The Petroleum Fund 1996-2000, estimates 2001-2005. In billions of NOK 1200  1200  800  800  400  400  0  0 96  97 98  99  00 01  02  03  04  05  In the years ahead, the capital in the Petroleum Fund will increase as the surplus on the central government budget is transferred to the Fund. The chart shows the estimates for growth in the Petroleum Fund. The projections, as they should be, are based on prudent assumptions concerning oil and gas prices, the return on the Fund and the domestic use of oil revenues. The state’s direct financial interest in petroleum activities (SDFI) may be regarded as part of the tax system. The government would have had little possibility of ensuring that a sizeable share of the  8  BIS Review14?/2001  economic rent benefit society without such a field-specific instrument. It is doubtful whether the government can fully realise the value of the SDFI through its disposal. Buyers may have more knowledge about the holdings than the seller. Companies that buy SDFI stakes will also face some uncertainty as to the future tax system, which will have a negative effect on their willingness to pay. It is therefore understandable that only a smaller share of the SDFI is offered for sale. At the same time, the sale of the SDFI increases the need to remedy the substantial loopholes that have been found in the petroleum tax system.
The government’s five largest stakes in Norwegian companies can be roughly estimated at NOK 300 billion. In general, concentrated ownership requires a more strategic ownership approach and gives rise to higher risk than diversified ownership. 10  BIS Review14?/2001  Risk associated with state ownership NOK bn 300  The five largest state enterprises Petroleum Fund's bonds Petroleum Fund's equities  200  100  National Insurance Fund's private bonds  National Insurance Fund's equities  0 0  10  20  Return risk  This is illustrated further in the chart. The composition of government assets is broken down into equities and bonds in the Petroleum Fund and the National Insurance Fund and government ownership interests in the five largest companies. The horizontal axis provides a normal measure of risk, in other words the standard deviation of the return. The risk is estimated on the basis of the historical performance of the companies’ share prices. For unlisted companies, we have used share price performance for comparable international companies. Higher risk means that the assets are more exposed to fluctuations in return. As a whole, the return on the Petroleum Fund and the return on private bond holdings in the National Insurance Fund feature a moderate risk profile. The risk is higher for both the National Insurance Fund’s equities and the state’s ownership interests in the five largest companies. For a given expected return, the owner should aim at reducing risk because future income will then be more secure.