The Practical Mr. Harper

By David Dittman • November 20, 2012 • Canadian Edge Weekly

The Canadian political situation is relatively stable at this point, in marked contrast to conditions beyond its southern border, but that’s not to say nothing’s happening.

Prime Minister Stephen Harper’s standing with the Canadian electorate has fluctuated in the aftermath of the May 2011 federal election that gave his Conservative Party a parliamentary majority, particularly during last spring’s initial battles over Canada’s fiscal 2013 federal budget.

But instability at the top of the two major left-leaning opposition parties, the New Democratic Party and the Liberal Party, has left Mr. Harper with no significant challengers, and the Conservatives’ natural constituency has come back home in recent months to bolster the prime minister’s approval ratings.

Mr. Harper has now led the Conservative Party to three parliamentary victories, the last securing his long-sought majority and ensuring his power until October 2015. He’s been Canada’s prime minister since January 2006, and two venerable Canadian newspapers, the Toronto Star in an editorial and the centrist Toronto Globe and Mail in an opinion piece, recently suggested American conservatives would do well to follow his model for building electoral support.

The prime minister has never earned the type of personal popular adulation that provided at least some of the impetus for President Obama’s re-election. But he has demonstrated a remarkable practicality that allowed him to support Keynesian-style stimulus to offset the worst effects of the 2008-09 Great Recession.

And he’s also stood fast against elements of his party that decry the influx of immigrants into Canada. In fact Conservatives did well among middle-class immigrant voters in suburban “ridings” around Toronto and Vancouver that proved crucial to their 2011 victory.

More generally, according to the Toronto Star, Mr. Harper “has kept the wilder social conservatives in his caucus on a short leash, minimizing fractious debates on such hot-button issues as the death penalty, gay rights and abortion.”

Mr. Harper faces a thorny thicket as his government takes up consideration–or re-consideration, in the case of Malaysian state-owned oil and gas company Petroliam Nasional Berhad’s CAD5.17 billion bid for Progress Energy Resources Corp (TSX: PRQ, OTC: PRQNF)–of two potential foreign takeovers of Canadian energy companies.

Initial rejection of the Petronas-Progress tie-up may have had more to do with the Harper government’s desire for more time to establish a more coherent framework for evaluating all foreign takeover bids going forward rather than any substantive objection.

But recent polls suggest Canadians have concerns about Chinese state-owned enterprise CNOOC Ltd’s (Hong Kong: 883, NYSE: CEO) CAD15.1 billion bid for Nexen Inc (TSX: NXY, NYSE: NXY). A September pool by Ottawa-based Abacus Data found that more than two-thirds of Canadians wanted the federal government to block the deal In October Angus Reid Public Opinion found that 58 percent of respondents to an online survey opposed it.

Angus Reid also found that 47 percent of Canadians believe state-owned enterprises shouldn’t be allowed to control resources on Canadian soil.

During a news conference amid his recent visit to India Mr. Harper indicated that Canada will make decisions very soon on these foreign investment proposals as well as on the longer-term framework for dealing with such investment.

“The government of Canada has some very important decisions before it on when it will take public positions in the very near future along with positions on some of the broader policy questions,” Mr. Harper said.

On Nov. 16 Petronas submitted a revised proposal for Progress, in accordance with guidelines established by the Canadian government when it originally rejected the deal in October.

Petronas had said it plans to make further submissions responsive to Canadian objections in order to win approval. Petronas and Progress are planning a multibillion-dollar liquefied natural gas plant on Canada’s west coast.

Petrobras CEO Shamsul Azhar Abbas told the Financial Times last week that the state-owned company would add more independent directors to the board of Progress to make the deal more palatable to Canadian regulators.

According Canada’s National Post the initial Petronas rejection had little to do with “net benefits” to Canada, the operative standard at the moment, and everything to do with Ottawa finalizing its policy on foreign takeovers, particularly those by state-owned enterprises. But the government has said it will assess both the Petronas bid and the CNOOC offer according to existing Investment Canada rules.

According to Reuters the Canadian government wanted to approve the deal but was afraid doing so would tie its hands when reviewing CNOOC’s potential acquisition of Nexen, an arrangement that’s nearly three times bigger in terms of dollar value and includes one of Canada’s biggest companies.

Canadian officials have also delayed a decision on CNOOC until Dec. 10. Bloomberg reported Nov. 20 that the Chinese giant has accepted management and employment conditions set by the Canadian government for approval, including guarantees that at least 50 percent of Nexen’s board and management positions be held by Canadians, to maintain workforce levels for at least five years, to strengthen commitments to keep planned capital spending and to clarify plans for research and development.

The Globe and Mail noted Tuesday that Canada “is pushing CNOOC Ltd to lock into commitments on investment and employment tied to its proposed takeover” but that CNOOC “fears such pledges could hurt the profitability of the Calgary energy company if oil prices weaken.”

It stands to reason that Canada’s pro-energy, pro-business prime minister will eventually approve both the Petronas-Progress and the CNOOC-Nexen deals under revised guidelines that establish a two-tiered system, one for foreign state-owned enterprises and another for foreign non-state controlled entities.

Investors are increasingly bullish on prospects for both deals being approved. Progress shares closed at CAD19.95 on the Toronto Stock Exchange on Monday, down from Friday’s close of CAD20.43 but well off the post-rejection low of CAD18.36 established on Oct. 26. Nexen, meanwhile, closed at CAD25.32, down from CAD25.69 on Friday but also well up from CAD23.27 on Oct. 26.

Above all Mr. Harper is practical, and the inbound investment is important for the long-term development of Canada’s energy patch. And he’s demonstrated a willingness to flout the public, even those who are on his side. This practicality–above party and partisan principle–is the example US politicians should follow as the “fiscal cliff” approaches.

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