"It's not the job of the government to decide how much gas should be exported and how much should be kept for the domestic market," former Norwegian Prime Minister Kjell Magne Bondevik, a founder of the country's sovereign wealth fund, told "Globes" in an interview during the President's Conference. He outlined the considerations behind the establishment of Norway's sovereign wealth fund, considerations that may not necessarily be relevant for the sovereign wealth fund that Israel is planning to establish.
During the visit, Bondevik met Prime Minister Benjamin Netanyahu to discuss moving forward on peace talks with the Palestinian Authority. But Bondevik was also exposed to the lively debate about gas exports, and his opinion may surprise many gas exports opponents who use Norway as a model for deep, but successful, government involvement in the oil and gas industry.
"Globes": What do you think about the proposal, which the cabinet is about to approve, to limit gas exports to 40%?
Blondevik: "It was strange for me to hear that the Israeli government had decided how much gas should be kept for the domestic market and how much should be exported. In Norway, we let the market make such decisions."
The worry in Israel is that there won't be gas left for us if we export it.
"It's clear to me that gas is a much more political decision in Israel. You're isolated and depend on gas far more (than Norway). Our reserves could meet our needs for 100 years. Nonetheless, I think that that it's best to let the market decide, so long as the country retains the option of influencing the decision should a national need arise. Norway's two biggest energy companies Statoil and Petoro are government-owned, and the government can, of course, order them how to act."
Norway's water reserves and mountains make it a perfect place for hydroelectric power, which generates over 90% of the country's electricity. Domestic gas consumption is just a tiny fraction of the gas that it produces from North Sea fields, with the result that the small country is the world's second largest gas exporter. Its gas exports exceeded 100 billion cubic meters (BCM) in 2012, ten times the maximum exports expected from Israel.
Norway's profits from oil and gas exports go to its sovereign wealth fund, called the Government Pension Fund of Norway, which has accumulated more than $700 billion in assets to date, making it the largest fund of its kind in the world, including in absolute terms. In contrast, the Israeli fund will ultimately total $70 billion. "I remember well the lively arguments over the fund in parliament," says Blondevik.
Why did you establish the fund?
"Without the fund, we would have suffered from the Dutch disease. Annual income from oil and gas profits now amounts to almost a quarter of our GDP. (In Israel, the income will amount to a few percent of GDP -A.B.) The fund only invests overseas in order to offset the appreciation of the krone from oil and gas exports. Besides, if the fund didn’t exist, the politicians would be fighting anew over the money every year and the economy would be overheated. By the way, in 2000, we changed the rules to allow the government to withdraw 4% of the fund's assets for current budget needs. Thanks to this money, Norway has achieved a balanced budget in recent years."
What's the secret of your fund's success?
"Political consensus, adhering to the rules, and total government control of the fund's management and overhead. The fund's managers must not be compensated on the basis of the fund's performance, because that would cause speculation. We scrupulously ensure that the investment rules are ethical; for example, the fund does not invest in tobacco companies or defense contractors. Ethics are important for politicians' involvement and the decision is taken by the prime minister at the recommendation of the finance minister."
Bondevik did not mention it, but the Government Pension Fund of Norway's blacklist includes many Israeli companies, mainly because of business activity in the West Bank, activity which Norwegians consider to be illegal. Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) was blacklisted in September 2009, Africa-Israel Investments Ltd. (TASE:AFIL) and its contracting arm Danya Cebus Ltd. (TASE: DNYA) were blacklisted in August 2010, and most recently, Shikun & Binui Holdings Ltd. (TASE: SKBN) was blacklisted in June 2012.
In your opinion, do the fund's financial results prove themselves?
"Absolutely. The results are very good."
Published by Globes [online], Israel business news - www.globes-online.com - on June 23, 2013
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