State-Owned Enterprises – Do They Need Stronger Rules ?

1. State-Owned Enterprises – Do TheyNeedStrongerRules? International Conference, Prague 5th October 2011 DeputyDirector General (R) Morten M. Kallevig Ownership Department, Norwegian M T I

2. Introductoryremarks: • SOEs – a strange animal? • Business activities – not for thebeaurocrats • Not fair to all, butegoistic and profitable • The Minister should not be responsible for day-to-day business decisions • Parliamentdecidesonsizeof State Ownership and budgetaryissues

3. Why is a SOE established? • Historicalreasons, crises, nationalizations • Safeguardnationalownershipofkeycompanies • Retaincontrol over naturalresources • Secure a stable ownershipstructure • Control industrialdevelopment and production • ”Strategicreasons”

4. Different legal framework: • Limited Public Company Act • State-owned Enterprises Act • Special (individual) Company Act • Agency, Crown Corporation • GovernmentOwnedEntity SOEsinclude all form ofcompanieswhere a State has a stronginterest as a shareholder

5. Whyshouldwe have SOEs? • An activityneedsfreedom to operate under market conditions, free from thestatebudget • Must establishits business strategy and budget • Must be able to decideonproducts and prices; procurement and wages • Must operate under business conditions, in competitionwiththe private sector

6. BoardsofDirectors: • Hire (and fire) the Chief ExecutiveOfficer • Control Management and resultdevelopment • Strategic issues, ethical rules, CSR • No active politicians or ministry officials • Competence, diversity, evaluations • 1/3 elected by and amongtheemployees • 40 % ofeachgender

7. The State as an owner • Acting at a General MeetingofShareholders • Electionof a competentBoardofDirectors • Setting aims for returnoncapital and dividends • Working for fair shareholderreturns and long-termindustrialdevelopmentofthecompany • Predictable and professionalownership, transparency and reporting, long-termpolicies

8. NorwegianCategories: • Companieswithcommercialobjectives • Companieswithcommercialobjectives, ensuring head officefunctions in thecountry • Companieswithcommercial and otherspecificdefinesobjectives • Companieswithsectoralobjectives

9. Supplementary material: Norwegian State ownership – developments Ownership Department, MTI – key facts Policy, 10 principles and implementation Relationship Ministry – Board of Directors

10. Important historical events • 1945 ->: Industrial development after WW2 • State involved / driving force • Metals -> major owner in Norsk Hydro, Norsk Jernverk • Oil and gas -> major owner in Statoil • Energy -> owner of Statkraft • Military Companies -> Kongsberg, Raufoss, Horten • 1987: Kongsberg Weapon Industry transformed (composition proceedings) • Business mindset evident (new era) • 2001: Department of Ownership established • Professionalism, transaction skills, transparency

11. Basis for current ownership policy: Separation of roles, professionalism

12. Ministry of Trade and Industry

13. Ministry of Trade and Industry 54 % ownership Ministry of Transportation: Open Network Provision Universal Service Obligations Ministry of Transportation: Buys services to ensure transport services to low population areas Ministry of Trade and Industry 14.3 % ownership Examples of different roles

14. Entity Current share, % Corporat-isation Establi-shment Privatisation /merger New capital De-merger Acquisition, by State/company Telenor 54 1994 2000,2003,2004 Yara/Hydro 36.2  (2004) 2004 Statkraft 100 1992 StatoilHydro 62.5 1972 2001,2004,2005,2007 2007  Cermaq 44.0 1995 2005 Arcus 0 2001,2003 Electronic Chart Center 100 1999 Olivin 0 2001,2003 NOAH 0 1991 2002, 2004 DnBNOR 34 (2003/2004) Eksportfinans 15 2001 Argentum 100 2001 Aker Holding 30 2007 SND Invest 0 1993 2003 Nordfund 100 1997 Posten Norge 100 1996 Statnett 100 1992 Nammo 50 2006 Active role in restructuring (1) 2003 2008

15. Entity Current share, % Corporat-isation Establi-shment Privatisation Merger De-merger Acquisition, by State/company BaneTele 50 2001 2006,2009 NSB 100 1996 Flytoget 100 1992 2003 Norsk Medisinaldepot 0 2001 Grødegaard 0 1997 2003, 2005 Vet.med. Oppdr.senter 100 1992 Statsskog 100 1993 Avinor 100 2003 Mesta 100 2003 Secora 100 2005 Baneservice 100 2005 Entra 100 2000 Active role in restructuring (2)

