China's state-owned companies are still keen to invest in Canada's energy sector, but worry about the slow pace of infrastructure development to connect Western oil and gas producers with Asian markets, Natural Resources Minister Joe Oliver says.
Mr. Oliver returned last week from visits to South Korea and China amid concerns that Ottawa's rules for state-owned enterprises (SOEs) have sent negative and confusing signals to Asia's government-controlled companies whose investment is needed to finance development in the country's resource sector.
He met with Korean and Japanese executives attending an energy conference in South Korea, and with Chinese investors as well as President Xi Jinping and Premier Li Keqiang in Beijing.
"I didn't encounter any confusion about the rules; I wasn't asked for clarity," Mr. Oliver said, although some Chinese investors indicated they weren't happy with the rules. "Nobody said to me directly or indirectly that the decline in SOE investment [in the Canadian energy sector] was the result of those rules …
"I certainly got no sense from anybody that they are turned off the prospect of investing in the Canadian industry," Mr. Oliver said in an interview.
Last December, the federal government brought in new regulations under the Investment Canada Act that prohibits SOEs from acquiring majority stakes in oil-sands companies, and raised the bar for assessing their other acquisitions in the oil and gas sector.
In a speech earlier this month, former Conservative industry minister Jim Prentice, now deputy chairman at CIBC, said the new rules have created confusion among would-be SOE investors.
The new rules have sent a signal to prospective SOE investors that they are not welcome in Canada, Mr. Prentice said. As a result, investment by SOEs in oil and gas has essentially stopped, after totalling $33-billion between 2005 and 2012.
But Mr. Oliver said other factors are at play, including a global slowdown in mergers and acquisitions in the resources sector; the need for Chinese SOEs to pause in their lengthy buying spree in order to digest their acquisitions, and Canada's slow pace in building oil and gas pipelines to the Pacific that would diversify export markets and improve rates of return for investors.
"Canada is looked upon with great interest and great favour," Mr. Oliver said.
But foreign investors remain concerned about the lack of pipeline access for Canadian oil and gas producers to Asian markets, he added. "To the extent that that doesn't move along, or seems risky or takes longer than necessary, it of course can [have an] impact on investment decisions."
Sinopec Group said Friday it is looking for partners to help finance development of its shale-gas assets in the Horn River and Montney areas of Western Canada, which it acquired from Daylight Energy for $2-billion in 2011, Reuters reported from Beijing. The Chinese firm, which also holds a 9-per-cent stake in Syncrude Canada Ltd., is experiencing negative cash flow in its Canadian gas operations due to low North American prices.
While Mr. Oliver insisted the regulatory picture is clear for SOEs, some in the investment community say their offshore clients need to be reassured that Canada would approve acquisitions by them.
"Government representatives at both levels are now working hard to convince the SOE community that Canada, and especially the resource sector, welcomes their investment," said Frank Turner, a lawyer at Osler, Hoskin & Harcourt LLP in Calgary.
But he said the SOE rules leave considerable discretion in the hands of the federal government. "I think there is a level of intentional ambiguity in the rules to give Ottawa more political room to manoeuvre," he said.