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NORWAY: Investors Balk at Government Indifference

Bottom Line: Norway’s pending plans to cut tariffs on gas transport by 90% will reduce income for pipeline investors by as much as $7 billion, adding to the lingering anxiety after a 2011 move to pull support from AAA lender Eksportfinans ASA and reduce it to a junk-rate lender. Norway feels emboldened by its status as the world’s largest wealth fund and home of Europe’s largest oil and gas reserves--enough so that it feels it can demonstrate selective indifference to investors. 

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Analysis: Norway still enjoys a stable AAA rating and status as the smallest default risk country in the world, but its actions over the past couple of years have sparked growing investor concern. The hardest hit will be Solveig Gas Norway AS and Silex Gas Norway AS, both of which back the pipeline network (Gassled) that charges the gas transport tariffs. Infragas Norge AS and Njord Gas Infrastructure AS will also take a beating. The decision announced in January and now pending approval is being interpreted by investors (both local and foreign) as an illegal intervention by the government. Foreign companies who would also take a hit from this move include those pipeline stakeholders controlled by UBS AG (UBSN), Allianz SE (ALV), Canadian pension funds and the Abu Dhabi sovereign wealth fund. Oil and gas production companies like Statoil ASA (STL), Royal Dutch Shell Plc (RDSA), Exxon Mobil Corp. (XOM) and Total SA (FP) will escape any heavy losses, having sold most of their pipeline stakes before the January announcement; but they remain nervous about the government’s path. Norway’s state-run pension fund is also highly critical of the proposed tariff cuts, as one of Gassled’s stakeholders.

Rumblings that the country is going the way of Venezuela are exaggerated, but the move could reduce investor confidence, though so far news of the pending cut has not had an effect on markets. Norway remains a rich state and believes it has enough here to gamble with.

Norway

Recommendation: Investors in Norway should remain cautionary. While there is optimism to be found in the fact that Eksportfinans bonds have managed to recoup since the 2011 removal of support, the trend here is for Norway to increasingly consider its sovereign wealth fund prowess and oil and gas reserves as affording its indifference to investors. There may also be some political fallout here, with general elections scheduled for September and the opposition criticizing the government’s policy towards investors.


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