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Norway Rebutted by Investors Amid Tariff Cut Backlash

February 20, 2013

Funds that have spent more than $5 billion on Norway’s gas pipelines are contesting the legality of a proposal to cut tariffs charged for shipping the fuel, arguing the government’s plan undermines the value of their investments.

The proposal, made public last month by Norway’s Ministry of Petroleum and Energy, constitutes a breach of contract, according to a Dec. 21 letter sent to the government by four companies representing 44 percent of Gassled, which owns Norway’s gas infrastructure. Owners of the four companies include Canadian pension funds, a UBS AG infrastructure fund and a unit of Abu Dhabi’s sovereign wealth fund.

“We see this as a dramatic proposal, in breach of the terms for our acquisition,” Kurt Georgsen, chief executive officer of Silex Gas Norway AS, one of the four companies, said by phone yesterday.

The move, which comes 15 months after the Norwegian government shocked credit markets as far afield as Japan with its decision to withdraw state backing from Eksportfinans ASA, will further undermine investor confidence in Norway, Georgsen said. This time, the fallout threatens to hurt infrastructure investment vital to Norway’s oil and gas industry, where total spending is forecast to reach a record 208 billion kroner ($38 billion) in 2013, according to the statistics bureau.

‘Terms Change’

“We have chosen to invest in Norway with a long-term perspective, and had the wish to contribute in financing future infrastructure,” Georgsen said. “This is clearly a change in the terms that will force us to consider our approach to those investments.”

Norway, western Europe’s largest gas exporter, wants to cut tariffs paid by producers on new volumes contracted after May 1. The government argues the move will help make discoveries more profitable and boost exploration and recovery rates. The main concern is managing Norway’s natural resources, said Lars Erik Aamot, the head of the oil and gas department at the Petroleum Ministry in Oslo.

As to the investors, “I don’t know what expectations they had to returns,” he said in a phone interview yesterday. “What they have paid is not relevant to our policy.”

The so-called K-Element for a range of tariffs would be cut by as much as 90 percent, according to the government’s proposal. High rates on existing contracts will still enable “reasonable returns” for Gassled’s owners, it said.

Real Returns

Real returns before tax on historical investments in Gassled’s pipelines were 10 percent in 2012 and are forecast to reach 10.5 percent in 2028 based on past and existing contracts, according to a report cited in the government’s proposal and written by Gassco AS, the operator of the 7,975-kilometer (4,955-mile) network that ships gas to the U.K., France, Belgium and Germany. Net cash flow is also currently higher than the level that was expected when Gassled was set up, Gassco said.

Gassled was formed as a joint venture between oil and gas companies in 2003 and some of the founding members started selling their holdings in 2010. Statoil ASA, which is 67 percent owned by the Norwegian government, divested a 24 percent stake in Gassled in 2011 for 17.35 billion kroner.

The stake was bought by Solveig Gas Norway AS, which is owned by the Canada Pension Plan Investment Board, Allianz Capital Partners, a subsidiary of Allianz SE, and Infinity Investments SA, a unit of the Abu Dhabi Investment Authority.

‘No Basis’

Also in 2011, Infragas Norge AS, a unit of Canada’s Public Sector Pension Investment Board, bought Royal Dutch Shell Plc’s 5 percent stake for 3.9 billion kroner, while Silex, owned by Allianz, acquired Total SA’s share of 6.4 percent for 4.6 billion kroner. Njord Gas Infrastructure AS, a subsidiary of UBS International Infrastructure Fund and CDC Infrastructure SA, bought its 8 percent stake from Exxon Mobil Corp in 2010 for an undisclosed sum.

There is “no basis in laws or regulations to revise tariffs in Gassled at this point in time,” the four investors wrote in the Dec. 21 letter.

According to Aamot at the Petroleum Ministry, Norway gave its “consent to the transfer of the assets, and those letters explicitly explain our tariff system and that the ministry has the competence to change it.”

Moody’s Investors Service Inc. yesterday placed Solveig’s A3 long-term senior secure debt rating on review for a downgrade. That followed Standard & Poor’s decision to place both Solveig and Njord on negative watch last month.

‘Material Impact’

The Moody’s “rating action reflects the strong likelihood that Solveig’s debt service coverage ratios will be negatively affected” if the tariff proposal is enacted, the rating company said. “Moody’s expects that the proposed change in tariffs would have a material impact on Solveig’s revenues from 2020 until the expiry of the license” in 2028, it said.

Solveig didn’t return calls seeking comment; Njord, Silex and Infragas declined to comment on the economic consequences of the proposed changes, saying the companies are formulating an answer to the government, due by March 15.

Gassled had gross tariffs of 25 billion kroner in 2011. Other owners of the joint venture include Petoro AS, a public company that manages Norway’s direct stakes in its oil and gas assets, with a 46 percent stake, Statoil with 5 percent and ConocoPhillips with 2 percent.

To contact the reporter on this story: Mikael Holter in Oslo at

To contact the editor responsible for this story: Jonas Bergman at

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