Funds baulk at Norway gas transport tariff proposal

Thu Feb 28, 2013 11:39am EST

* Three Gassled partners protest government tariff proposal

* Investing in Arctic pipeline on hold -partner

* Minister says he has "heard the message"

By Gwladys Fouche

OSLO, Feb 28 (Reuters) - Several partners in Norway's gas pipeline system are considering withholding future investments, including in the key Polarled pipeline, after the Nordic country proposed a cut in tariffs on natural gas transport for new gas contracts.

In January the government said it would lower the tariffs to encourage higher production in mature fields and more exploration in the frontier areas of the Arctic.

Since then, at least three of the partners in the system, called Gassled, have protested against the proposal as it greatly cuts their profits.

These partners represent several international investments funds, such as the Abu Dhabi Investment Authority, the Canadian Pension Fund, German insurer Allianz, Swiss bank UBS and France's Caisse des Depots.

They have spent $5.1 billion in recent years acquiring stakes in Norwegian pipelines, then considered a safe and steady investment bet.

"Our view on further investments in Norway has changed dramatically with this new proposal," said Trygve Pedersen, head of Solveig Gas Norway, owned by the Canadian Pension Fund, the Abu Dhabi Investment Authority and Allianz.

"It is a proposal on reducing tariffs by 90 percent so obviously ... this leaves us in a situation where we are not making a reasonable return," he told Reuters.

"Any additional investments outside of Gassled we will view differently now than previously."

A key investment Norway is betting on is Polarled, a 480-kilometre (300 miles) pipeline that would transport gas south from several fields above the Arctic Circle.

It is being built for $4.5 billion by a consortium of 10 oil firms and is expected to be finished in late 2016. After that it would be possible for other firms to buy stakes in the project, or for the pipeline to be integrated into Gassled.

"We saw the option of going into Polarled after 2016, that we could acquire those shares without merging in with the E&P (exploration and production) companies," said Kurt Georgsen, head of Silex Gas Norway, another Gassled partner, wholly owned by Allianz.

"That will be much more challenging now," he told Reuters.

A third partner, Infragas Norway, wholly owned by the Canadian Pension Fund, has also protested against the government's proposal.

Were the proposal to come into force in its current form, the partners may consider suing the Norwegian government.

"(Suing) could be one of the options available to us," said Pedersen, but added: "Nobody wants a court case. We want a solution and we will contribute towards that."

The oil ministry is collecting views from different stakeholders until mid-March about its tariff proposal, which is due to come into force on May 1.

It has said the tariffs were set up to provide investors a 7 percent return on asset but the actual return was 10 percent in 2012 and was seen at 10.5 percent in 2028.

Oil and energy minister Ola Borten Moe said he had "heard the message" from the aggrieved Gassled partners but did not say whether he would makes changes to the proposal to appease them.

"We are carrying out the process as planned. Now it is under consultation, the responses come in, and after that we will determine the final tariff structure," he told Reuters.

"How they (the partners) choose to deal with this is of course up to them."

State-owned Petoro holds 45.8 percent of Gassled, whose ownership also includes firms such as Statoil, ConocoPhillips, DONG, GDF Suez and RWE .

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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