Producing oil and gas from the NCS has so far yielded over NOK 5 000 billion in revenues. Almost NOK 3 000 billion of these are in the bank, the rest has been spent by the nation.
- Bjørn Rasen and Emile Ashley (photos)
The prescribed medicine for a sober use of Norway’s main source of government financing can be read in a 36-year-old White Paper (see box), and Mr Johnsen is keen to maintain the same steady course.
He points to the importance of maintaining the prevailing “fiscal rule”, which governs how petroleum revenues are to be phased into government budgets.
These can use an annual average of four per cent of the return on the government pension fund – global, often called the oil fund, which was established in 1990.
Has the nation ended up where the 1974 White Paper wanted it to?
That was a very good document, short and straightforward and easy to comprehend with its 22 pages. It became a sort of master plan for developing petroleum operations in Norway, including what we were to spend the money on.
With hindsight, I’d highlight two important pillars in the report.
One was that the oil belongs to the Norwegian people, and the other that the revenues it generates should be used to the benefit of the whole population.
It’s astonishing to see how farsighted and clever the people who wrote the White Paper were. They described the organisation of the business, the creation of Statoil and eventually the State’s Direct Financial Interest [SDFI – created in 1984].
This document is actually in many respects a minor masterpiece.
White Paper no 25 (1973-74) on the place of petroleum operations in Norwegian society was published the day Sigbjørn Johnsen first took a seat in the Storting (parliament). He has subsequently been involved in the discussions on using Norway’s oil revenues, serving as minister of finance in 1990-96 and from 2009. He was governor of Hedmark county from 1996 to 2009.
How does Norway’s management of its petroleum wealth compare with practice in other countries?
It’s difficult to make comparisons. Each nation must find its own model. I’m proud when I’m abroad and hear praise of Norway and the way we’ve organised our oil industry – and not least the way we’ve managed its huge revenues.
The model with the pension [oil] fund attracts great attention. I meet opposite numbers with big incomes from natural resources who ask how we’ve organised it, so what we do is noticed.
If you had to write an updated White Paper and provide an analysis of the future, what would it incorporate in terms of challenges and future petroleum earnings?
Viewed with hindsight, I can see that we must emphasise developing the workforce. When the 1974 report was written, we had a lot of labour available – not least in the form of women who went out to work over the subsequent 20 years.
We now face a different challenge, with labour in short supply. The demographic challenges have become much clearer in terms of the number of elderly and the size of the workforce. I’d undoubtedly have put more weight on the generational challenge in a new White Paper.
Technology has made big strides, and computerisation has changed much. But the fundamentals of oil wealth as the people’s property and developing a qualitatively better society remain unchanged.
Finance minister Sigbjørn Johnsen notes that “we’re recovering resources which have taken tens of millions of years to create in just over a generation. That creates an obligation.”
How do you envisage the petroleum sector’s role in the society of the future?
Generally speaking, Norway has generous welfare provision. Part of the price for this is a level of costs substantially higher than for our foreign competitors.
Focusing great attention on costs will clearly be important in both financial and income policy. Industrial restructuring will be a key to handling high costs.
Are you worried about getting the Dutch disease [when a country, as a result of exporting a natural resource, de-industrialises more than proves compatible with a longterm commercial structure – as in the Netherlands during the 1970s]? A number of Norwegian politicians are talking loudly about this.
The Norwegian economy can become overheated at times, but I’m not worried that we’ll get the Dutch disease. However, we must be on our guard.
We have the advantage of knowing what causes this condition, the historical experience, which means we can make the right moves to avoid ending up there.
The most important of these is the four per cent rule, which means we aren’t drawing on the capital in the oil fund but spending the interest. It’s growth in the rest of the economy which determines how much you have available at any time.
So I feel we’ve found a tool which allows us to avoid the Dutch disease, without being able to guarantee that for ever.
Claims that this industry is mollycoddling the nation are increasingly heard in the public debate. What’s your response to that?
I think they’re completely wrong. Sometimes I feel we Norwegians are much too good at seeking out problems. You have to turn it on its head – this is a massive opportunity which make us privileged in relation to many other nations.
It’s an opportunity to save for the future and to maintain prosperity. In my view, we’ve handled both well so far. If the assets we’re recovering from the seabed decline and even run out, we’ve built something to replace the oil.
One example, which we talk less about, is the huge industrial development which has occurred in connection with the petroleum business.
We have a world-class engineering and technological sector, which we probably wouldn’t possess without the opportunities oil has given us.
A political consensus has prevailed over the oil industry in Norway. Is that under threat?
We’ll always experience political positioning, but a fundamental agreement exists about oil policy – and that’s one of Norway’s strengths.
Some compromises have been made, such as the one [in the mid- 1980s] to preserve Statoil’s strength while creating the SDFI. With hindsight, we can see that this was an extremely wise move.
Where revenues are concerned, we have the pension compromise which rests on a broad consensus. In the Storting, only the Progress Party wants to abandon the four per cent rule.
Disagreement has been greatest over the pace of production and the opening of new areas. The environment is an important part of that discussion. Nevertheless, broad political agreement still prevails over the basic terms for the oil business and the use of petroleum revenues.
A third of Norway’s petroleum wealth has been converted to cash in the bank. How big could the oil fund get?
That depends on a number of factors. Oil prices are one of these, naturally. Another is the accessibility of the remaining resources. The fund will continue to grow, but the cash flow will decline over time.
The question is then when the cash flow, on its way down, passes the four per cent spending ceiling. This is a very good bank deposit for coming generations, but our future will nevertheless be decided by the way we handle our workforce rather than by oil.
How rigid is the fiscal rule if the nation finds itself in difficulties?
Should we face a crisis, the fiscal rule allows us to spend more in a recession than in a boom. Over time, expenditure must meet the four per cent ceiling. If we find ourselves in a new financial crisis, we have the economic muscle to survive it. It’s important that we use good times to build ourselves up again.
What has the oil done to our national soul? Do we need to recalibrate the perception of reality held by “sated” Norwegians?
Oil doesn’t make us a leisure class. Our natural resources aren’t worth much without competent labour. Compared with others, we Norwegians are hard-working and stick to it.
We have a strong underlying work ethic. What has created our country is the commitment of its workers, and we’ve been lucky with our natural resources.
Although our economy is currently strong, things can happen which affect us. We won’t escape scot-free if the world around us collapses. We must be careful to avoid becoming self-satisfied, and a very important job for us politicians is to discourage rising expectations.
We know that half the oil will remain below ground, and the industry is convinced that more research will help to boost the recovery factor by several per cent. That means oil and gas worth hundreds of billions of kroner, with the government as the biggest owner. Viewed in that light, how would you comment on the shift of state research funding from petroleum to other fields?
Generally speaking, the resources available for research have increased sharply and such work has been given priority in recent years. That’s a responsibility for both society and industry.
In the future, we’ll undoubtedly strengthen our commitment to research on what we can call environmental technology and renewable energy. It’s important to build up our new industries.
Those extra petroleum resources clearly call for massive investment, because they’re hard to get at. I think the oil companies have been good at developing new technical solutions. After all, the production life of fields is very different today than we envisaged in the 1970s.