Wednesday, October 3, 2007

Treating the symptoms. Two Jims in a Jam!

This is almost too choice for words. If Abu Dhabi is the nation of Islam, then Canada is the nation of the misled. Here we have Jim the Apprentice about to impose restrictions on a situation created by Jim the Major Screw-up. That is to prevent Abu Dhabi Energy from acquiring Prime West Energy on the basis that Abu Dhabi is a state owned entity.

That's odd. Wasn't Abu Dhabi also a state owned entity back in May of this very year when it acquired Canadian resource company Northrock Resources from Pogo for $2 billion?

This recent policy proposal is the policy equivalent of a battlefield promotion. Let’s treat the symptoms as best we can in a rudimentary fashion and deal with the real problem once we get the wounded soldier back to the field hospital. I have news for Jim the Apprentice and Jim the Major Screw-up, forget about band-aid solutions to deal with the symptoms, it’s time to acknowledge your self inflicted gunshot wound and treat the disease rather than merely its symptoms.

The disease is ill-named Tax Fairness Plan.

It's not like you weren't warned -- repeatedly. The Tax Fairness Plan is anything but fair, in fact it only serves to tilt the playing field in favour of foreign corporations, foreign private equity and large pension plans. The TFP only served to create an event-driven risk arbitrage that others whom you have exclusively favoured are more than happy to exploit. It’s like $35 billion of unclaimed money sitting on the roadside.

So the mindless Apprentice solution will be to treat the symptoms but not the cause. Brilliant.

If state-owned entities have now become the basis for concern, then how do you or anyone know that Madison Dearborn or Providence Capital are not fronting for state owned entities in their purchase of BCE? Did it even occur to you to ask?

Private equity firms are black boxes. Nothing about whose capital they manage is known or reported on. Nor is anything reported as to what they presently own or whom they are affiliated with. Lest anyone think this is a far-fetched concern, let me point out that China made a $3 billion investment in Blackstone (the firm on whose board Brian Mulroney sits). You can be quite certain some of that money will find its way into Canada. Perhaps all of it will.

But let’s get back to Abu Dhabi and its May 2007 purchase of Northrock and recently announced purchase of Prime West. One was allowed, the other apparently won’t be. A U.S. firm (Pogo) can sell its Canadian Energy firm (Northrock) to Abu Dhabi Energy without a peep from Canada’s New Government, but now Canadian pubic unit holders of Prime West will be denied this value-maximizing option.

Canada's New Government must truly hate Canadian trust investors with a passion. It could hardly be more obvious. This government has no concern for Canada’s economic sovereignty. They care only about the egg on their face from their horrific income trust policy. That’s the disease, everything else in symptomatic.

Flaherty was warned by numerous financial experts and some in the press about the symptoms that would be unleashed in the few short days after his surprise Halloween drive by. He didn’t listen. He didn’t acknowledge. It appears he didn’t even care.

We subsequently learned from the "honorable" Finance Minister that it wasn’t even his fault. Truly pathetic on all fronts. Take a bow. Had he consulted with the public and affected parties beforehand as the Liberals wisely did, he would have known the damage he was about to wreck on investors, our tax base, our economy and our capital markets. Unfortunately, he was too self important to consult or even heed our subsequent warnings. The Finance Minister actually thought he knew what he was doing, after all it was the very captains of Canadian industry who put him up to it. That must have been a real heady experience for Harper and Flaherty, Never before had they experienced such attention. How could they say no? Impressionable losers!

Meanwhile as we said at the time of the Northrock sale by Pogo, this is an asset that would have normally fetched maximum disposition dollar through an income trust IPO which would have seen taxes maximized to our government and would have been the continuation of a long trend over the least ten years to repatriate Canadian energy assets from foreigners, courtesy of income trusts and investors appeal. Western Oil Sands was another such wasted opportunity brought about by our government which saw this asset go into the hands of foreign big oil rather than Canadian retail investors.  

And now this government of ours is trying to parse the issue as being between buyers who are state-owned and buyers who are, on the surface of it, not. That only defines the issue on the periphery. It is an intellectually weak way of parsing the issue and avoids confronting the true causal reality.

This government is only concerned about saving face, not in saving our country’s economic sovereignty. To wit: the SPP. They realize the political embarrassment that this $5 billion Prime West sale represents in terms of revealing the horrific Tax Fairness Plan and all its consequences for what they truly are. That’s their only concern. Hence the band aid solution.

This problem is festering, Our predictions are being realized, sooner than even we imagined. BCE and Prime West are the two book ends of a grossly flawed policy. Loss of sovereignty and the loss of $7.5 billion in annual taxes are only two of its inevitable consequences. The other consequences are the effects on people lives which seem to be of no concern to this government, The open wound has gone gangrenous. Time for surgery. Amputate the Tax Fairness Plan in all its festering totality, and let’s get on with life. Life is tough enough as it is without the need for  government imposed self inflicted gun shot wounds that go by the fraudulent name of tax fairness. If that’s fairness, we need less of it, or give me a new government (lower case). Ditto the NDP, and Jack in the box, without whom we wouldn’t be having this conversation or loss of economic sovereignty and tax revenue. He’s got his mind on bigger matters of economic significance in the global economy. ATM fees.


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