Funds that have invested $5.6 billion in Norway’s gas pipelines said a government plan to cut their transportation fees by 90 percent would lower income by almost 40 billion kroner ($7 billion).
Two of the investors, who control 32 percent of Norway’s pipeline system and are owned by Canadian pension funds, Abu Dhabi’s sovereign wealth fund and Allianz SE (ALV), said in a letter to the Petroleum and Energy Ministry that the Jan. 15 proposal would lower returns to 4 percent, below an expected minimum level of 7 percent.
“The proposal undermines Norway’s reputation as a stable and predictable country for investments,” Solveig Gas Norway AS and Silex Gas Norway AS said in the letter. “The proposal represents an unauthorized intervention in the infrastructure owners’ legally protected rights and expectations.”
Solveig, Silex and two other investors, Infragas Norge AS and Njord Gas Infrastructure AS, last month escalated their fight against the plan by pleading with Prime Minister Jens Stoltenberg to intervene. All the hearing letters were made public today by the government.
Norway has argued the tariff cuts would make more gas discoveries profitable and boost exploration and recovery rates. Higher-than-expected returns based on past and current contracts will help preserve “reasonable returns” for investors even as tariffs are cut by as much as 90 percent on new gas volumes booked after May 1, it has said.
Njord said in a letter that the “unjustifiable fact” that the proposal would shift about 40 billion kroner in net present value from Gassled owners to gas shippers, “many of which recently sold their Gassled stakes, shows the unreasonableness of the proposal.”
The four companies own 44 percent of the gas pipe network, buying stakes in 2010 and 2011 for about 32 billion kroner from producers such as Royal Dutch Shell Plc (RDSA), Statoil ASA (STL) and Total SA. Norway is western Europe’s largest gas producer and owns 67 percent of Statoil.
Solveig 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. Infragas is a unit of Canada’s Public Sector Pension Investment Board while Silex is owned by Allianz. Njord is a subsidiary of UBS International Infrastructure Fund and CDC Infrastructure SA.
Standard & Poor’s placed Solveig and Njord on negative watch in January. Solveig in February was put on a review for a downgrade by Moody’s Investors Service.
The funds that own Solveig, Silex and Njord won’t approve further investments in Norway’s gas infrastructure if the government proceeds with the cut, the companies said in their hearing letters.
In addition to “significantly weakening the economic outlook for Gassled’ owners,” the plan could have negative consequences for financial markets, infrastructure projects and other parts of the Norwegian economy, said Norway’s own pension fund, Folketrygdfondet, also commenting in a letter.
The fund, which bought bonds from Njord in 2011, said it would reconsider investing in infrastructure projects in light of the heightened risk implied by Norway’s tariff-cut plan.
“If other investors, and international rating companies, draw similar conclusions, the proposed tariff changes may have negative externalities for other parts of the Norwegian economy,” the fund said. “New infrastructure projects should then be expected to face significantly higher borrowing costs, which would rule out market financing of such projects.”
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