EEA restricts Statoil’s opportunities

The debate began while the agreement between the EU and the EEA’s members – Norway, Iceland and Liechtenstein – was being negotiated. Substantial opposition to the directive was voiced, even in the Labour Party, which was largely positive to the EU. Finn Kristensen, then minister of industry and energy in the Labour government, stated in September 1992: “Norway doesn’t need the licensing directive”. And trade minister Bjørn Tore Godal told Oslo daily VG the following February that it would be “inappropriate” for Brussels to adopt the directive. He told Oslo daily Arbeiderbladet in June 1993 that: “No elected representative nor minister in their right mind would approve conditions which involved selling the family silver”. Prime minister Gro Harlem Brundtland declared in November 1993 that “the licensing directive is bullying”.[REMOVE]Fotnote: https://stortinget.no/no/Saker-og-publikasjoner/Publikasjoner/Innstillinger/Stortinget/1994-1995/inns-199495-194/?lvl=0. Nevertheless, Labour voted to approve it along with the Conservatives in the Storting debate.

So what were the arguments against accepting the directive, and what reasons were given for approval?

Background: Norway opts for EEA, not EU

Europe underwent sweeping changes in the 1980s. The Cold War ended and the countries in the eastern bloc wrested themselves free from the Soviet Union. At the same time, the European Community’s members began the move towards closer integration and collaboration which culminated in the EU.

As part of this process, the EU also wanted to tie the countries in the European Free Trade Area (Efta) closer to its internal market. Norway was a founder member of Efta in 1960 and, through that, had a free trade pact with the EC from 1973. That in turn required Norwegian politicians to negotiate a new EEA agreement.

These talks progressed faster than expected, and a draft was ready in 1992. Since Storting approval was required, the question of full EU membership was raised again with full force. Norway, Austria, Sweden and Finland signed the deal in 1992, but Switzerland – which had participated in the negotiations – rejected it in a 1993 plebiscite. The EEA agreement came into force for the signatories on 1 January 1994.

The EEA countries submitted new membership applications, and an agreement was signed on 25 June 1994. A clause required that each applicant had to ratify its terms by 31 December.

Before that could happen, a referendum was needed in the individual countries. Approval was secured in Austria, Sweden and Finland, but a majority of Norwegians voting rejected membership for the second time since 1972.

Slipped in sideways

The unusual aspect of the EU directive “on the conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons” was that it dealt to only a limited extent with internal EU conditions, where the UK alone was a significant petroleum producer. Instead, it was aimed largely at Norway’s resources and amending Norwegian legislation. That became a controversial issue in the EEA negotiations, and was not part of the final EEA agreement.

The Norwegian government was thereby a little “fooled”, in that the licensing directive only emerged from the European Commission after Norway had joined the EEA. Approved by the Council of Ministers on 30 May 1984, the directive came into force a month later. Member countries then had until 1 July 1995 to incorporate it into their national legislation.[REMOVE]Fotnote: Directive 94/22/EF of the European Parliament and Council. That also applied to Norway, subject to the Storting’s consent.[REMOVE]Fotnote: Recommendation no 194 (1994-1995) to the Storting, Om samtykke til EØS-komiteens beslutning nr 19/95.

This issue aroused great consternation in parts of Norway’s political community, particularly among opponents of the EU. It merely confirmed their belief that Norwegian sovereignty was being lost, and they called for a veto. The pro-membership side, which comprised Labour and the Conservatives, was much more relaxed and felt the directive would not have great significance for Norway’s oil companies.

The question is whether Labour had changed its position on this issue and, if so, why.

EU opponents shocked

For several reasons, scepticism about Norway becoming subject to the directive was widespread in the parties most negative to the EU – the Centre, Socialist Left and Christian Democrats.

First, the EEA agreement was confined to the territory of the respective member states as defined in international law – the mainland and the territorial waters. It was therefore argued that the Norwegian continental shelf (NCS) fell outside the EEA’s scope and should be excluded from any new agreements.

The anti-EU side found it incredible that Norway, as a big exporter of crude oil, would willingly revise its licensing rules and deprive the government of powers to manage the industry because of the EU and the EEA agreement. Norway alone had to make substantial amendments to its own petroleum-related legislation and regulations because of the directive. As the EU’s only large petroleum producer, the UK was not affected since its legal regime already accorded with the directive’s provisions. It was singular that the directive, which affected Norway so strongly and the EU members so very little, had already been adopted. Other EU legislation in the energy sector which affected member states, covering power and gas, had been postponed until 1996.

