U.S. officials sound alarm on China
Unocal bid painted as reserve grab (You think?)
By BARRIE MCKENNA
Thursday, July 14, 2005 Page B1
WASHINGTON -- U.S. political leaders say China is waging a stealth campaign to lock up scarce global oil supplies in places such as Alberta's oil sands to keep them out of the hands of Americans.
Several former top U.S. government officials and advisers urged the Bush administration to block China's bid for Los Angeles-based oil producer Unocal Corp., cautioning a U.S. Congressional committee yesterday that the deal is part of a calculated move on China's part to get its hands on energy wherever it can.
"They are hunting around the world for reserves of oil, gas, tar sands and other energy-related assets to acquire," Richard D'Amato, chairman of the U.S.-China Economic and Security Review Commission, told members of the U.S. House of Representatives' armed services committee.
"Their goal is to acquire and keep energy reserves around the world and secure delivery to China above and beyond any market considerations."
The hearings come amid reports that China National Offshore Oil Corp. Ltd., which is 70-per-cent owned by the Chinese government, may amend its $18.5-billion (U.S.) offer to allay national security fears around the bid. Among the key concessions, CNOOC would be willing to sell off some of Unocal's U.S. assets and put a special kill fee in a U.S. bank account for Unocal in case the U.S. government thwarts its takeover, Reuters reported yesterday.
Duncan Hunter, chairman of the House armed services committee, likened CNOOC's bid for Unocal to recent Chinese deals to buy a piece of Alberta's oil sands, the last major oil reserves in North America. And he suggested to the panel of experts that the Bush administration should be pressuring Canada to review these Chinese investments.
"I would hope that some American diplomat or some part of the U.S. government is expressing those sorts of concerns to Canada," responded James Woolsey, former director of the U.S. Central Intelligence Agency.
But Mr. Woolsey added that Canada is free to do whatever it wants with the oil sands.
"Basically, we tried to conquer Canada twice, once in 1775 and the other in the War of 1812, and they whooped us twice. So they earned their right to make their own decisions," Mr. Woolsey joked.
China has made three investments in the oil sands this year, including a commitment to a pipeline that would carry crude from the sands to the British Columbia coast for export to Asia.
Publicly, at least, Bush administration officials insist they aren't worried. After a visit last week to Fort McMurray, Alta., U.S. Treasury Secretary John Snow said he was "not concerned" about China's interest in Canadian oil, even though Canada is the leading supplier of crude oil to the United States.
Mr. Hunter added that the U.S. government shouldn't treat CNOOC's bid for Unocal as a commercial transaction, as Chinese companies don't play by market rules: "CNOOC chairman Fu Chengyu answers to the Politburo in Beijing," not shareholders, he said.
The lone voice in support of CNOOC was Jerry Taylor, director of natural resource studies at the free-market-oriented CATO Institute, who said fears that the deal would undermine U.S. national security are unfounded because Unocal accounts for less than 1 per cent of U.S. oil production and just 0.23 per cent of global production.
Besides, China and the United States -- as net importers of oil -- share a common goal of keeping global prices low, he added.
"Only a naval blockade could prevent America from buying all the oil it needs from international oil markets," he told the hearing.
Unocal shareholders are slated to vote Aug. 10 on whether to accept CNOOC's offer, or a smaller bid from Chevron Corp., which is favoured by Unocal's board of directors.
All three companies have hired prominent Washington lobbyists with close ties to the Bush White House and key members of Congress. The highly charged political atmosphere is reminiscent of the mid-1980s, when U.S. lawmakers tried in vain to stop the Japanese from scooping up U.S. icons such as New York's Rockefeller Center.
The Bush administration can force a review of the proposed deal by sending it to the Committee on Foreign Investments in the United States. But blocking the deal outright would be a long shot. Since the committee was set up in 1988, it has rejected only one of the 1,530 transactions it has reviewed.
Yesterday's hearing is the latest sign in Congress of growing unease about CNOOC's ambitions, and more broadly, China's growing economic clout. Two weeks ago, the House passed a vote calling on the Bush administration to review the deal immediately.
Bush administration officials have said they will wait until Unocal reaches a deal with a purchaser before launching a review.
Takeover jitters
Ottawa is giving itself explicit authority to review, and block, foreign takeovers of domestic assets for 'national security' reasons, following an aborted 2004 bid for mining giant Noranda Inc. by a Chinese state-owned mining company, China Minmetals Corp.
Sept. 24, 2004
China Minmetals confirms that it is in exclusive talks with Noranda's parent Brascan Corp. to acquire all of the mining company's shares, a $6.6-billion takeover.
Oct. 21, 2004
Chinese Foreign Minister Li Zhaoxing makes it plain in an interview with The Globe and Mail that the takeover of Noranda is just a small element in a much more ambitious strategy of investment in Canada's resources sector.
Oct. 21, 2004
Prime Minister Paul Martin lauds the takeover bid while Industry Minister David Emerson admits some unease. He says having a state-owned firm control Canadian resource corporations is different than private ownership of these firms and needs to consider whether it sets a precedent. "I think it's a qualaitatively different matter when enterprises are state owned...." Mr. Emerson said.
Oct. 29, 2004
Mr. Emerson says Canada's foreign investment review legislation may be out of date and unable to adequately deal with the takeover. He says the law is being reviewed.
Nov. 16, 2004
Noranda announces that the period for exclusive negotiations with China Minmetals has expired.
June 17, 2005
Mr. Emerson says he is going to tighten foreign investment review rules to give Ottawa the explicit authority to review bids that could compromise "national security."
June 20, 2005
Mr. Emerson introduces Bill C-59 to amend Canada's investment review laws. Ottawa says the bill will enable it to "review foreign investments in those rare instances where they might compromise" national security.
TEXT: STEVEN CHASE/THE GLOBE AND MAIL
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