Norway Faces Reputation Loss as Gas Investors Escalate Fight

Funds that have invested $5.6 billion in Norway’s gas pipelines escalated their fight to keep their tariffs intact, pleading with the prime minister to intervene in a plan to cut shipment fees by 90 percent.

The investors, owned by Canadian pension funds, Abu Dhabi’s sovereign wealth fund, Allianz SE and a UBS AG infrastructure fund, appealed in a letter to Prime Minister Jens Stoltenberg’s chief of staff, saying the proposal risks damaging Norway’s reputation. The letter was obtained by Bloomberg through a freedom of information request.

The companies have demanded a meeting to appeal the January plan by the Petroleum and Energy Ministry. They own 44 percent of the gas pipeline network, buying stakes for about 32 billion kroner ($5.6 billion) from producers such as Royal Dutch Shell Plc, Statoil ASA and Total SA. Norway is western Europe’s largest gas producer and owns 67 percent of Statoil.

“We obviously wouldn’t have invested in Gassled in 2010/2011 if we had reason to believe the ministry would cut tariffs by 90 percent,” said Trygve Pedersen, chief executive officer of Solveig Gas Norway AS, said in the letter to Karl Eirik Schjoett-Pedersen. “There’s reason to be concerned about how international investors will judge Norway if it appears investments in Norway can no longer be based on the same trust as before.”

Fallout Spreads

The companies say the proposal to cut tariffs on gas volumes booked after May 1 could lower expected returns by 50 percent. The hearing period on the proposal ends on March 15, after which the ministry will decide.

A spokesman for Norway’s prime minister, Hans Kristian Amundsen, said the matter was being handled by the Petroleum Ministry and declined to comment.

The ministry has argued the cuts will help make gas discoveries more profitable, boost exploration and recovery rates, saying higher-than-expected returns based on existing and past contracts would offset lower income and preserve “reasonable” real pretax returns of 7 percent.

Other investors include Infragas Norge AS and Njord Gas Infrastructure AS and Silex Gas Norway AS. Solveig is owned by the Canada Pension Plan Investment Board, Allianz Capital Partners, a subsidiary of Allianz SE, and Infinity Investments SA, a unit of the Abu Dhabi Investment Authority. Infragas is a unit of Canada’s Public Sector Pension Investment Board while Silex is owned by Allianz. Njord is a subsidiary of UBS International Infrastructure Fund and CDC Infrastructure SA.

Serious Matter

Standard & Poor’s placed Solveig and Njord on negative watch in January, while Solveig in February was placed on review for a downgrade by Moody’s Investors Service.

“We consider the matter to be so serious that we would like to explain why we’re reacting so strongly,” Knud Noerve, chief executive officer of Infragas, said yesterday in a phone interview from Oslo. “It may have wide-ranging effects that go beyond oil and gas.”

The investors have said the tariff proposal makes it unlikely they will invest in new gas infrastructure in Norway, such as the Polarled pipeline in the Norwegian Sea that a group of oil companies are spending 25 billion kroner to build.

“Our appetite to participate in investing in Polarled or other future projects has been significantly reduced,” Kurt Georgsen, CEO of Silex, said two weeks ago.

Before it's here, it's on the Bloomberg Terminal.