The Government Petroleum Fund 1998
The Government Petroleum Fund
The Norwegian Storting adopted the Act relating to the Government Petroleum Fund in 1990.
One important reason for establishing the Fund was to make the use of petroleum revenues in the central government budget easily visible. The Petroleum Fund constitutes a buffer against fluctuations in revenues from petroleum activities, and a tool for dealing with the long-term challenges to state finances which will present themselves when petroleum activities decline.
According to the Act relating to the Government Petroleum Fund, the Ministry of Finance is the manager of the Fund. The Ministry has delegated the operational management to Norges Bank. Fund management takes place on the basis of a regulation laid down by the Ministry of Finance and pursuant to a Management Agreement between the Ministry of Finance and Norges Bank.
Norges Bank is to achieve the highest possible return on the portfolio, subject to the restrictions defined in the regulation. The Bank is to ensure that there are adequate risk management systems and control routines for the instruments used in the management of the Fund.
The Petroleum Fund is managed according to a benchmark portfolio defined by the Ministry of Finance, and its performance is measured against this benchmark portfolio. The Ministry has also fixed an upper limit to how far Norges Bank may deviate from the benchmark portfolio.
At the highest level, auditing of the Government Petroleum Fund has been assigned to the Office of the Auditor General, which bases its audit on the work done by Norges Bank’s Auditing Department. The Auditing Department reports to the Bank’s Supervisory Council, which is appointed by the Storting. The Ministry of Finance uses an independent consulting company in its evaluation of Norges Bank’s management.
Up to the end of 1997, the Petroleum Fund was managed according to a strategy similar to that followed by Norges Bank in its management of foreign exchange reserves. Capital was placed in government and government-guaranteed bonds and bills. From January 1998 portions of the Petroleum Fund have also been invested in the international equity markets. The number of countries in which investment is permitted has been expanded from 10 to 21. The Ministry of Finance submitted this strategy to the Storting in the Revised National Budget for 1997 and the National Budget for 1998. The revised strategy is in all essentials in accordance with the advice given by Norges Bank.
At year-end 1998 the market value of the Petroleum Fund was NOK 172 billion. The bond portfolio was NOK 102 billion and the equity portfolio NOK 70 billion. The equity portfolio consisted of investments in more than 2000 enterprises.