By Syed Rashid Husain, Vice-President of the Trading and Consulting House Al-Azzaz Est.
Not long ago while in discussion with a senior Norwegian diplomat on the explosive regional situation and the then ongoing army operation in the energy- rich Balochistan province of Pakistan, I pointed out that many in the region believed that oil and energy assets have proven to be more of a curse than a blessing for the region, in which he quipped "but not in the case of Norway." And he had a point one could not dare negate.
Norway, a small country not far from the North Pole with only 4.5 million inhabitants, holds a very interesting energy portfolio. It is the third largest oil producer of the world, behind Saudi Arabia and Russia and also supplies immense volume of gas to the world. One-third gas requirement of the European Union is met by supplies from this small, yet important country, on the global energy map.
But more startling is the manner this small country has been using its energy riches toward a truly egalitarian society. Norway is a success model, as far as energy industry is concerned.
Olav Akselsen, head of the Standing Committee on Foreign Affairs in Stortinget,
The Norwegian Parliament, was in Riyadh last week at the invitation of the Shoura Council. He proudly pointed out the proper distribution of wealth among all the strata of society and complete transparency in running the affairs of the country as the two major pillars of the Norwegian governance system, contributing to this success model. Unlike some oil producing countries such as Nigeria, where oil assets have not contributed significantly to human development - as per a UN report, in terms of human development index, Norway is on top - an envious position to be in for a country as small as Norway. Indeed the fact that industrial activity in the country preceded the discovery of oil has contributed to this envious state in some ways and Akselsen conceded that without hesitation. But the record is impressive even then!
For someone involved in the energy world, and its geopolitics, Norway is a wonderful case study, in more than one ways. It is a country where extremely high taxes on energy sector have helped achieve a close to ideal proper wealth distribution. And the rate of taxation in Norway could also be gauged from the fact that despite being a leading oil producer, the price of petrol at gas stations in Norway is among the highest in Europe.
The country has put into practice a very interesting mix of rules and regulations. Norway's "Pension Funds" are already well known. As per the rules of governance, the government in Oslo is not allowed to touch the income from this precious natural asset - oil. All the income from oil goes to the special "Pension Fund." The government is allowed to use only returns on these investment - and that too only four percent - in a given year. The rest is for posterity!
Norway is using this "finite" asset prudently and rather than opting for a "lifestyle" it has decided to invest the income in future. Indeed they were at a different level of social evolution than most of the other oil producing countries. One cannot miss out appreciating the sagacity of the Norwegian people.
A brief chat with Akselsen lastweek at the residence of Ambassador Arne Walther, secretary general of the International Energy Forum, was literally an eye opener in many senses. The brief meeting took place immediately after a presentation by Akselsen at the IEF headquarters in Riyadh on the foreign policy dimension of the energy policy - a very interesting subject, too.
Another very fascinating aspect of the Norwegian energy sector is the role of oil majors in exploiting their national asset. While oil majors clamor to get back into most of the energy rich areas at their own terms, in Norway, they have to accept strict governmental controls. This sector is extremely highly taxed and the oil companies have to cough up, believe it or not- up to 90percent - of their profits to government in the form of taxes, Akselsen revealed. This was an eye opener, especially when seen in the backdrop of the new rules to be adopted in the nearby Iraq - accruing up to 70 percent profits to the oil majors.
But would any oil major be interested to invest, when it has to pay back 90 percent of its profits in taxes to the government? Interestingly virtually all the global majors - from Exxon, Shell, BP Total to Eni and others are operating in the country was the prompt answer.
But why would the private sector be at all interested to get into the Norwegian energy sector despite such high taxation? The answer was very simple yet arduous - stability and transparency. Rules have been framed and do not undergo changes every now and then. All the investors know much in advance what they would have to pay and how much they earn. Every thing is open, documented, and transparent and the entire system is clean. Hence despite high taxation - one of the highest in the world "- oil companies still vie to get in. What a contrast indeed!
Earlier in the evening, while giving his talk, before a select gathering of diplomats
And energy leaders at the IEF Secretariat, the Norwegian parliamentarian, a former Norwegian oil minister, who in the words of Ambassador Walther "was deeply committed to political negotiations at the highest level on energy issues," emphasized that energy poverty is wide spread and without access to energy, people are doomed to poverty and misery. This is a question' about distribution of energy, not lack of energy resources as such, he argued before the select gathering.
On environmental issues related to fossil fuel, he stressed on cleaner production technologies. And carbon dioxide capture and storage (CCS) can play an important role to stabilize atmospheric greenhouse gas concentrations, he said. Norway is now I setting up the world's largest full-scale CCS project in conjunction with a projected combined heat and power plant at Mongstad oil refinery in Norway, to be fully operational by the end of 2014, he added.
"We are developing groundbreaking new technology which can become an export item and a guarantee for continued future petroleum activities in Norway. Carbon dioxide (Co2) separation and storage is particularly relevant for oil producing countries. It has a potential to make fossil fuels carbon free, boosting the life cycle of this product. It could also enhance production of oil when used as an enhanced oil recovery method. And we have reservoirs to store Co2," Akselsen emphasized.