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Canada queried over investment regulations

MONTREAL--Ottawa's rejection of Malaysian giant Petronas' acquisition of Progress Energy Resources had Canada's opposition and analysts calling Monday for an explanation, as another big deal hangs in the balance.

Many wondered whether Canada is really open to foreign investment, after it blocked this and two other major takeovers in recent years — that of Canadian fertilizer and satellite makers.

Some also feared it could spell doom for the proposed takeover of Calgary-based oil and gas company Nexen by China's state-owned CNOOC now being considered by Industry Minister Christian Paradis.

If Petronas' bid, which was widely expected to pass muster, could be rejected, they queried what hope the US$15.1 billion takeover of Nexen has.

Paradis announced late Friday that he would not approve state-owned Petronas's purchase of Progress Energy for an estimated US$5.5 billion.

In a statement, he said that he had sent a letter to Petronas indicating he was “not satisfied that the proposed investment is likely to be of net benefit to Canada.”

Paradis cited confidentiality provisions in the law but declined to provide further details.

Progress Energy said it was disappointed by the minister's decision, but would over the next 30 days try to determine “the nature of the issues and the potential remedies” to get Ottawa's nod for a deal described as key to “the long-term health of the natural gas industry in Canada and the development of a new LNG export industry.”

The opposition New Democratic Party and financial analysts, meanwhile, piled on criticism of the government, saying they fear a chill on foreign investments in Canada unless Ottawa provides clarity on how these decisions are actually made.

The Investment Canada Act sets out criteria for the industry minister to consider when assessing whether foreign acquisitions of Canadian firms are of net benefit to the country.

The test includes whether the buyer is owned or controlled by a state, whether the deal poses a threat to national security and whether or not it would bolster Canada's economy.

Still, most feel in the dark on the actual criteria, arguing that the act is too vague.

The New Democratic Party, analysts and others called on Paradis on Monday to clarify what constitutes a “net benefit” to Canada in order to reassure foreign investors.

“We want there to be a clear process,” NDP MP Peter Julian told reporters. Potential investors “want to know there is a clear process in place, a process which ultimately will allow them to know what the criteria are with respect to net benefit.”

Asked about it at a news conference, Prime Minister Stephen Harper declined to comment on the Petronas bid.

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