Kuwait's policy of investing large chunks of its oil revenues in ventures outside the Middle East has earned admiration in many quarters.
The acquisition of refining and marketing assets in Europe and now the Far East is the envy of many other oil producing states trying desperately-and belatedly-to set up a downstream base in main consuming areas.
Kuwait's latest compliment comes from Norway, which plans to establish its own, much watered down version of Kuwait's main overseas investment organization, Kuwait Investment Office (KIO).
NORWEGIAN FUND
Governments of various political complexions in Norway have been toying for almost a decade with the idea of channeling oil revenues into a central fund that would invest abroad.
Now the right of center administration in Oslo has proposed a fund to be administered by the Central Bank of Norway that could invest offshore oil revenues in foreign bonds. Unlike KIO, which made millions from shrewd investments in companies and property around the world, its Norwegian counterpart would be banned from this potentially profitable area,
Under proposals being discussed, all taxes and tariffs from Norway's oil-related activities would be diverted into the fund along with the annual dividend from the state oil company, Den norske stats oljeselskap AS.
Revenues also would come from earnings from the state's direct investment in offshore activities outside the Statoil operation and from future sales of state assets to private sector companies.
First role of the fund would be to meet any deficit in the state borrowing requirement. Currently there would be no surplus for long term investment because the state's take from offshore activities this year will be about 20 billion kroner ($3.05 billion) while the budget deficit is about $4.58 billion.
For this reason, in some quarters in Norway the fund is seen not as a serious vehicle for foreign investment to guard against a repeat of the 1986 price decline, but a system to increase political awareness of how oil earnings are spent.
CONCEPT CRITICIZED
Criticism of the concept has come from the man who originally came up with the idea of the buffer fund, Hermod Skaanland, governor of the central bank.
He put forward the basic concept of a Kuwait style fund in the early 1980's when the central treasury's coffers were overflowing from $40/bbl oil prices. It has been calculated in Norway that if the idea had been adopted at that time, the fund would stand at almost $43 billion and would have earned interest of nearly $20 billion.
The fund, as envisaged by Skaanland, would have been the ideal vehicle to make good the shortfalls in government revenues after the 1986 price collapse when the state's income was based on oil prices of less than $15/bbl.
Skaanland opposes the idea of using the fund to make up budget deficits. Not without reason, Skaanland reckons if it's possible to use the fund to solve short term deficit problems, politicians will constantly be making withdrawals.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
