Journal Issue

Norway: Selected Issues

International Monetary Fund. European Dept.
Published Date:
August 2014
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State Ownership of Enterprises and Privatization Issues1

Norway’s direct state ownership is high relative to other OECD countries, but most enterprises operate on commercial basis. Large corporations with state ownership are subject to market discipline though having to sell in competitive markets and address private shareholder concerns, as most are only partly publicly owned with the remaining shares listed on the stock exchange. However, there is some scope for more privatization or market discipline in some sectors. Also, some special issues may arise with state ownership in the banking and energy sectors.

A. Introduction

1. Norway has among the highest shares of state ownership of commercial enterprises among advanced economies. Available data indicate that Norway’s state ownership is higher than in any other advanced economy by most measures (Figure 1.A-D). The size of state ownership in Norway measured by sales, profits, and market value is larger than in any other OECD country and similar in scale to that of large emerging market economies, which often have a greater share of state owned enterprises (SOEs) in their economies. A few other OECD countries are ranked higher in terms of assets owned by SOEs, but this is due to the takeover of distressed financial institutions.2

Figure 1.State Ownership International Comparison

Sources: OECD Economic Surveys Norway 2014, Kowalski, P. et al. (2013) and Fund staff calculations.

2. Two composite indicators of state ownership also suggest that the state ownership in Norway is among the highest in the world (Box 1). Kowalski et al. (2013) compiled a composite SOE share (CSS) indiator which is equally weighted average of SOE shares of sales, assets, and market value among country’s top ten companies. Norway’s CSS indicator is among the highest in the 38-country sample and also substantially higher in its Nordic neighbors, Finland and Sweden (Figure 1.E). Simillary, the OECD’s public ownership indicator, which is part of the OECD Indicators of Product Market Regulation (PMR), shows that Norway’s public ownership is among the highest in the OECD sample (Figure 1.F).

Box 1.Composite Indicators of State Ownership

Because state ownership is multifaceted, composite indicators have been developed to measure it. Comparing state ownership across countries is no easy task. Data on cross-country measures for state-ownership are not readily available because state ownership is often defined differently across countries and information on SOEs is not always disclosed. Despite these challenges, Kowalski et al. (2013) have developed a database for world’s largest SOEs using listed companies on the Forbes Global 2000 list. In their database, a firm is classified as an SOE when a state holds more than 50.01 percent of the firm’s shares. Otherwise firms are considered private. This excludes some of the listed Norwegian companies in which the state has minority ownership.

Their composite SOE share (CSS) measure is compiled using a sub-sample of the ten largest firms for each country, irrespective of ownership types. Countries with fewer than ten firms on the Forbes Global 2000 list are therefore excluded. The CSS is calculated as an equally weighted average of SOE shares of sales, assets, and market values among country’s top ten countries. This indicator measures the importance of SOEs for 38 sample countries, including both OECD and non-OECD countries. Norway ranks among the top ten measured by the CSS share.

The OECD also produces an indicator of public ownership as part of OECD Indicators of Product Market Regulation (PMR). The indicator of public ownership covers four components: (i) scope of SOEs; (ii) government involvement in network sectors; (iii) direct control over enterprises; and (iv) governance of SOEs. The indicator ranges from 0 to 6, and the higher the indicator, the higher the degree of public ownership. Unlike the index based on Forbes Global 2000 SOE, which measures purely the size of the state ownership of large companies, this indicator also takes account of governance of SOEs (a lower value is assigned if market discipline is more prevalent) given its original purpose as a product market regulation indicator. The public ownership indicator also shows that Norway’s public ownership is among the highest in the OECD sample.

3. The new government in Norway has expressed interest in reducing the state’s direct ownership in the Norwegian economy, while acknowledging that Norway will have significant state ownership of enterprises for the foreseeable future. This paper will focus on companies with commercial objectives (category 1-3 companies), and review how these companies are administered in Norway and discuss options for reducing their share in the economy.3 The rest of the paper is organized as follows. The next section provides an overview of the state ownership in Norway, describing the current patterns of state ownership of commercial enterprises. Section C discusses privatization issues and options using best practices from OECD experience in SOE management as a guide. Section D concludes.

