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Canada's hostility to foreign takeovers may have been over-stated. Ottawa botched its initial veto of the $5.2-billion bid by Malaysian state oil firm Petronas for gas producer Progress Energy Resources. Now Petronas is back in the game. But if the government wants the benefit of the doubt next time, it needs to make the rules less fuzzy.

It looks as though nerves over Chinese oil giant CNOOC's $15.1-billion offer for Nexen played a part in the diplomatic bungling over the Petronas-Progress deal. Malaysia is no geopolitical threat, but takeovers of Canadian companies by Chinese state-controlled firms are potentially incendiary. After some back-pedaling by the government, Petronas extended its offer on Monday. That helped push shares in Progress up 8 per cent and sparked a 5 per cent rally in Nexen's stock, both changing hands in Toronto with New York bourses closed in anticipation of Hurricane Sandy.

Yet even after Monday's boost, both Progress and Nexen are still trading more than 10 per cent below the prices being offered by their foreign suitors. Canada has quite a record of blocking deals lately, most prominently BHP Billiton's $39-billion play for Potash Corp back in 2010. The country's vague foreign investment rules require overseas buyers to demonstrate a "net benefit" to the nation. That leaves plenty of room for politics, or the perception thereof, to trump logic.

Prime Minister Stephen Harper promised after rebuffing BHP that he would provide clearer guidance. He repeated something similar last week, saying a new framework for foreign investment was in the works. A failure to produce it soon could be costly. Joe Oliver, Canada's minister of natural resources, has said the nation needs $660-billion in energy investment over the coming decade. Ottawa's careless treatment of Petronas, which wants to invest heavily in facilities to export Canadian natural gas, puts that goal at risk. Harper can't expect all outside investors to be as patient as the Malaysian group has so far proved. Other companies eyeing Canadian targets may already have been deterred.

Spelling out clear criteria for foreign buyers will make it easier for Canada to attract much-needed investment, without compromising important interests like national security. The potentially damaging fumble over Petronas should encourage Harper and his colleagues to make good on this old pledge.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 3:54pm EDT.

SymbolName% changeLast
BHP-N
Bhp Billiton Ltd ADR
+0.28%57.69
PRQ-T
Petrus Resources Ltd
0%1.33

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