Careful strategic decisions soon after crude oil was discovered off its coast in the 1960s helped Norway dodge the "resource curse" that often plagues other countries with similar sudden fossil energy wealth, a political advisor to the Labour party in Norway's parliament said on Oct. 25.
Sticking to that broad strategy, once it was formulated, was crucial, Siri Holland told an audience at the Institute for European, Russian, and Eurasian Studies at George Washington University's Elliott School of International Affairs.
"It's an ongoing struggle," she said. "So far, we're doing pretty well."
Government officials quickly recognized that Norway's oil and gas resources, while considerable, are not infinite, Holland said. The government also invited outside companies in as developers, but required them to share expertise and use local suppliers where possible, she said.
"Today, the Norwegian oil supply chain is internationally compatible," Holland said. "We are capable of exporting technology we helped develop, and we're growing overseas." Government, organized labor, and companies collaborating has helped a lot, she added.
The essential challenge was to establish a commercially viable and transparent oil and gas extraction system which would protect the Norwegian people's interests while providing a smooth revenue stream, Holland explained.
She said Norway started by establishing separate policy, regulatory, and commercial ministries, and confining their responsibilities to their specific purposes. It did not form a national oil company but took large financial stakes in publicly-traded companies such as Statoil.
Heavy taxation
Norway's oil and gas taxation is substantial—up to 78% of production revenue, Holland conceded. But it doesn't begin until discoveries are made, she added.
"Even with the high tax rate, the companies are still there," Holland said. "That's because the terms are stable and haven't been changed for decades."
Most important, oil and gas revenues flow into a national pension fund which exists to turn them into capital wealth. About a third of the money (presently $20 billion/year, with a 3-4% historic annual return) is invested abroad to prevent politically driven commitments to failing companies.
Parliament decides what those investments will be each year. "We spend more when times are bad and less when times are good," Holland said, adding that commercial real estate has recently been emphasized. "Norway now owns about half of Regent Street in London, real estate on the Champs Elysees in Paris, and parts of New York City," she said.
Ethics guidelines prevent investments in enterprises producing physically harmful products or operating in countries with poor human rights or environmental conditions, Holland said. The pension fund now equals 120% of Norway's gross domestic product, and leads sovereign wealth fund ratings worldwide, she added.