B. State Ownership in Norway4

4. The Norwegian state has a large ownership role in the “commanding heights” of the Norwegian economy. The state owns 67 percent of the main oil and gas producer, Statoil; 54 percent of the telecom company, Telenor; 34 percent of the aluminum producer, Norsk Hydro; and 34 percent of the largest domestic bank, DNB among other enterprises (Table 1). In addition to their large presence in the Norwegian economy, the four companies mentioned above all have substantial external operations. Taken together, state ownership of eight commercial companies listed on stock exchanges amount to NOK 566 billion (19 percent of GDP).

Table 1.State Ownership in Norway(In millions, otherwise noted)
(USD)(NOK) 1/Share 2/Share (NOK)Share (% GDP) 3/
Listed companies
Statoil ASA79,210486,19167%325,74811%
Telenor ASA36,298222,79554%120,3094%
DNB ASA29,615181,77434%61,8032%
Yara International ASA11,93373,24636%26,5151%
Norsk Hydro ASA9,40857,74634%19,8071%
Cermaq ASA1,0296,31344%2,7460%
Kongsberg Gruppen ASA2,50215,36050%7,6800%
SAS AB1,0816,63514%9490%
Listed companies total171,0761,050,060565,55719%
Unlisted companies total4/103,0003%

Market capitalization for listed companies is based on closing stock prices on January 14, 2014.

As of end 2012. Taken from the Norwegian Government’s The State Ownership Report 2012.

Based on 2013 GDP figure.

The accounting value of unlisted companies where commercial operation is one of the objectives. The government’s share is as of end 2012, based on The State Ownership Report 2012.

Market capitalization for listed companies is based on closing stock prices on January 14, 2014.

As of end 2012. Taken from the Norwegian Government’s The State Ownership Report 2012.

Based on 2013 GDP figure.

The accounting value of unlisted companies where commercial operation is one of the objectives. The government’s share is as of end 2012, based on The State Ownership Report 2012.

5. There are also state enterprises that are engaged in commercial operations but are not listed on stock exchanges because they are 100 percent state-owned. The Norwegian state’s share of the accounting value of these unlisted companies was NOK 103 billion at end-2012. The total estimated value of listed and unlisted companies with commercial objectives is roughly equivalent to NOK 669 billion or about 22 percent of total Norwegian GDP.

6. Companies with state ownership are large employers. Roughly 285 thousand people or 11 percent of total employment were employed in companies with state ownership in 2012, of which the eight listed companies accounted for 46 percent. The rest is largely accounted for by companies in category 4, notably the regional health authorities.

7. The framework for administering state ownership is well established. The government sets goals for the ownership of each company and its ownership policy is reviewed and updated periodically. State ownership, particularly of commercial companies, is administered by the central administration to help professionalize and strengthen the State’s corporate governance. More specifically,

  • For companies with commercial objectives, the State exercises its role of owner through the annual general meeting but the distribution of roles between owner, board and general management are respected in accordance with company legislation.

  • The majority of the State’s commercial shareholdings are administered by the Ministry of Trade and Industry while companies with sectoral policy objectives are administered by the sector ministries. Centralization of administering the corporate governance for companies with commercial objectives helps to limit the risks of conflict of interest by separating sector supervision and ownership;

  • Norway has clearly set principles for corporate governance that are in line with generally accepted corporate governance principles prepared by the Norwegian Corporate Governance Board (NUES) and the OECD (see Box 2); and

  • Information on Norway’s state ownership is readily accessible. A State Ownership Report is published annually in Norwegian and English with information on the companies with state ownership.5 The recent White Paper on active ownership (2010-2011) also discusses how state ownership is administered as well as the government’s ownership policy.6

8. The 2011 White Paper on active ownership justifies the state ownership as follows:

  • National anchoring of important companies – Through state ownership, the government can ensure that important companies will keep the head office functions in Norway. Having an head office is important because decisions that impact commercial development of a company are usually made in the head office and training for key expertise and innovation also mostly take place in headquarters.

