National Budget 2003

National Budget 2003

Structural Policy - Product Market Issues

Measures to improve the functioning of the economy are designed to promote an efficient use of resources, and thereby strengthen the growth potential of the economy.

At the turn of the year 2001/2002 the Government initiated a review of the general body of policy instruments applied at businesses and industries. Greater emphasis will be given to general framework conditions whereas the direct policy instruments will be concentrated on areas where government measures can promote well-functioning markets.

Overall budgetary support to industries is estimated at NOK 17.8 billion in 2001, a reduction of 11.7 per cent from the 2000 level measured in constant prices. Schemes primarily targeted at specific industries constitute about 80 per cent of total budgetary support to industries, while general schemes make up a mere 20 per cent.

The agricultural sector received about 70 per cent of overall budgetary support in 2001. Over the past ten years the real value of budgetary support to this sector has been reduced by 25 per cent.

Budgetary support to manufacturing, mining and private services amounted to about NOK 4.2 billion in 2001, which is a reduction in real terms of 13.5 per cent from 2000. Support to the shipbuilding industry, which in recent years has constituted about 30 per cent of budgetary support to manufacturing and the services sector, was halved in 2001. This is due to reduced disbursements of contract subsidies to shipyards. As a result of the EEA regulations applying to the shipbuilding industry, all support for contracts was discontinued with effect from 1 January 2001.

Chart 3.2 Budgetary support to industries. Tax concessions excluded. NOK billion. 2001 prices

Source: Ministry of Finance

Support payments to the fisheries sector are estimated at NOK 376 million in 2001. Support to this sector fell sharply in the years 1991 - 1994 as a result of reduced transfers via the fisheries agreement. Transfers via this agreement came to NOK 113.5 million in 2001.

The Storting has adopted a tax credit for firms' research and development expenditures, to apply with effect from 1 January 2002, which will replace the previous FUNN R&D grant system. Central government financing of R&D, including the tax credit scheme, is estimated to increase to NOK 12.2 billion in 2002. The tax credit scheme is extended to include all firms in the 2003 budget.

In 1995, the OECD launched a broad-based programme of regulatory reform - the OECD Regulatory Reform Programme. As part of this programme the OECD is currently conducting a review of regulatory reform in Norway. The Government's programme for modernisation, efficiency and simplification in the public sector largely mirrors regulatory reform programmes to be found in many other countries.

As a result of the EEA Agreement, two sets of competition rules have existed since 1994: the national Competition Act and the competition rules under the EEA Agreement. Both sets of rules are designed to ensure that commercial undertakings do not restrict or distort competition. The Norwegian authorities have appointed a preparatory committee to review Norwegian competition legislation and to table proposals for new rules by November 2002. In its initial report the committee proposed giving the Norwegian authorities responsibility for fully enforcing Article 53 of the EEA Agreement prohibiting anti-competitive practices and Article 54 prohibiting abuse of a dominant market position. Moreover, the committee recommends that a new Norwegian competition act should be drawn up on the basis of the model set out in the EEA Agreement's competition rules.

Public sector ownership in the Norwegian business sector is somewhat higher than in most other OECD countries. A large portion of government ownership is related to the depletion of natural resources, network industries with natural monopolies or regional policy considerations. In recent years, a number of companies have been converted to public limited companies, partially privatised, listed on the stock exchange and, in some cases, fully privatised. In White Paper No. 22 (2001-2002), "Reduced and Improved State Ownership", the Government drew attention to the benefits of reducing the State's ownership interests in a number of companies. Following the partial privatisation of Statoil and Telenor, the proportion of companies that are partially owned by the government is now much higher than the proportion of wholly-owned state companies. In accordance with the Storting's resolution on White Paper No. 22 (2001-2002), a preparatory committee will be appointed to address issues and give recommendations on improving the organisation and management of State ownership.

Extensive changes have taken place in the electricity market. The electricity supply sector has changed from a sector focusing on meeting local/regional demand for electricity to a market where prices are determined by supply and demand. In recent years there has been a tendency towards increased cooperation and mergers between energy companies as well as acquisitions of distribution companies and customer portfolios. Licensing rules for the hydro power sector, important elements of which are the State's pre-emption right and reversion of expired concessions to the State, affect power company sales and corporate structure in Norway. The EFTA Surveillance Authority (ESA) has asserted to the Norwegian authorities that conditions governing time-limited licences and reversion that differ according to the owner in question are in conflict with the EEA Agreement's provisions on free right of establishment and free movement of capital. In parallel with the ESA issue, the Ministry of Petroleum and Energy has considered whether equal treatment can improve competitive conditions in the electricity market. It turns out that the present licensing rules are far from optimal in the electricity market established by the Energy Act of 1990, since the system negatively affects both competition and efficiency in the electricity sector. Therefore, the Government is assessing the possibilities for, and consequences of, harmonising the licensing conditions applied to the State and private parties by maintaining reversion, but in an owner-neutral form.