Another objection was that the directive did not take account of the fact that Norway’s basic interests as a producer and exporter of petroleum products were very different from those of the importer countries in the EU. While the Norwegians benefitted from high oil prices and a tax regime which secured the highest possible revenues for the producer country, the EU was interested in low import prices and the largest possible share of tax receipts accruing to the consumer nations.

While the directive gave the state ownership of the petroleum resources beneath the seabed, that applied only until they had been produced. The anti-EU parties observed that the directive would impose strict limits on the state’s role as a producer. It had to be borne in mind that Statoil would not have been able to grow into a big oil company without the privileges it had received since 1972 in the form of licence interests and operatorships which provided knowledge and experience. Such active management of Norwegian oil policy would end if the Storting approved the directive.

Restrictions would also be placed on managing the petroleum resources, because the state oil company could no longer freely choose its suppliers but would have to use competitive tendering. That would reduce opportunities for meeting the Petroleum Act’s goal of ensuring that oil activities benefitted the whole of Norwegian society.

These arguments were all deployed by the anti-EU parties in rejecting the inclusion of the directive in the EEA agreement.[REMOVE]Fotnote: Recommendation no 209 (1993-1994) to the Storting.

The majority view

Ever since Norway’s first referendum on EC/EU membership in 1972, both Labour and the Conservatives had nursed a strong desire for closer ties with Europe. A binding international collaboration at both regional and global level would safeguard such values as full employment, environmental protection and welfare. After the EEA agreement came into force in 1994, it transpired that the benefits of access to a common market and a free flow of goods and services had their price. That included the licensing directive, and the question then was whether this was worth it.

Labour’s Jens Stoltenberg, the minister of industry and energy, commented reassuringly that the Norwegian offshore licensing system as prescribed in the Petroleum Act largely accorded with the requirements of the directive.[REMOVE]Fotnote: Petroleum Act of 22 March 1985 no 11.

Labour and the Conservatives agreed that the main features of Norway’s petroleum policy could be retained under the directive. Member countries could decide for themselves which areas to open for petroleum exploration and extraction, and resource management was a national matter.

Norway would be able, for example, to determine for itself the size of the state’s direct financial interest (SDFI) in an individual production licence. And the level of overall state participation would continue to be set by the Norwegian government.

Existing practice would have to be changed so that Statoil had to compete for licence interests. Government licence awards and the terms and conditions set had to be based on the principle of non-discrimination. Statoil would need to apply for and compete over its equity interest and possible operatorship in each licence. The politicians took the view that the company, with its accumulated expertise, was strongly placed and could manage well in competition with other players.

Statoil could remain the business manager of the SDFI, but with some voting restriction. A clear distinction would have to be established between the company as a financial player in the petroleum sector and as a commercial manager.

Some amendments to the Petroleum Act were nevertheless required. One EU demand was that it should be possible to award production licences to natural persons. The application deadline had to be extended from 50 to 90 days and the rule about awards without a prior invitation to apply needed adjusting. A provision was also added that awards must be based on factual and objective terms and conditions.[REMOVE]Fotnote: Storting standing committee on energy and the environment, 7 June 1995.

Storting accepts directive

The Storting debate on the licensing directive took place on 12 June 1995, and lasted 90 minutes.[REMOVE]Fotnote: Proposition no 40 (1994-1995) to the Storting, Om konsesjonsdirektivet. This was a remarkably short time, given that it heralded a dramatic shift in Norwegian oil policy. Labour had changed its mind on the directive, from viewing it as bullying to toning down and almost trivialising its negative aspects. The legislative changes required were tolerable.

Statoil was seen as sufficiently robust to stand on its own two feet in competition with international players. It no longer needed to be given special privileges.[REMOVE]Fotnote: Proceedings of the Storting (bound edition), 1994/95, vol 139, no 7b (nb.no).

This perception was probably shared in the company itself – on its way out into the world with BP.

Stoltenberg as minister was open to a more liberal industrial policy based on competition. State capitalism was in retreat as an ideology.

The issue was also test of what Norway wanted with the EEA agreement. To join the game, it had to accept the rules which applied in the EU. The vote thereby yielded a clear majority of 71 for approving the directive to 41 against.

Statoil therefore had to manage from 1 July 1995 without the privileges it had enjoyed – a transition which the company with its mature organisation managed to handle without major problems.