  • Management of and revenues from natural resources – State ownership will ensure that national resources are exploited in the best interest of society (e.g. Statoil).

  • Addressing market failure and monopolies – The Norwegian government established a company (i.e. Telenor) and a market for telecom service in early 1990s in light of this consideration.

  • Sectoral policy purposes – Certain tasks are so important that they need to be carried out by the public bodies or companies, not necessarily based on commercial interests. State ownership in the health and transport sectors falls under this category.

  • Long-term ownership – More generally, as a long-term investor, the state will contribute to stability of the ownership of a company and promote growth of industries within Norway.

9. These considerations suggest that privatization could be considered in sectors where market failure is no longer a relevant concern. Some sectors where a SOE is a dominant player may also benefit from more competition and market discipline if competition improves efficiency in delivering particular services.7 Moreover, state ownership in a few areas, notably energy and banking sectors, would point to special issues that deserve further consideration. The next section will discuss these issues and privatization options.

Box 2.Corporate Governance of SOEs

Norway’s Principles for Good Ownership

  • 1. All shareholders shall be treated equally.

  • 2. There shall be transparency in the State’s ownership of companies.

  • 3. Ownership decisions and resolutions shall be made at the general meeting.

  • 4. The State will establish result objectives for the companies, if appropriate in cooperation with other shareholders. The board is responsible for realizing the objectives.

  • 5. The capital structure of the company shall be consistent with the objective of the ownership and the company’s situation.

  • 6. The composition of the board shall be characterized by competence, capacity and diversity and shall reflect the distinctive characteristics of each company.

  • 7. Compensation and incentive schemes shall promote the creation of value within the companies and be generally regarded as reasonable.

  • 8. The board shall exercise independent control over the company’s management on behalf of the owners.

  • 9. The board shall adopt a plan for its own work and work actively to develop its own competencies. The board’s activities shall be evaluated.

  • 10. The company shall recognize its social responsibility.

OECD Guidelines on Corporate Governance of State-owned Enterprises

  • 1. The legal and regulatory framework should ensure level-playing field in markets where SOEs and private sector companies compete to avoid market distortions.

  • 2. The state should act as an informed and active owner and establish a clear and consistent ownership policy, ensuring that the governance of SOEs is carried out in a transparent and accountable manner, with the necessary degree of professionalism and effectiveness.

  • 3. The state and SOEs should recognize the rights of all shareholders and in accordance with the OECD Principles of Corporate Governance ensure their equitable treatment and equal access to corporate information.

  • 4. The state ownership policy should fully recognize the SOEs’ responsibilities towards stakeholders and request that they report on their relations with stakeholders.

  • 5. SOEs should observe high standards of transparency in accordance with the OECD principles of Corporate Governance.

  • 6. The boards of SOEs should have the necessary authority, competencies and objectivity to carry out their function of strategic guidance and monitoring of management. They should act with integrity and be held accountable for their actions.

Sources: Active Ownership, Ministry of Trade and Industry, 2013, Report to the Storting (White Paper) Summary, and OECD Guidelines on Corporate Governance of State-owned Enterprises, 2005.

C. Issues with State Ownership and Privatization Options

10. State ownership in a few areas raise some issues that would merit further consideration. In particular,

  • State ownership in the energy sector. The Norwegian economy is increasingly dependent on the offshore activity. The high state ownership in the oil company Statoil seems to go against the idea of diversifying the economy away from the oil sector. However, revenues from the offshore activity are largely invested in overseas through the highly-diversified portfolio of the Government Pension Fund Global (GPFG). The value of the government’s holding in Statoil is only 6 percent of the value of the GPFG.

