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Norway: Revenue from oil fund now exceeds revenue from oil

Norway: Revenue from oil fund now exceeds revenue from oil

Norway launches EITI Report and online portal with extractives data.

Norway has come a long way since its oil activity began 50 years ago. Here, the very first hand coloured map of the Norwegian Continental Shelf. Source of image.

Besides fjords and vikings, Norway’s claim to fame is its oil wealth. It was not always like this. Even though Norway has had 50 years of oil activity, it took 30 years until the government ran a budget surplus. Today, 20 years later, the surplus from petroleum activity has resulted in the largest investment fund in the world. The fund, commonly known by Norwegians as the “oil fund”, holds 1.3% of the value of the world’s listed companies. Norway is slowly moving from relying on natural resources to financial investments.

Transparency and long-term strategy

Transparency, predictability and a principled long-term strategy have been core tenants to the Norwegian experience. This is also why the government started implementing the EITI process in 2009. It has since published six EITI Reports, which disclose and verify financial flows from the country’s oil and gas sector.

At the launch of the latest Norwegian EITI report Minister of Petroleum Tord Lien said: “Transparency of financial flows from extraction of oil and gas is important. Openness contributes to better understanding of the industry and a better factual basis. We need both to make good decisions.”

He added: “Norway wants to be a driving force internationally in this work. This, the sixth EITI report for Norway confirms that we have a good management system and control of the financial flows.”

The report is Norway’s first to be produced under the EITI Standard. Compared with previous reports, this report contains extensive information about Norway’s petroleum sector, including production volume figures and the prognosis for the coming years.

Post peak production

Although modestly down from peak production ten years ago, 214 million Sm3 o.e. marketable petroleum was produced in 2013 from 78 fields on the Norwegian Continental Shelf. About half of the production was gas, which is predicted to increase in the coming years (see chart below).

Yet not peak revenue

Although recently rebounding, oil prices are today still more than one-third lower than in 2013, when the average price was US $109. Governments in most resource-rich countries face weakened government finances as consequence.

Norway is less affected since its government has decoupled its budget from the volatile oil price. The government’s revenue from oil and gas go in its entirety into the aforementioned investment fund. The government can spend up to 4% of the value of this fund each year. As consequence, government finances are more cushioned from oil price fluctuations than other resource-rich countries. However, as the oil fund continues to grow, Norway is turning its reliance on oil markets into reliance on financial markets.

A clear indication of the transition from oil to finance comes from comparing the income the government receives from the oil sector with the financial returns of the oil fund. For the second year in a row financial returns were larger and increasing. This trend can be expected to be intensified for 2014 when oil proceeds were reduced as consequence of low oil prices.

Source: EITI Reports, NBIM

A second indication came last month when the manager of the fund Norges Bank Investment Management announced record-high quarterly returns, which were larger than what the Norwegian government spent in the same period.

Following the revenue from the sale of the government’s oil

Over 55% of Norway’s petroleum revenue comes from the special 79% tax rate on the income of extractive companies. Most of the remainder comes from the State’s Direct Financial Investment (SDFI) in the sector, which is a special economic instrument where the Norwegian state has direct holdings in a number of oil and gas fields, pipelines and onshore facilities.

As one of several owners, the government covers its share of investments and costs, and receives a corresponding share of the income from production licenses. The share of SDFI’s oil is marketed by Statoil, a petroleum company where the state holds a majority of the shares, and the payments of the oil sale are transferred to the Central Bank. These transactions are reconciled in the EITI Report. See illustration of the flows from the EITI Report below.

 

A further explanation and comparison with other countries can be found in the recent EITI brief “The EITI, NOCs and the first trade”.

“Everything about Norwegian petroleum”

Petroleum activities will continue to play a big role for Norway’s economy for many years to come. Indeed, 55% of discovered resources are still in the ground. The Norwegian Petroleum Directorate recently announced that they know of more recoverable oil now than ten years ago.

In April Norway launched a website, available at http://www.norskpetroleum.no/en/, where people can find detailed and accessible information about Norwegian the petroleum sector. The website boldly claims that it contains “everything you need to know about Norwegian petroleum activities”.  This includes information, maps and raw data about:

  • government revenue, including the by-company breakdowns from the EITI report;
  • the legal framework and tax system;
  • available resources, exploration and production

All data are continuously updated from the Norwegian Petroleum Directorate’s databases.

Chart from the new portal Norwegian Petroleum. It was only in the last 15 years that the oil activity started yielding significant revenue to government.

Other EITI countries, such as the United States, are also shifting focus from disclosure in print and pdf reports towards disclosure by open data and digital tools.

Looking ahead

The Norwegian EITI multi-stakeholder group is set to meet and plan the next steps for Norway’s EITI process in June. The civil society group Publish What You Pay Norway recently presented what they think Norway should do with its EITI. They call for transparency of the beneficial owners and on mining licences in Norway.

Next year, Norway will be required to complete an EITI Validation, to assess its compliance with the 2013 EITI Standard.

 

This article first appeared on eiti.org on 27 May 2015.

For more information on the EITI in Norway, visit the country page on the EITI website and their national EITI website

 

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Comment by Antipas Massawe on June 11, 2015 at 8:48

The Norway’s way of investing its oil and natural gas revenues through a national oil fund in the most important world’s listed companies is probably the best mineral rich developing countries should emulated through adaptation in their own developing country conditions.  Even though it took Norway 30 years before its oil activity started contributing the budget surpluses its oil fund builds from, it is thought that the adaptation of Norway’s way of investing its oil and gas revenues in the conditions of mineral rich developing countries should cover all minerals and require all national mineral resource revenues other than the sourced from national investing for shares in the foreign dominated ownership of mineral industries in the developing countries to be deposited in the national mineral funds which invest the way Norway’s oil fund invests. While Norway’s oil fund building up from mostly oil and gas sourced budget surpluses is justifiable on grounds that its oil and gas industries are mostly developed from own national budgets, the mineral rich developing countries building up of their mineral funds from all national mineral resource revenues other than the sourced from their investing  for shares of their mineral industries is also justifiable because budgets in the mineral rich developing countries don’t contribute much of the investments involved in their mineral industries. Mineral rich developing countries direct consumption of the nonrenewable national mineral resource revenues sourced from the all foreign budgets led development of their mineral industries would also be counterproductive, same as their chronic dependence on foreign aid is. Borrowing from their mineral resource funds is the only constructive way mineral rich developing countries could involve their mineral resource revenues sourced from all foreign investing in the development of their mineral industries in their national annual budgets.

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