Translation from Norwegian: 2004-11

This translation is for information purposes only. Legal authenticity remains with the original Norwegian version as published in “Norsk Lovtidend”.

Regulation on the Management of the Government Petroleum Fund

Issued on 19 November 2004 by the Ministry of Finance.

§ 1. Management of the Government Petroleum Fund

Norges Bank manages the Government Petroleum Fund on behalf of the Ministry of Finance. The Bank may use other managers. Such managers must have adequate internal ethical guidelines for their own activity.

Norges Bank shall submit reports on the management of the Government Petroleum Fund in accordance with the guidelines set out by the Ministry of Finance.

§ 2. Placement of the Government Petroleum Fund

The Government Petroleum Fund shall be placed in a separate account in the form of NOK deposits in Norges Bank. Norges Bank shall invest this capital separately in its own name in financial instruments and cash deposits denominated in foreign currency.

Norges Bank shall seek to achieve the highest possible return on investments denominated in foreign currency within the limits set out in the regulation and the guidelines issued pursuant to this regulation.

§ 3. Accounting return on the Government Petroleum Fund

The value of the Petroleum Fund’s krone account is set at the value of the portfolio of financial instruments and cash deposits. Norges Bank's book return on the portfolio, less remuneration to Norges Bank, shall be added to the Petroleum Fund's krone account on 31 December every year.

§ 4. Benchmark portfolio and relative risk

Following consultation with Norges Bank, the Ministry of Finance shall establish a benchmark portfolio for the Government Petroleum Fund. The Ministry shall set a maximum limit for the expected return differential between investments in the Petroleum Fund and the benchmark portfolio, measured in the form of tracking error.

§ 5. Asset mix

The Government Petroleum Fund shall be invested in accordance with the following asset distribution:

Fixed income instruments 50-70%

Equity instruments 30-50%

When calculating the asset distribution in accordance with the first paragraph, equity derivatives shall be treated as though investment had taken place directly in the underlying equity instrument. In accordance with the first paragraph, the asset distribution must be calculated on the basis of the whole of the ordinary portfolio excluding derivatives.

§ 6. Currency and market distribution

The equity portfolio shall be invested according to the following currency and market distribution:

1. Europe 40-60%
2. the Americas, Middle East/Africa, Asia and Oceania 40-60%

The portfolio may be invested in equity instruments listed on stock exchanges in the following countries and regions:

Europe: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden, Switzerland, Turkey, the UK, Iceland, Cyprus, Poland, Czech Republic and Hungary

Americas: Brazil, Canada, Mexico, the US and Chile

Asia and Oceania: Australia, Hong Kong, Japan, New Zealand, Singapore, South Korea, Taiwan, Thailand, the Philippines, India, Indonesia, China and Malaysia

Middle-East and Africa: Israel and South Africa

Total investments in equity instruments in Turkey, Brazil, Mexico, South Korea, Taiwan, Thailand, Poland, Czech Republic, Hungary, Chile, the Philippines, India, Indonesia, China, Malaysia, Israel and South Africa shall not exceed 5 per cent of the combined investments in equity instruments, measured by currency or market share.

The fixed income portfolio shall be invested according to the following currency and market distribution:

1. Europe 45-65%
2. The Americas and Middle East/Africa 25-45%
3. Asia and Oceania 0-20%

The portfolio may be invested in fixed income instruments issued in the currency of one of the following countries or regions:

Europe: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden, Switzerland, the UK, Iceland, Cyprus, Poland, Czech Republic and Hungary

Americas: Canada, the US and Mexico

Africa: South Africa

Asia and Oceania: Australia, Hong Kong, Japan, New Zealand, Singapore and South Korea

§ 7. Interest rate risk

Modified duration for the total portfolio of interest-bearing instruments and associated derivatives shall be between 3 and 7.

§ 8. Credit risk

The Ministry of Finance shall establish limits for credit risk in the Government Petroleum Fund.

§ 9. Screening and withdrawal

The Ministry of Finance issues ethical guidelines for the Government Petroleum Fund and decides on whether specific issuers should be excluded from the investment universe. An Advisory Council on Ethics provides an evaluation of whether potential investments in financial instruments issued by specified issuers are inconsistent with the ethical guidelines.

The Ministry of Finance may issue detailed rules for the Council, its activities and its organisation.

§ 10. Risk systems and risk management

Norges Bank shall ensure that satisfactory risk systems and control routines exist for the instruments to be used in the management of the Government Petroleum Fund. Derivatives may be used provided that the financial exposure does not exceed the exposure that would have resulted from investing directly in the underlying instruments.

§ 11. Equity ownership

Investments may not be made in such a way that the Government Petroleum Fund exceeds 3 per cent of the equity capital in a single company or 3 per cent of the voting shares in a single company.

Norges Bank shall exercise ownership rights for the Government Petroleum Fund. The primary objective of the exercise of ownership rights is to safeguard the Fund’s financial interests. The Ministry of Finance may issue supplementary guidelines for Norges Banks exercise of ownership rights.

§ 12. Entry into force

The regulation enters into force on 1 December 2004. The regulation of 3 October 1997 nr. 1078 on the management of the Government Petroleum Fund shall be revoked the same date.