  • State ownership in a commercial bank. The large government stake could create moral hazard problems or a greater market expectation of a bailout in the event of financial difficulties. Moreover, while DNB is supposed to operate on purely commercial terms, its credit rating seems affected by its ownership; the recent credit rating report for DNB by Moody’s (March 2014) notes that “The rating uplift reflects our assessments of a very high probability of systemic (government) support for the bank in the event of need, in light of the Norwegian government’s 34 % ownership of DNB.” This raises the issue of a level playing field relative to banks without a state owner in raising funds.

11. More generally, state ownership could result with preferential access to financing. While companies with state ownership may obtain financing on market terms, unintended advantages could arise due to the ownership if lenders attribute lower risk rating due to explicit or perceived government backing. DNB’s credit rating clearly presents such a case. The 2005 OECD guidance recommends that SOEs access credit on the same term as the private sector (OECD (2012) calls it “debt neutrality”). This principle applies to all state-owned entities including state owned banks. Kommunalbanken, which has been identified as one of the three systemically important financial institutions (SIFI) in Norway in 2014, is 100 percent state owned. It lends solely to sub-national governments and public entities so there is less question of distorting competition, but its rating (AAA) suggests a strong market perception of an implicit government guarantee. Ongoing regulatory reforms for SIFIs may reduce implicit public subsidy to these systemically important banks, but they may not necessarily address competitive advantage arising from state ownership. 8

12. The OECD (2012) suggests addressing debt neutrality challenges through offsetting measures. For example, Australia addresses the debt neutrality problem by requiring “debt neutrality charges.” Government-owned businesses are required to obtain a credit evaluation from debt rating agencies under a counterfactual assumption of private ownership. The difference between actual terms and counterfactual terms would be subtracted from the revenue streams of government businesses as “debt neutrality charges.”

13. Privatization could directly address the potential risks and distortions arising from state ownership. State ownership of DNB originates from the banking crisis in 1990s. Most of the banks which were nationalized back then were subsequently privatized with the exception of DNB where the state has retained a shareholding of 34 percent. Now that the banking crisis of 1990s is history, there seems no strong case for maintaining state ownership in the major domestic bank apart from keeping it out of foreign ownership. Further privatization of the remaining shares could reduce the government’s stake and diminish the market perception of government backing while raising additional funds for the state. At the same time, the government’s remaining ownership stake together with the 10 percent stake held by a Norwegian savings bank association would make it unlikely that it would pass into non-Norwegian control.9

14. The new government is starting to implement some privatization. A planned divesture of state-owned real estate company Entra Holding AS was announced in January 2014, and financial advisers for privatization were appointed in March 2014. The book value or Entra Holding was 7.8 billion NOK in 2012, but it has 25 billion NOK (4.1 billion USD) total assets. The company owns and manages more than 100 buildings. A public listing would be a possible option, and if there is going to be a listing, it is expected to be among the biggest in recent years. More recently, a divesture of several companies is being considered.10 Specifically, sales of the state’s shares in part or in full for eight companies, including SAS and Cermaq, are under consideration while reduction of state ownership down to 34 percent in Kongsberg Gruppen ASA and Telnor ASA are also being proposed.

15. There are various ways to privatize SOEs used by OECD countries to date:

  • Share offering

    • Initial public offering (IPO) – A listing of an SOE with all or a tranche of the enterprise’s shares on a stock exchange. This is considered the most resource intensive form of privatization.

    • Secondary public offering – After the IPO, additional tranches of SOE share could be offered to the public through public offerings. As with an IPO, this is also expensive and time consuming.

    • Accelerated book building (ABB) – this process, through investment banks, allows the government to place tranches of shares of already listed SOEs with institutional investors. This is less expensive and faster than public offering, but sales prices are likely to come at a discount.

  • The share of state ownership could also be reduced without privatization through a merger that would dilute the Norwegian state share, something that has been a subject of market speculation in the case of Statoil.

  • Privatization by SOE

    • Capital increases – the government owners or the SOEs themselves issue additional stock, resulting a reduction of the relative size of government’s ownership share.

