Your Excellencies, ladies and gentlemen,

It is a great pleasure to be here today to speak to you on an important topic that concerns many of us working in the extractive industries.

I have been asked to speak on the theme of “the benefits of transparency”. As Minister of Petroleum and Energy, I will focus on questions related to oil and gas. The oil and gas industry generates huge revenues and is an industry of great importance to all countries in the world. Transparency is therefore an issue of importance both to those countries rich in these resources and to those countries who import oil and gas.

The global need for energy will rise by more than 50 % in the next twenty-five years. This rise will mostly have to be covered by fossil fuels. The high oil prices that we have witnessed in the past few years are a reflection of increasing demand and diminishing spare capacity making the oil market more vulnerable to supply disruptions.

Norway has unique experience to share. We have forty years of experience of developing our petroleum resources and are today the world’s third largest exporter of oil and a major supplier of natural gas to Europe. Furthermore, during the course of the years, we have successfully managed to build our own competitive supply and service industry and two world class oil companies in partnership with foreign industry.

From the start it was our intention that the oil and gas resources should benefit the society as a whole. Furthermore we were clear the resources on the Norwegian Continental Shelf are vested in the state. These principles have since remained in place.

I recognize the dilemma facing policy makers in resource rich countries between on the one hand the desire for rapid revenues to meet short term needs, and the need for sustainable development on the other hand. In Norway the policies we developed to govern the upstream activities arose from a culture of prudence. One instance of this is the principle of stepwise and timely exploration and development of the resources. This stepwise approach has allowed us to develop the resources and to build an industry in a fashion which I believe has been effective and wise.

The purpose of the Extractive Industries Transparency Initiative is to support good governance through the transparency of revenues. An issue of great relevance is good resource management. I believe that in many countries there is a strong link between how the income streams are generated and how they are later managed.

Policy and the “resource curse”
One aspect of the so called “resource curse” is that an abundance of natural resources may actually reduce economic growth. In other words; are natural resources bad for development?

More important than anything else, I believe, is that being endowed with natural resources like oil and gas should contribute positively to the nation’s wealth. In order for this to be achieved I believe that ideally several mechanisms should be made to work in parallel.

1. The resources must be efficiently developed and produced

• This needs good resource management policies

2. The revenues must be disposed of in a sound manner

• They must generate welfare

3. There must be a just distribution of the wealth generated

• It should benefit society as a whole

4. The presence of natural resources should lead to industrial development

• Building local content and capabilities is important

These principles are important and interrelated and contribute to good governance.
Obviously, resource management is about getting the pie to be as big as possible and this will be the main topic in my remarks.

Let me first mention that an important part of any policy is that it must have legitimacy in the population. Such legitimacy can only exist if the policy is seen to be fair and to benefit as many as possible. Income from natural resources should not be spent on unprofitable investments or simply consumed. If so, the people will feel left out and the political process could become dysfunctional.

For instance, in Norway, our policy of developing a competitive local industry has had a double effect; firstly it ensures that development of the natural resources leads to sustainable investments in productive industry. Secondly, through benefiting local communities it ensures broad support for the political process.

Resource Management inNorway
Let me now turn to the benefits of transparency in resource management by way of the Norwegian example. One very important element is clarity in the state’s roles as resource owner, regulator and majority owner of our national oil company. I will speak on these topics in turn.

Resource owner
First on the state’s role as resource owner: The Government’s objective is to maximise the value of the oil and gas resources on the Norwegian Continental Shelf. In this sense the Norwegian state is like any other manager, working to maximise value for the real owners, the people of Norway. Both our resource management policy and the state’s role as regulator should meet this target. Resource management policy and regulatory policy must be predictable and lay the basis for long-term development of the resources. As a resource owner we have found it useful to invite foreign companies to develop the resources in partnership with national companies.

To secure the state revenues a proper government take system is needed. In Norway this consists of three elements.

• The most important is the tax system
• The second largest element is the net revenue from the States direct equity participation in the licenses on the Norwegian Continental Shelf, also known as the States Direct Financial Interest, SDFI.
• The third element is the dividend from our National Oil Company, Statoil.

All the elements of the Government Take system should be transparent.

