Campbell

Shortly after the discovery of oil in Norway, a strong consensus emerged among the political parties and across Norwegian society about how to manage oil wealth. This consensus was embodied in its “Ten Oil Commandments.” Based on the view that multinational oil companies needed to be controlled, the Norwegian state took on the central role as both regulator and producer. It brought in active industrial policies to create upstream and downstream industries related to petroleum. There was also consensus that its petroleum wealth should be appropriated by the state and distributed equitably within Norwegian society. In Norway, the state has always been in the driver’s seat in determining petroleum development, owning 80% of oil and gas production and controlling the transportation infrastructure. In Canada, private interests—foreign and domestic—have dominated Alberta’s petroleum sector. For the most part, Alberta governments favoured a laissez faire approach, with subsidies and tax/royalty breaks to encourage rapid petroleum exploitation, and an open-door policy to the oil multinationals. For a brief period, the government of Peter Lougheed adopted a more active approach: creation of a mixed petroleum enterprise with government and private sector equity participation, policies to develop upstream and downstream industries, and the creation of the Alberta Heritage Savings Fund to save a portion of its petro-revenues. These policies, however, were abandoned by subsequent Alberta governments. The federal government, in the wake of the 1970s oil price shocks, adopted a similar approach to that of the Norwegian government. It created Petro-Canada and the National Energy Program (NEP) to increase Canadian ownership and the development of petroleum-related industries, and to appropriate a greater share of the petroleum wealth. The Alberta government, however, backed by the oil companies, strongly opposed this federal intervention into what it saw as its exclusive jurisdiction. There was constant tension about how best to develop the resource, about the relationship between the state and the oil multinationals, and about the sharing of petroleum revenues between the two levels of government and the companies. The Mulroney Conservative government scrapped the National Energy Program in the mid-1980s, and subsequent federal governments, apart from providing billion of dollars in tax breaks, have played a passive role in shaping the petroleum sector ever since. To this day, they have refused to articulate a national energy policy. The Norwegian state has maintained policy levers essential to managing its petroleum and other natural resources while Canada surrendered such key resource management levers under NAFTA.

Norway is not a full member of the EU, but has associate status as a member of the European Economic Association. Norway’s entry into the EU was defeated in two national referendums—in 1972 and 1994. A major reason for Norway staying out of the EU was that its national regime for managing its offshore resources—notably petroleum and fish, is inconsistent with EU rules on competition. 14 Canadian Centre for Policy Alternatives Canada, as a member of NAFTA, has accepted crucial limitations on its ability to manage its petroleum resources in a deregulated continental market. Under NAFTA, it also gave up policy tools to encourage upstream and downstream development of petroleum-related activities. Norway is a rare exception, having largely escaped the resource curse that has afflicted so many petro-states. Norway stands on top of the latest United Nations Human Development index, which brings together economic indicators, level of education, and life expectancy. Canada, once ranked number one, now ranks number 6.4 When adjusted for inequality, however, Norway remains number one, but Canada slips further to 12th position. The UK Economist’s Intelligence Unit ranked Norway number one in 2011 on its democracy index, based on a number of criteria: election freedom and fairness, security of voters, influence of foreign powers on government, capability of civil servants to implement policies. Canada was ranked number 8. Norway ranked 3rd on Yale University’s Environmental Performance Index, which ranks countries based on a range of policy areas, from water and air pollution, to biodiversity and climate change. Canada was ranked 37th.

There is nothing inherently good or bad in having access to petroleum, or any other resource. It is what nations do with it that matters. The challenge for petro-states is to overcome, mitigate, or convert their wealth’s potentially distorting social, political, economic, and environmental effects. Their success in this regard will determine whether and to what extent oil is more a blessing than a curse.