    • Indirect privatization – De facto privatization can happen when wholly state-owned enterprises sell off their corporate assets, subsidiaries or commercial activities.

  • Trade sales

    • Private placement – Negotiated sales of entire SOEs to a preferred bidder are not common among OECD countries. Instead, more common practice is “block trades” where tranches of shares in already listed SOEs are privately offered to groups of preferred investors.

    • Trade sale auctions – In trade sale auctions, SOEs are auctioned off as a whole to highest bidder, who is typically strategic investors or private companies involved in related business.

  • Management or employee buy-out (MEBO): A form of trade sale through private placement where SOEs are sold to legal entities controlled by the incumbent staff, management or combinations thereof.

16. Preferred methods for privatization depend on the characteristics of the company to be privatized and the government’s goals. Trade sales and MEBO are more suitable if a SOE is small and a whole SOE is to be sold off within a short time period. However, if the SOE to be privatized is very large relative to the size of the markets and existing competitors or the SOE is large and operates internationally, then an IPO is the preferred method of privatization. Either way, competitive bidding in the privatization process is considered desirable. Another advantage of an IPO, if retaining local control is a goal, is that ownership would likely be spread across a large group of institutional investors holding a relatively small stake each. If ABB is selected on efficiency grounds, then the role of external advisors and governments’ efforts to maintain a level playing field become important. Privatization by SOE itself to adjust its capital structure is in line with the SOE Guidelines.

17. Further considerations need to be made if privatization is targeted at certain group of buyers. Pre-qualification of targeted buyers is key, and the government should fully disclose the criteria based on which a preference for certain shareholders is given and the objectives they are expected to pursue after privatization.

D. Conclusions

18. Norway’s state ownership is high and there is scope for reducing it in line with the Norwegian authorities’ economic goals.

  • Most large enterprises operate on commercial basis and are profitable, so there is no urgency about reducing state ownership to eliminate quasi-fiscal deficits.

  • Market distortions are not large: most large corporations with state ownership are subject to market discipline through partial private ownership and share listing, the need to sell in competitive markets, or both.

  • Companies with state ownership are administered in a professional way in line with international best practices.

Nevertheless, some sectors may benefit from privatization or more market discipline. In particular, in the case of the banking sector, privatization could be one way to achieve debt neutrality and ensure level playing field.


Prepared by Kazuko Shirono (EUR).

Measured by the size of assets, Ireland, UK, add US rank high in Figure 1, but this is driven by a small number of large financial sector firms. These firms are categorized as SOEs in 2011, but this is largely due to nationalization in the aftermath of the financial crisis. These measures are expected to be temporary and some of them have been reversed since then.

The State Ownership Report 2012 divides companies into four categories: 1) companies with commercial objectives; 2) companies with commercial objectives and head office functions in Norway; 3) companies with commercial objectives and other specifically defined objectives; and 4) companies with sectoral policy objectives. This paper will mainly focus on companies in categories 1-3.

The Norwegian state also has holdings of foreign assets, mostly equity stakes in foreign-headquartered firms, in a broadly diversified portfolio of foreign financial holdings of the sovereign wealth funds, the Government Pension Fund Global. The value of these holdings is approaching one trillion dollars. The holdings of the GPFG fall outside this study and are not included in the figures on state ownership.

For example, the privatization of Japan National Rail (JNR), which started in 1987, is generally considered to be a successful case. Mizutani and Nakamura (2004) report that the privatization of JNR improved the company’s efficiency and labor productivity.

See Chapter 3 in Global Financial Stability Report, April 2014, for discussion on implicit public subsidy to systemically important banks.

The third largest share holder is National Insurance Scheme Fund with a shareholding of 6.55 percent. The rest is mostly institutional investors whose share holdings are less than 2 percent each.

Press release, 20.06.2014, No.:66/2014, “Adjustments in order to increase distribution of power and private ownership,” available at

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