In Norway incomes from taxes, dividends from the state’s shares in Statoil and income from the state’s direct financial interest are set aside in the fund and invested in financial assets overseas. The principle is that only the return from the fund should be spent. The Ministry of Finance is responsible for the management of the Government Pension Fund. The operational management of the Pension Fund - Global is carried out by the Central Bank of Norway, which invests the fund’s capital in bonds and equities outside of Norway in accordance with guidelines issued by the Ministry.

Regulator
I will now speak on the framework conditions and the state’s role as regulator. The state has organised its functions related to the petroleum sector through establishing a set of institutions with clearly defined responsibilities for the various policy areas.

The Norwegian Parliament (Stortinget) determines the framework for petroleum operations in Norway. The opening of new areas for exploration activities, approval of major development projects or issues of principle must be considered and approved by the Parliament. However, authority is also delegated to the Government and the Ministry of Petroleum and Energy.

Thus, overall administrative responsibility for petroleum operations on the Norwegian Continental Shelf rests within the Ministry of Petroleum and Energy. The Ministry of Labour and Social Inclusion has overall responsibility for the working environment and safety aspects of the petroleum sector. The Ministry of Finance has the responsibility for the Petroleum tax system and the Petroleum Fund. The office of the Auditor General, which reports directly to the Storting, has an important role. It sees to that the state’s resources and assets are used and administrated in a sound financial manner and in keeping with the decisions and intentions of the Parliament.

The Norwegian Petroleum Directorate has an important role in resource management matters. It has control functions towards the industry and serves as an advisory body for the Ministry of Petroleum and Energy. A large volume of information is publicly available at the directorate. For example the directorate regularly publishes production data, resource reports, geological data and samples as well as geological models.

HSE issues are handled by the Petroleum Safety Authority, which reports to the Ministry of Labour and Social Inclusion.

The licensing system is the most important part of the resource management framework. The International Monetary Fund emphasises that clarity and openness of the licensing system is a prerequisite for transparency during subsequent stages of development. In its main aspects this is the case for Norway’s licensing system and I am happy to note that the IMF views the Norwegian system as best practice in this regard.

Our licensing system is based on open tendering with clearly defined procedures and sealed applications. Framework conditions and taxes are set by law. Licenses are awarded on a set of criteria among them the work program, an evaluation of the company’s geological expertise and general experience. These criteria are published. Due to respect for confidentiality we do not publish the contents of the applications, as these may contain company sensitive information, but we do now publish the work programs.

Important in our management model is that we make the oil companies compete for licenses on the Norwegian Continental Shelf, while promoting co-operation between the companies within the individual license.

The Government also approves the development of projects before the companies invest. Large projects are decided upon by the Parliament.

Our policies on resource management have gradually developed. In our petroleum policies, government ownership has been one of the important instruments. This leads me to turn to the state’s third role, as majority owner the national oil company.

Majority owner in Statoil
There is a sharp distinction between the government as an owner of Statoil and as regulator of the petroleum industry. Statoil was established in June 1972 as a fully state-owned oil company. This was regarded as important for ensuring the best possible government control over the development of Norway’s petroleum resources. In its early days, the company played an important role as an instrument in petroleum policy.

During its first years of operation the company was also given special treatment with regard to new acreage and operatorships. The company has since its foundation had a separate board of directors. Gradually the state's role towards the company has changed to become less of a policy instrument. Significant changes took place in the mid 1980s, and since Norway entered the European Economic Area in 1994 Statoil has been regarded and treated as any other company on the Norwegian Continental Shelf.

Statoil is now partly privatised and quoted on the New York Stock exchange. The aim of the government is to act as a professional owner in line with the other shareholders, focusing on long-term development of profitable operations and creating value for all shareholders. We have found this to be an effective way to maximise value creation.

Conclusion
My remarks do not imply that all countries should choose the same framework and identical policies for developing their resources. Countries are different and have different objectives.

I have outlined some of the main aspects of Norwegian resource management and how openness, clarity and separation of roles have been important. To this end an open political process, predictable and transparent framework conditions, a policy of stepwise and prudent development of the Norwegian Continental Shelf and active participation of foreign international oil companies have been key elements.

Principles of good governance were also important in setting up guidelines for revenue management of the Petroleum Fund, today called the Government Pension Fund – Global.

It is my hope that our experiences in resource management may be of relevance also to the wider questions of transparency in the extractive industries. I want to thank you for your attention and wish you a continued successful conference.