Key to Norway’s success in managing oil wealth were a number of pre-existing conditions: a stable and deeply-rooted democracy with well-developed political institutions, a technically competent and honest bureaucracy, a deeply egalitarian culture, and a highly engaged citizenry. Prior to the discovery of oil, Norway had an advanced and diversified economy based mainly on agriculture, forestry, fishing, shipping, and manufacturing. Unemployment was low. One of the most equitable societies in the world, it had a generous welfare system supported by a large and diversified tax base. Norwegians have traditionally had high levels of trust in government, combined with an underlying distrust of foreign corporations. Norway has had a long political tradition of dealing with large foreign companies and a legal framework in place dating back to its experience in earlier times with hydropower. Ownership of Norway’s petroleum resources resides with the Norwegian state to manage on behalf of its citizens. Following the discovery of the giant Ekofisk field in 1969, there was extensive public debate to determine how best to manage its newfound oil wealth. Underlying the debate was a concern with avoiding the negative effects of oil development. Norway had a highly effective system of consensus The Petro-Path Not Taken 17 building in which labour, business, farmers, fishers, and environmentalists engaged with the government and each other on oil development priorities. Coming out of this debate, the parliamentary industry committee produced a seminal report in 1971, broadly supported by the public, which laid down the guiding principles for managing its petroleum resources. Adopted unanimously by the Norwegian parliament, they became known as the Ten Oil Commandments, whose overriding purpose was to ensure that oil would be developed for the benefit of the entire Norwegian society. A 1974 Ministry of Finance white paper concluded that control over the pace of oil development was essential to ensure that impacts didn’t outstrip Norway’s adjustment capacity. And getting control required the development of Norwegian technological expertise to ensure that elected politicians had an independent information source on which to base management of the industry. The white paper specified that the state would seek to secure the greatest possible share of the oil rent for the state, which would then be distributed in an egalitarian way across Norwegian society and for future generations. It also stated that control of the oil industry was as important as, and inseparable from, maximizing its share of the oil rent. The newly created The Ten Oil Commandments 1. There should be national governance and control of all petroleum operations. 2. Norway should become self-sufficient in oil. 3. New industrial sectors should be developed based on petroleum. 4. Petroleum development must take existing industries and environmental protection into consideration. 5. Usable gas should not be burnt off. 6. Petroleum from the offshore should as a general rule be landed in Norway. 7. The state should be involved at all levels in the coordination of Norwegian interests, including an integrated oil industry. 8. A state oil company should be established. 9. Production activities in the North should take account of its special conditions. 10. Close attention should be paid to the foreign policy implications of oil discoveries. 18 Canadian Centre for Policy Alternatives state oil company, Statoil, would become not only an operator, but also involved in all stages of oil production, from upstream exploration, to refining, to petrochemicals, and to retail. A key component of Norway’s success in managing its petroleum has been the clear separation of powers between parliament (legislative), the Ministry of Petroleum and its Petroleum Directorate (regulatory), and Statoil (operational). The Ministry of Petroleum has overall responsibility for managing petroleum resources in accordance with the mandate established by the Parliament.8 A highly skilled and honest state bureaucracy was able to bargain effectively with the oil industry.9 In the early days, the goal was to get the multinational oil companies to commit themselves to as much exploration as possible. Conditions were made very favourable for the oil multinationals. The legal framework was sufficiently flexible that it could be adapted to changing conditions. After the Ekofisk discovery, the government toughened its bargaining position. Officials understood that the only way Statoil could stand up to the power of the multinational oil companies was by building an independent technological capacity. They knew that it would not be possible to secure a high share of the economic rent if it did not have a technologically skilled Statoil in reserve, which could take over if the multinationals were to leave. Statoil was given privileged access to the oil fields in a way that concentrated initial investment and risk with the multinational oil companies while giving a large share of the benefit to Statoil. It was partnered with the oil companies in almost all licence groups, which provided the opportunity to accelerate its technical competence. Statoil played a key role in developing the Norwegian industry. Its investments in technology accelerated the development of the Norwegian supply industry. It prioritised technology and innovation over short-term profit maximization, which contributed significantly to the development of a high value-added domestic industry in oil services.

When the Ministry of Finance moved to increase taxes in the wake of the OPEC oil price hike, the companies protested. “The [companies] were furious when they heard about the new taxation law. And then they started a media campaign saying that they would leave Norway and that it was impossible to work in a socialist country like this that does not understand the rules of international capitalism.”10 Despite company threats, the Ministry held firm, judging that, as long as they were securing profits at least The Petro-Path Not Taken 19 as high as other industries, they would not leave. And in case they did, Statoil would be available to take over. The rapid growth of Statoil in the 1970s and 1980s raised concerns that it was becoming a “state within a state.” Parliament established an independent Petroleum Directorate, reporting to the Ministry of Petroleum, as a counterweight to Statoil: to administer the resource, regulate the work environment and safety issues; support the development of a national supply industry; and provide independent technological expertise.11 The most important limitation on Statoil’s dominance was the creation in 1985 of a government entity called the State’s Direct Financial Interest (SDFI), which divided the government stake in petroleum production into two parts. More than half of Statoil’s interests in oil and gas fields, pipelines, and other facilities were transferred to SDFI. Revenues from SDFI shares were channeled to the state (since 1990 to its sovereign wealth fund), thereby limiting Statoil’s cash flow

Bruce Campbell