Norway’s $1 Trillion Fund Slammed for ‘Propaganda’ on Oil Stocks

(Bloomberg) -- The debate over whether Norway’s $1 trillion sovereign wealth fund should be allowed to dump its oil stocks is heating up.

Several of the country’s top economists criticized the fund after its chief executive officer presented key lawmakers with figures showing that it would have made outsized returns if it had sold its oil and gas stocks before the crude-price slump in 2014.

By making a return argument, the fund is straying from its original reasoning in its quest to divest its roughly $40 billion in oil and gas stocks. When making the proposal last year, the fund said dumping the stocks would be good for Norway since it would reduce the country’s overall exposure to oil. The new data was presented a month after a government-appointed commission advised against the plan, arguing there was little to gain from a divestment.

Knut Anton Mork, an economics professor who agreed with the initial divestment proposal, said the fund is now bordering on “dangerously populist” advocacy, and that it should keep things simple.

“There’s something sneaky about the argument that the fund would be much bigger today if it hadn’t held oil stocks when oil prices fell,” he said in a phone interview. “What it’s about is that the Norwegian state is in reality a gigantic oil company, and that it therefore makes no sense that it would also invest in other oil companies. That creates a concentration risk. And that’s actually all you need to say.”


One professor who’s argued against divestment, Petter Osmundsen, called the fund’s data outright “propaganda.”

The figures showed the fund would have made an additional 308 billion kroner ($38 billion) by the end of the second quarter this year if it had sold its oil and gas stocks 10 years ago, and 136 billion kroner more if it had sold them five years ago -- before the market slump from 2014 to 2017. That’s “misleading,” Osmundsen said, because oil prices were abnormally high at both of these hypothetical divestment dates. Brent traded at $140 a barrel at the middle of 2008.

“I could make a chart for you that would go in the opposite direction,” he said. “This is selective analysis.”

Government Delay

The fund’s CEO Yngve Slyngstad made his presentation at its offices in New York in a Sept. 21 meeting with members of the Norwegian parliament’s Finance Committee, who were on an official trip in the city that week.

A month earlier an expert panel led by professor Oystein Thogersen had argued against the proposal, saying the divestment from oil stocks would only marginally limit the effect of lower crude prices on Norway, which is western Europe’s biggest oil and gas producer.

The report added uncertainty about the final outcome even as a majority in parliament has signaled support for the proposal. The minority Conservative-led government last month delayed a decision to next year, asking for more input and starting a public consultation round on the report.

The head of the expert commission, economics professor Oystein Thogersen, said the fund’s new figures added limited value to the debate.

“A historical assessment like this one says nothing or very little about the forward-looking, namely whether we get a more diversified national wealth by selling energy stocks,” he said by phone.

No Contribution

After declining to comment on the data earlier this week, Norges Bank Investment Management, the central bank unit that manages the fund, said on Thursday that Slyngstad’s presentation “isn’t a contribution to any debate.”

“Norges Bank is one of the commenting bodies in the consultation on the report about energy stocks, and we will provide our input on that occasion,” spokesman Thomas Sevang said in an email.

Steinar Holden, yet another professor who’s participated in the debate that followed the Thogersen report, said the new data was “interesting” even if they weren’t “directly related to the main argument” for selling oil stocks. A supporter of the divestment proposal, Holden said the criticism of Slyngstad was uncalled for.

“It’s relevant to bring this up,” he said. “The profitability of oil stocks will of course vary over time, and in some periods oil stocks will also be more profitable than other stocks. Still, these figures are an illustration that it’s wrong to view the divestment of oil stocks as an expensive insurance.”

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