The Norwegian Government is set to revise the guidelines for the Government Petroleum Fund. The Government wants to transfer NOK 1 bn of the capital of the Petroleum Fund into a separate fund which is to be managed according to a separate set of environmental guidelines. Additionally, the Government wants to ban investment of the Fund in companies whose main activity is the production of tobacco.

The Government signalled in the Revised National Budget for 1998 that it would work towards the adoption of new guidelines for the investment of the Fund which would take environmental issues into consideration. In 1998, the Fund made investments in more than 2000 companies. The Government has decided upon three measures with regard to the management of the Fund to promote issues relating to ethics and the environment:

• NOK 1 bn of the Fund’s capital is to be transferred into a separate fund which is to be managed according to a separate set of environmental guidelines. Possible criteria for the selection of companies in this part of the Petroleum Fund may be requirements relating to the achievement of environmental certificates or the issue of environmental reports by the companies. The Government will also consider criteria relating to eco-efficiency. Examples of the latter criteria could be levels of harmful emissions, energy consumption or material consumption per unit of production. The size of the environmental fund is to be reconsidered after three years with a view to increasing its capital, after an evaluation of the results of the environmental fund.
• The Government will open for the exercise of voting rights associated with the stocks in the Petroleum Fund’s portfolio, to promote issues relating to human rights and the environment.
• The whole Fund is banned from investing in companies whose main activity is the production of tobacco.

By posing requirements to the Fund’s investments, the Norwegian Government may act as an advocate of these issues and contribute to the improvement of public information about many companies’ environmental performance. The latter may result from assigning work to agencies that specialise in this area.

The list of countries eligible for investments will be extended

The Government has also reconsidered the list of countries eligible for investments by the Petroleum Fund, as signalled in the Revised National Budget 1998. The objective has been to increase the number of eligible markets. At present, the Fund’s capital may be invested in 21 countries with well-developed financial markets. The Government has concluded that the list of countries should be extended to include some emerging markets. In the evaluation of which particular countries to include, attributes such as country specific risk, the financial markets’ size and degree of liquidity and how the inclusion of each country may affect the risk and expected return of the Fund as a whole, will be especially considered. The Government will return to this question in the National Budget 2000 with information on which particular countries will be selected. Any such change to the Fund’s guidelines will be put into effect as of 1 January 2000.

The value of the Petroleum Fund as of end 1999 estimated at more than NOK 200 billion

In the Revised National Budget 1999, the Norwegian Government estimates that NOK 26,8 bn will be added to the Fund in fiscal year 1999. This figure constitutes the difference between the central Government’s net cash flow from the petroleum activity (NOK 37,7 bn), and the annual transfer from the Fund to the state budget (NOK 10,9 bn) to cover the non-oil budget deficit. The total profit of the Petroleum Fund in 1999 is estimated at NOK 30,5 bn, including NOK 3,7 bn of interest income and dividends. The market value of the Fund at the end of 1999 is estimated at NOK 203 bn. This is based on an oil price assumption of NOK 110 per barrel on average in 1999.