3 Brev av 30. april 2002 fra Nærings- og handelsdepartementet til EFTAs overvåkingsorgan (ESA)

EFTA Surveillance Authority

Rue de Tréves 74

B-Brussels

Belgium

State aid - additional information - «Særskilt avskrivningssats for produksjonsinnretninger og rørledningsanlegg for gass tilknyttet storskala nedkjølingsanlegg»

Dear Sir/Madam

Reference is made to the Authority's letter of 18 March 2002 requesting information on «Særskilt avskrivningssats for produksjonsinnretninger og rørledningsanlegg for gass tilknyttet storskala nedkjølingsanlegg (LNG)» and the Norwegian Government's letter of 19 April 2002. We hereby submit additional information.

1 Information on the investment stream

Table 3.1 below shows the companies» investment costs for the Snøhvit project each year, measured in constant 2001-prices. The investment costs are split between the companies» and SDFI. The sum of the companies» share of the investments amount to 24 billion NOK, while SDFI's share is 10,3 billion NOK. Total investments, excluding LNG-vessels, are estimated at 34 250 mill. NOK in constant 2001-prices (undiscounted).

Approximately 45 pct. of the total investments will be offshore, 45 pct. will relate to the onshore plant, and 10 pct. pipelines. In addition the investment costs of the LNG-vessels are estimated at 5,4 billion NOK. The LNG-vessels are not affected by the amendment to the Petroleum Tax Act.

Table 3.2 shows the operational costs (offshore and onshore) for the Snøhvit project.

In Ot. prp. nr. 16 (2001-2002) it is proposed that the depreciation rate for new, large scale LNG-plants is set to 33¹/₃ pct. The change in the net present value of taxes due to changes in the depreciation rate is directly proportional to investments, but does not depend on the operating cost of the companies.

In the letter to the ESA of 19 April 2002the economic consequences of the amendment to the Petroleum Taxation Act is specified. The difference between the net present value of taxes with a depreciation rate of 6 years and 3 years is estimated to 250 mill. NOK, using a discount rate of 4,68 pct. The calculation takes into account that a reduced depreciation period increases deferred taxes and thereby reduces the debt capacity of the companies. As a percentage of the net present value of the companies» investments this amounts to 1,4 pct (with a discount rate of 4,68 pct).

It should, however, be noted that the net present value of the companies» investments in table 3 (last column) in the letter to the ESA of 19 April 2002, has been estimated with a slightly different time period than the net present value for the total investments. A correction of the time period implies that the numbers in the last column in table 3 in the letter should be 17,4, 15,9 and 13,1 billion NOK for discount rates of 4,68, 6,32, and 10,0 pct. respectively. The correction is so small that it does not change the estimate of 1,4 pct. given above.

2 Compatibility with Article 61(3)(c) of the EEA Agreement

2.1 Introduction

If the EFTA Surveillance Authority appears to deem the amendment of the PTA to constitute aid within the meaning of Article 61(1) EEA, it should nevertheless be compatible with the EEA Agreement due to the derogation in Article 61(3)(c) EEA, as stated in our letter of 19 April. We hereby submit further information in this respect.

The current regional aid map and the ceilings on the intensity of aid for initial investment is approved for the period 1.1.2000-1.1.2007. As described in our letter of 19 April 2002, the regional disadvantages of target zone A (Finnmark + northern part of Troms) in the regional aid map are partly explained by its location in the extreme northern periphery of Norway and characterised by i.a. remoteness and harsh climate conditions, a very low population density (appr. 1,6 persons per square kilometre) and a one-sided industrial structure. In Zone A the current maximum level of regional aid is 25 pct., (SMEs have been allowed to receive an additional 5% (gross)). These investment aid ceilings have been notified to and approved by the Authority.

2.2 Aid for initial investment

According to the Authority's State Aid Guidelines chapter 25.4(8), aid for initial investment is calculated as a percentage of the investment's value. This value is established on the basis of a uniform set of items of expenditure (standard base) corresponding to the following elements of the investment: land, buildings and plant/machinery.

As shown in part 1 of this letter, t he net value of the special depreciation rate implied by the amendment of the PTA is estimated to 1.4 pct. of the companies» investment. This is within the maximum aid level of 25 pct. in target zone A.

2.3 Job creation

The depopulation problem, as described in our letter of 19 April 2002, is partly linked to the lack of alternative jobs and the one-sided industry structure. Jobs are mainly within fisheries services and public services. We also know that many people are interested in moving (back) to Finnmark if alternative jobs are available. Indeed, according to Aetat, the public manpower bureau, 1.200 persons have made general applications (i.e. expressed an interest) in working for Snøhvit in Finnmark.

