Sunday April 20, 2014



Trying not to poke the panda: how Harper came around on the Nexen deal

OTTAWA - On a Saturday afternoon last February, Prime Minister Stephen Harper sat on a bench in a Chinese zoo, his wife by his side.

On her lap squirmed a baby panda, one paw stretched toward Harper.

He regarded it warily.

The prime minister wasn't sure how he should approach the furry creature, especially given the cameras whirring to record his every move.

The choices: make friends and shake its paw or smile nicely and do nothing at all. He opted for a compromise approach, reaching around to ruffle its fur.

Fast forward six months to the China National Offshore Oil Co. or CNOOC making a $15.1-billion bid to buy Calgary oil company Nexen.

It was a much bigger bear to contemplate but fallout from the decision would be similar: handle this squirming file well and a positive legacy could be assured. Or accidentally poke the Chinese bear in the eye, and never see it stretch out its hand again.

It was on his trip to China in February that Harper signalled Canada's willingness to do more business with the Chinese, especially in natural resources.

About the same time, rumours had begun to emerge that CNOOC was going to make a play for Nexen.

Negotiations began in earnest in May as Harper began to turn his thoughts to the influence foreign investment was having in the oilsands.

At a June meeting, he was briefed by a quartet of academics and former civil servants on how to engage Asian economies.

The four thinkers Derek Burney, Len Edwards, Thomas d'Aquino and Fen Hampson had just finished a major paper.

Their message: Canada needed to take stock of its approach to make sure the government was furthering the national interest, because the trade and investment coming from Asia was a lot different than what we were accustomed to.

"China and Brazil, for example, have become important new sources of foreign direct investment in Canada through entities that are subject to influence by the policies and objectives of their home governments., i.e. by non-market considerations," the authors stated.

Harper listened to their recommendations, sources say, and took careful notes.

One month later, CNOOC formally launched the $15.1-billion, $27.50-per-share friendly deal.

The very next day, their lobbying began.

CNOOC hired Hill and Knowlton as advisers and the team methodically set about courting public opinion for the deal and figuring out exactly what they needed to do to win it.

It began on Parliament Hill, with meetings with key bureaucrats in Foreign Affairs, Trade, Industry and the Privy Council Office.

Lobbying efforts spread off the Hill as well as they set about wooing key players, like Alberta Premier Alison Redford, considered their first big "get."

The oil giant was mindful of the failure of Australian mining company BHP Billiton Ltd. to get the Saskatchewan government onside when it bid to take over Potash Corp.

CNOOC was also active at the community level, signing on earlier this spring as a major sponsor of a homeless outreach event in Calgary this fall.

It was in the grassroots where Harper's political problem lay.

Several members of his caucus led by influential cabinet minister Jason Kenney were opposed to the deal.

Some voiced concerned about Canada doing business with a company owned by a state notorious for human-rights abuses.

"I am strongly opposed to this deal, and I have raised my concerns directly with Cabinet as well as with the Prime Minister ... due to China's dismal record on human rights and freedoms, I take particular exception to allowing a state-owned company from China to purchase a Canadian company," wrote Tory MP James Bezan in a letter to a constituent.

Others opposed the deal ostensibly on the grounds of Conservative policy.

"My view is that ours is a government that has a philosophical perspective to lessen government ownership when valid to do so, therefore it seems inconsistent to me that we would approve a deal with a buyer that is a state-owned company," wrote London, Ont., MP Ed Holder in his weekly newsletter to constituents in October.

The challenge for the prime minister was to find the sweet spot between not irritating his core supporters and not closing the door to China.

In November, a familiar refrain began to be heard around official Ottawa whenever talk turned to the deal, a decision which by then had been extended.

"We're open for business, but not for sale," became the talking point du jour as it seemed the political tide was turning.

Kenney was asked at the start of December whether his thoughts had changed.

He hinted that Harper had found that sweet spot.

"Our prime minister has consistently articulated a balanced approach to our relationship with China, that emphasizes our commercial interests but also our values in a way that the previous policy was unbalanced, having I think largely neglected the values dimension of the relationship," Kenney said.

"So I think our prime minister has been very successful in striking a balance that the Canadians are looking for."

On Friday, Harper announced the government was approving the CNOOC deal as well as one by Malaysian firm Petronas for Calgary-based Progress Energy.

But Canada also effectively closed the door on any future state-owned enterprise involvement in the oilsands.

Much like his encounter with the baby panda, it was a compromise approach: I'll shake your hand this time, but not again.

Harper acknowledged the balancing act he had to play, and that not everyone was going to be onside with the choice.

"Some believe you are either for foreign investment under all circumstances or that you must be against foreign investment in any circumstance," he said Friday.

"Practical government rarely permits such simplicity."


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