 20th century’s most influential economists. He has been labeled a staunch advocate of the free enterprise system with little or no respect for regulation, and regulation of the world’s financial sector is a no, no. Particularly important, Mr. Friedman was a passionate believer in free trade and by extension, globalization. Mr. Friedman died in 2006 but his theories continue to reign within many of the world’s developed nation states and their political infrastructures – including the present day government of Canada. One only has to look at Prime Minister Harper’s recent libertarian efforts, including his strategy to seek “quick” free trade agreements with Europe and the People’s Republic of China, to see that Mr. Harper’s approach to economic policy management is consistent with Mr. Friedman’s libertarian theories. Nevertheless, Prime Minister Harper might be forced to take a much more practical, political approach when reviewing China National Offshore Oil Corporation’s bid to purchase Nexen Inc. The Nexen Inc. Deal? China’s CNOOC bid to purchase Nexen Inc. for $15.1 billion has become an important political issue in Canada, and suggests a major dilemma for Prime Minister Harper’s government – as it should be. For Nexen shareholders, the bid by CNOOC is supported – after all, the share price offered has been pegged with a 60 percent premium. Premier Redford conditionally supports the sale and recommends that Nexen’s board of directors and its senior management group be sustained with a 50 percent Canadian content level – sooner or later this 50 percent Canadian content condition will likely prove unworkable but for the present it’s not a bad political tactic and the recommendation does have some merit. For the Prime Minister, the issues are quite complex with no clear answers. Following are a few questions facing the Harper government: Should Alberta’s oil sands be considered a strategic resource and should oil sands development be viewed as a strategic undertaking where the national interest is more relevant than most normal commercial undertakings? Should foreign national governments be allowed to establish a “political” foothold within Canada and conduct their commercial activities using a different set of norms and standards? Is Investment Canada’s singular “net benefit” rule sufficient when dealing with foreign investment and negotiating further, future free trade agreements? And finally, when will it be a good time to discuss Premier Redford’s idea of developing, having and implementing a national energy strategy that operates in Canada’s best interest? In the meantime China has reacted to the proposed Nexen purchase and Canada’s apparent procrastination. China’s ambassador to Canada, Zhang Junsai made a few very telling comments a few weeks back which I think demonstrates bully tactics, if not outright threats and not very well camouflaged threats. Ambassador Junsai observed when talking about the Nexen deal: “Business is business….It should not be politicized….If we politicize all this, then we can’t do business.” As well Ambassador Junsai made a connection between the approval of the Nexen deal and the possibility of having a free trade agreement (something that is very dear to the political wishes of Prime Minister Harper). The ambassador observed: “It’s time to open up each others markets….It’s time to do the exploratory work on the possibility of a free trade agreement.” In my opinion Ambassador Junsai came on strong and his message was quite clear – Canada has to approve the Nexen deal or forget about any free trade talks. Even then Canada can forget about any useful free trade talks for at least ten years.