According to the Guidelines chapter 25.4(22), regional aid may also focus on job creation, i.e. jobs linked to the carrying-out of an initial investment project. As described in our letter of 19 April 2002, the regional impact of Snøhvit and the large scale LNG-facility regarding direct and indirect job creation is considerable.

The tables below show the estimated regional employment effects of the Snøhvit project 1

Although some of the numbers may seem fairly modest, they are vital for revitalization of the region. We also want to emphasize that the small numbers in the project execution phase reflects the lack of competence/work force in the area due to the previously mentioned emigration of young, well-educated people. E.g, the 355 new man-years locally (table 3.4) in the operational phase, implies an increase of 8% of the number of man-labour years employed in the Hammerfest region.

2.4 Multisectoral framework on regional aid for large investment projects

Regarding job creation in the region as a regional development goal and the employment effect of realising the Snøhvit project, the Norwegian authorities refer to the Authority's State Aid Guidelines chapter 26. The Norwegian authorities consider the assessment criteria of the Multisectoral framework on regional aid for large investment projects as being of relevance when examining the measure in question.

i) Competition factor

The Snøhvit project does not imply aid to companies operating in sectors which are in structural overcapacity and we consider that there will be no negative effects in terms of (i)-(iii) in paragraph (10). On the contrary, and as argued in the letter of 19 April 2002, the Snøhvit project is fully in line with an energy policy that is generally regarded as beneficial to the EEA. The adjustment factor is therefore set at 1,00.

ii) Capital-labour factor

The total number of direct jobs created by the Snøhvit project is 198, which is a weighted average of employment (man-labour years) in the development and operational phase, as shown in table 3 and in Annex 1.

The new capital/jobs, i.e. the total amount of proposed capital 2 divided by the number of job created, is then:

17,4 bill NOK = 2,13 bill Euro

2,13 bill Euro/ 198 = 10,8 mill Euro

The capital-labour factor is thus 0,6

iii) Regional impact factor

As shown in table 3, the number of jobs at the LNG facility on Melkøya is 180. The indirect job creation, that is, man-labour years created with first-tier suppliers and customers in the assisted region where the company is located (Finnmark county), is 345 in the operational phase. The degree of indirect creation for each job created by the aid recipient, i.e. the number of indirect jobs divided on the number of direct jobs is 1,7. The impact is thus well above 100 pct, giving a regional impact factor of 1,2 (see also Annex 1).

Using the calculation formula in Chapter 26.3, (10), the allowable aid intensity is estimated as follows:

25 x 1 x 0,6 x 1,2 = 18

This means that the maximum allowable aid intensity under the conditions of Chapter 26 will be 18 pct.

As earlier shown, the actual investment aid level in the Snøhvit project, estimated as a share of the total eligible costs is only 1,4 pct.

3 Commercial implications of a delay in the development of the Snøhvit project

ESAs assessment introduces uncertainty regarding the fiscal framework conditions for the Snøhvit project. The licencees have stated that predictable fiscal framework conditions are crucial for the decision to go ahead with the project. The licencees have so far been able to negotiate with the LNG buyers to postpone the lifting of the final conditions in the LNG sales contracts. Correspondingly, there have been discussions with ship yards. The last negotiation resulted in a postponement until 31 May 2002. At this point all conditions have to be deleted. As several postponements have already been made, it is uncertain whether further postponement will be accepted by the buyers. Thus, if the issue regarding the fiscal framework conditions for the project is not resolved by this date, contracts may fall, jeopardising the whole project, or, alternatively, contracts may only be prolonged through payment of considerable fees.

Indeed, there are indications that buyers and ship yards may want to cancel or reopen contracts. El Paso, the American buyer, has already entered into a contract with firm commercial commitments with the owners of the Cove Point receiving terminal. Thus, it is of course of utmost importance for El Paso to secure its gas supply, which again shall create income to cover the cost of leasing of said receiving terminal capacity. The alternative for El Paso, if the contract with Snøhvit sellers can not be confirmed, is to find alternative sources of supply. El Paso has expressed their concern in a letter to the Minister of Petroleum and Energy of 5 April 2002, stating that El Paso will have to consider alternative supply sources to secure firm LNG supplies in the case of further delay in the development of the Snøhvit project.

Yours sincerely,

Pål Hellesylt (b.a.)

Deputy Director General

Bjørnar Alterskjær

Senior Executive Officer