Article content continued

[np-related /]

The ruling stunned investors, driving down Canadian energy stocks and pressuring the Canadian dollar. It also cast doubt on Prime Minister Stephen Harper’s repeated assertions that the country has an open door to foreign investment.

The result was an embarrassment for the supposedly pro-business Conservative government, which needs an estimated US$660 billion to develop Canada’s energy sector over the next decade.

Ottawa, sources said, wanted to approve the Petronas-Progress deal but was afraid that would tie the government’s hands when reviewing the much more controversial US$15.1 billion bid by China’s CNOOC Ltd for Nexen Inc.

Officials were wary of setting a policy on investment by foreign state-owned enterprises that would make things difficult if Canada later decided to take a tougher line on CNOOC-Nexen.

Ottawa sought more time and thought a delay would be a small matter since Petronas had agreed previously to a two-week extension. But no one explained the situation to the Malaysians, who thought they had a done deal, felt blindsided and feared another agenda might be at play.

Petronas had already raised its bid after Progress received a counterproposal, thought to be from a major Western oil company. So it refused to accept an extension and played hard ball, expecting Canada to cave.

“You had them fully expecting that they would say ‘No, we aren’t going to take the extension’ and that they’d be cleared and that would be the end of it,” said a source who was briefed on the discussions between senior politicians and bankers advising the companies.