Liberalisation of the Norwegian telecommunications sector has largely adhered to the schedule for deregulation laid down in the EEA Agreement. With effect from 1 January 1998, the remaining exclusive rights pertaining to general telecommunications infrastructure and speech telephony in the established transmission line network were removed. However, Telenor maintains a strong market position in most market segments. The White Paper No. 32 (2001-2002), "The Situation in the Norwegian Mobile Market", pointed to the apparently unsatisfactory competitive situation in the Norwegian mobile market, and examined policy instruments to strengthen competition. In December 2001, four nationwide licences were awarded for the establishment and operation of third-generation mobile communications systems (UMTS) in Norway. Following the bankruptcy of one of the licensees, the Government recommends reallocating the available licence by auction. The Government also advocates enabling telecommunications operators with a UMTS licence to collaborate on the development and operation of infrastructure for third-generation mobile telephony. The Ministry of Transport and Communications aims to introduce in the winter of 2003 a Bill on electronic communications to replace the existing Telecommunications Act. The Bill is in line with the EU's new body of rules in this sphere, and is expected to come into force in July 2003, at the same time as equivalent legislation takes effect elsewhere in Europe.

In recent years, the Norwegian civil aviation market has shifted from a market based on exclusive right to a regulated competitive market, but with a single dominant operator. On 23 October 2001 the Norwegian Competition Authority (NCA) approved SAS's acquisition of the other main operator of air services in Norway, Braathens. The SAS Group (SAS, Widerøe and Braathens) acquired a virtual monopoly in the Norwegian domestic market with a market share of 98 per cent. Norwegian Air Shuttle AS (NAS), a privately owned company, started servicing the major domestic routes in the autumn of 2002. The authorities have taken a number of steps to improve conditions for start-ups and competition in the domestic market. The air passenger duty was removed with effect from 1 April 2002. The NCA barred the SAS Group from offering its passengers bonus programmes on domestic flights with effect from 1 August 2002. The State has established new agreements with NAS to buy domestic air travel for civil servants with effect from 1 September 2002.

Norway is about to open the railway network to competition. Parts of the network will be opened to competition from 2004 onwards when selected sections will be put out to tender. In Norway, cross-border railway lines and most railway lines of importance have been opened to international goods traffic via voluntary European cooperation. With effect from 1 July 2002, NSB BA (Norwegian State Railways) was converted to a wholly state-owned limited company, NSB AS.

In June 2002, the EU adopted an amending Directive to the Postal Services Directive with regard to a further gradual and controlled opening to competition of the postal services market in Europe. The amending Directive is likely to be incorporated in the EEA Agreement and will in that case have to be implemented in Norwegian law. Posten Norge BA (Norway Post) was converted to a wholly-owned limited company, Posten Norge AS, with effect from 1 July 2002.

The Norwegian pharmaceuticals market is extensively regulated. A new Pharmacy Act came into force on 1 March 2001. The new Act opens the way for free establishment of pharmacies and removes the need for pharmacy owners to hold pharmacy qualifications. It also opens the way for generic replacement. However, brand-name manufacturers still appear to dominate the market, and at higher prices than the generic manufacturers. This indicates that there is a potential for increased generic replacement and lower prices. The Ministry of Health is to table a Proposition on the establishment of an index-price-based refund system for a selection of pharmaceuticals facing generic competition which, if passed, could take effect on 1 March 2003.

A special feature of the fisheries industry is the extensive regulations relating to business activities. There is currently surplus fishing capacity in relation to the available resource base in most areas. Regulations are needed in order to maintain sustainable stocks and ensure profitability in the industry. The formulation of some regulations, however, may cause value added in the fisheries to be lower than might otherwise have been the case. Establishment, ownership and production (catch quotas in the fisheries, feed quotas in fish-farming) are regulated in the fishery and aquaculture industries. Unit quota schemes have been introduced in order to adapt the ocean fishing fleet to the resource base. Such schemes enable fishing quotas for several vessels to be assembled on a single vessel for a limited period, provided other vessels are taken out of the fisheries. The Ministry of Fisheries has now circulated for comment a proposal for quota schemes for the coastal fishing fleet. The Government has also recommended the establishment of a structural fund in order to adjust the capacity of the fishing fleet. The fund is designed to ensure a stable supply of funds for condemnation purposes, thereby laying a basis for the requisite structural adjustment to include the coastal fishing fleet. Moreover, the legislation governing both fisheries and aquaculture is undergoing modernisation.