The Harper government is sharpening its policy on takeovers by foreign corporations to single out firms controlled by other governments and set more detailed conditions they must meet before Ottawa would approve a deal, sources say.

Under rising pressure to clarify Canada's rules on foreign takeovers, the Conservatives are trying to strike a balance between attracting foreign investment to develop Canada's natural resources and concerns about the objectives of powerful state-backed firms from China, Russia and elsewhere that have deep pockets and big appetites for resources.

Senior government sources offered the most detailed sense yet of what the Conservatives are considering.

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At its heart would be a more sharply delineated, two-track system for judging whether a foreign takeover provides a "net benefit" – one track for transactions with typical corporations and another track for firms under the influence of foreign governments.

"The government is working its way toward clear criteria for applying the net-benefit test to proposed acquisitions by state-owned enterprises," a government source told The Globe and Mail Tuesday.

"This is a delicate issue that we need to get right," the source said.

The Conservatives were spurred to act after China National Offshore Oil Corporation, controlled by Beijing, launched a generous mid-summer bid for Nexen Inc., a major Canadian petroleum producer with oil sands interests. It sparked unease among the Conservative Party's core constituency over what is seen as a flood of foreign, state-owned companies buying Canadian resource firms.

The takeover could be merely the first of many deals if Ottawa approves it. Other state-owned companies from India to China are waiting to see how Canada handles the CNOOC bid and analysts foresee a "tidal wave" of investment coming from emerging Asian countries. Last Friday night, the Harper government blocked Malaysian state-owned oil company Petronas's $5.2-billion bid for gas producer Progress Energy Resources Corp., saying it did not consider the deal a "net benefit" for Canada.

Prime Minister Stephen Harper promised in September to reveal his government's approach to foreign takeovers in a "framework" statement. The Tories are expected to release this policy at the same time as they render judgment on the CNOOC-Nexen deal.

A source familiar with the Harper government's thinking says the Tories want to protect Canadian resources from the geopolitical aims of foreign governments in the new framework – one expected to emphasize tougher scrutiny for state-owned firms with murky control and direction.

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"The concern is making sure we're not allowing Canadian resources to become part of another state's geopolitical goals," this source said.

A Canadian government official confirmed reports that Ottawa had asked Petronas for more time to review its bid for Alberta's Progress Energy Resources Corp. because it wanted to finish the foreign takeover policy statement first. Petronas rejected this request, leading Canada to announce it could not approve the deal in current form.

"There are some important timing considerations, which is why an extension on the Petronas application would have been helpful," the government source said.

The Harper government is expected to clarify how it would approach foreign takeovers. The Investment Canada Act says transactions must be in accord with government policy and so by updating their policies the Tories would be effectively revising takeover rules.

The government has already taken action on state-owned enterprises. In 2007, the Conservatives announced that Ottawa would examine prospective buyers to determine the extent to which foreign governments control them, how transparent and open their governance structures are and whether Canadian takeover targets would lose a clear commercial focus after absorption by outsiders.

Bloomberg News reported Tuesday that Canada plans to ask China to allow several reciprocal transactions in exchange for approval of CNOOC's bid for Nexen, citing a person "with knowledge of the matter." Canadian companies with pending investments in China include Bank of Nova Scotia and Manulife Financial.

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This underscores that reciprocity will be part of the new framework on foreign takeovers, Bloomberg reported.

Mr. Harper has said all along that whether countries give Canada reciprocal treatment will be part of the CNOOC takeover review.

The Conservatives are also under pressure to address the impact of cumulative foreign investments in one sector or company – to signal that it would review future deals in the context of what outsiders have already bought.