National Budget 2003

National Budget 2003

Economic Policy - The Government Petroleum Fund

The Government Petroleum Fund was established in 1990 when the Storting adopted the Petroleum Fund Act. The Fund's income is defined as the central government's net cash flow from petroleum activities, income from the sale of shares in Statoil and the return on the Fund's investments. The Fund's expenditure includes an annual transfer to the fiscal budget by virtue of a Storting resolution, equivalent to the non-oil fiscal budget deficit.

Norges Bank manages the Government Petroleum Fund in accordance with the guidelines provided by the Ministry of Finance. The capital in the Petroleum Fund is invested in equities and fixed-income instruments abroad. The equity share in the Fund is limited to 30-50 per cent and the Fund may be invested in 28 different countries.

Chart 2.6 Government net cash-flow from petroleum activities and accumulated capital in the Petroleum Fund. Per cent of GDP

Source: Statistics Norway and Ministry of Finance.

The value of the Government Petroleum Fund came to NOK 605.4 billion at end-June 2002. The Fund is estimated to increase to NOK 666 billion at the end of 2002 and NOK 846 billion at the end of 2003. Since the beginning of 1998, the Petroleum Fund's total cumulative return has been 20.0 per cent.

The Environmental Fund was established on 31 January 2001 with a capital of NOK 1 billion. At the end of January 2002 the capital was increased by another NOK 1 billion. The Fund is invested in companies that are considered to have little negative impact on the environment and in companies that satisfy defined criteria with respect to environmental reporting and certification.

In 2001, the Government established an exclusion mechanism for the Petroleum Fund, whereby the Ministry may exclude companies from the Fund's investment universe if investments in such companies are contrary to Norway's commitments under international law. The framework and procedures for such a mechanism are laid down in the Regulation for the Management of the Petroleum Fund.

The distribution of Petroleum Fund investments across Europe, the Americas and Asia was established in 1998 on the basis of a combination of import weights and global GDP weights. Compared to pure import weights, Europe received a lower weighting, while the Americas and Asia received a higher weighting. The Regulation for the Management of the Petroleum Fund specifies regional weights of 40-60 per cent for Europe, 30-50 per cent for the Americas and 10-30 per cent for Asia. The reference portfolio's regional weights were concurrently set at the mid-points in the respective intervals, i.e. at 50 per cent for Europe, 30 per cent for the Americas and 20 per cent for Asia.

Chart 2.7 Accumulated return on the Petroleum Fund. 1 January 1997=100

Source: Norges Bank

The Ministry of Finance decided in January 2002 to reduce the weighting for Asia in the Fund's reference portfolio for fixed income investments from 20 to 10 per cent, while the weighting for the Americas and Europe was revised up to 35 and 55 per cent respectively. The regulation is now being amended accordingly.

The Ministry of Finance plans to retain a 50 per cent weighting for Europe in the Fund's reference portfolio ahead. The ministry also recommends that fixed regional weights between Asia and the Americas should be dispensed with and that the distribution should be based on the market value weights in these regions as a whole. The Americas will accordingly receive a larger weight and Asia a smaller weight compared with the present regional weights for equities.

The regional distribution will be changed to the following weights in the Regulation for the Management of the Petroleum Fund:

Fixed income Equities
Europe: 45-65% Europe: 40-60%
Americas: 25-45% Americas/
Asia and Oceania
40-60%
Asia and Oceania 0-20%

The Storting adopted the following resolution in June 2002:

«The Storting requests the Government to appoint a committee to submit recommendations for a set of ethical guidelines for the Petroleum Fund and to introduce a Bill in the spring of 2004. The committee should comprise persons with competence in international law, in addition to knowledge of ethical guidelines and specialist competence in the field of the environment and human rights.»

The committee will be appointed by Royal Decree.

The committee should submit, in accordance with the Storting's resolution, recommendations for a set of ethical guidelines for the Petroleum Fund. Issues related to the environment, human rights, employee rights and governance and management of business enterprises are natural issues for assessment in this context. The committee is expected to present its recommendations by 1 June 2003, and the Government intends to submit proposals to the Storting in the Revised National Budget for 2004.