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Norway Decides Fate of $1 Trillion Wealth Fund's Oil Stocks: Q&A

Norway Decides Fate of $1 Trillion Wealth Fund's Oil Stocks: Q&A
  • 07 Mar 2019

Norway will on Friday decide whether to let its $1 trillion sovereign wealth fund dump all its oil and gas stocks. Here’s what you need to know.

1. Why does Norway’s fund want to dump petroleum stocks?

The fund contends that it makes little sense for Norway to be doubly exposed to the oil markets. As western Europe’s biggest oil and gas producer, its fortunes are already heavily linked to petroleum, deriving almost half its exports and more than 20 percent of the state’s revenue from the commodities.

The central bank, which oversees the fund, insists that the plan is based solely on financial considerations and that it doesn’t reflect a particular view of the oil industry’s prospects.

2. What would be the impact of divestment?

The proposal shocked markets when it was revealed in 2017, sending oil stocks broadly lower. The plan was hailed by activists around the world as a monumental step in getting investors to back away from fossil fuels. If it becomes reality, it would likely turn the heat up on Big Oil, which is already facing pressure to do more to fight climate change and adapt to the energy transition.

The fund owned about $37 billion of oil and gas stocks at the end of last year, including more than 2 percent of Royal Dutch Shell Plc, BP Plc and Total SA. But it has also assured that any sell-down would likely take years.

3. How has the proposal been received?

Economists are split over the plan and a government-commissioned expert panel last year advised against it, arguing a divestment would be inefficient insurance against a drop in commodity prices. It also said it would threaten the fund’s simple and well-established strategy of investing broadly.

In theory, the proposal has the support of a majority of parties in Parliament, which has the final say. However, since the plan was presented, the centrist Liberals and Christian Democrats, who are in favor of dumping oil stocks, have joined the bigger Conservative and Progress parties to form a majority government. While they haven’t voiced a clear view of the oil-stock proposal, the Conservatives and Progress Party have traditionally been reluctant to make dramatic changes to the fund’s investment strategy.

4. What happens now?

The issue is likely to be settled within the coalition before the Finance Ministry makes its announcement on Friday. While that process makes a heated contest in parliament improbable, it also makes the outcome harder to predict.

Tore Storehaug, a Christian Democrat lawmaker who sits on Parliament’s Finance Committee, declined to say anything on what might happen in case the government decides not to follow the fund’s advice.

“Generally speaking, there’s broad consensus that the management of the oil fund and the enormous values Norway controls should have the broadest possible political backing,” he said by phone.

The opposition Labor Party, Norway’s biggest political group, has long said it’s sympathetic to the proposal, and is now coming out clearly in favor of selling the fund’s oil stocks.

“My expectation is that they’ll follow the advice from Norges Bank,” said lawmaker Svein Roald Hansen. “We will of course consider the government’s arguments. But in my opinion, they will need to come up with some surprising elements to change our mind.”
By Bloomberg