16. Goverment involvements 2010highlights • Participated in capitalincreas 5 Bn SEK in SAS • Voted for convertibelbond in SAS, maydilutegovernmentownership to 12,6 pct • Participated in 10 Bn NOK capitalincrease in Hydro • AcceptedOwnershipdilution from 44 to 34 pct in Hydro as part ofValetransaction • Financed 14 Bn NOK capitalincreas in Statkraft • Boardrenewal in Statkraft – newChairman

17. Active role in restructuring, summary • Since 2000: • More than 30 major actions on M&A/restructuring, of which… • 15 sales/privatisations (mostly partial) • 6 establishment of new companies • 4 acquisitions • Other corporate/financial restructuring • In addition: • State-owned enterprises are closed down if necessary • Examples: Raufoss ASA, Sulitjelma Bergverk AS, Moxy Trucks AS • Focus on better Corporate Governance, Ownership reporting • Financial return and long-term industrial development are main priorities

18. Dividends – important funding source Annual dividends received by the state In 2010: 22,5 BNOK = 2.9 BEUR BNOK From Statoil (invested) From others (spent)

19. OSE performance 2009 2010 OSE Benchmark Index Flat average, listed SOE Cermaq DnB NOR Kongsberg Gruppen Norsk Hydro SAS StatoilHydro (Statoil) Telenor Yara International Share price gain (%)

20. But less state ownership at OSE- Increasing foreign ownership Ownership of companies listed at Oslo Stock Exchange, year-end Source: Oslo Stock Exchange, www.ose.no

21. State ownership – developments Department of Ownership – key facts Policy, principles and implementation Relationship Ministry – Board of Directors

22. Organisation and mandate • Other ministries manage sector-critical enterprises Ministry of Trade and Industry • Manages ownership in 22 of the 50 state-owned enterprises • Portfolio worth 40-50 BEUR • 15 economists/lawyers - background from consulting, banking, law firms, research, and public administration • Extensive use of external advisors/investment banks Political staff Department of Ownership Five other departments Mandate: The state-owned enterprises must be managed with an objective to get a market based required rate of return and solid industrial growth over time. Report to Parliament on Ownership Policy 08.12.2006

23. Direct holdings – listed • DnB NOR 34 % – Norway's largest bank • Telenor 54 % – international telecom operator • Norsk Hydro 44 % – aluminium • Yara 36 % – international fertilizer • Cermaq 44 % – sea farming & feeding • Kongsberg Gruppen 50 % – defence & maritime • SAS 14 % – Scandinavian airline • Aker Holding 30 % (holding, owns 40% of Aker Kværner) – engineering

24. Direct holdings – non-listed • Nammo 50 % – ammunition • Statkraft 100 % – power generation • Mesta 100 % – road construction and maintenance • Entra Eiendom 100 % – commercial property • Flytoget 100 % – main airport express train • SNSK 99.9 % – coal mining, Spitsbergen • Eksportfinans 15 % – export credits • Argentum 100 % – venture capital (fund in fund) • ECC 100 % – electronic sea maps • Kings Bay/ Bjørnøen 100 % – real estate and administration, Spitsbergen/Bjørnøya • Venturefondet 100 % – venture capital

25. State ownership – developments Department of Ownership – key facts Policy, principles and implementation Relationship Ministry – Board of Directors

26. Parliament Ministry General Meeting General Assembly Nomination Committee Board of Directors Company Mgmt Operations Governance – a brief overview • The State’s ownership is formally exercised through the Annual General Meeting • The company is managed by the Board of Directors – not by the State • The Ministry is not represented in the Board of Directors / Supervisory Board • Quarterly contact meetings with the companies • The Ministry sets goals/expectations regarding return on capital and dividend • Companies wholly owned by the government shall be managed in a similar way as a well-managed private company

27. Annual report on ownership Economic and financial portfolio review and a review of state owned companies Presentation of each company Presentation of Board of Directors Policy document Division of roles within the public administration Legal framework for the Governments control of ownership The relationship between the owner, BoD og company General expectations to all companies The aim behind state ownership in each company Transparent ownership URL: www.ownershipreport.net

28. The State´s principles (1) • All shareholders shall receive equal treatment.  • There shall be transparency in State ownership of companies.  • Ownership decisions/ resolutions shall be taken/ adopted at the annual general meeting. • The State, in cooperation with other owners when relevant, shall set performance targets for the companies; the boards shall be responsible for achieving these targets. • The capital structure of the company shall be consistent with the objective of ownership and circumstances of the company.

29. The State´s principles (2) • The composition of the board shall be characterised by competence, capacity and diversity, and reflect the distinctive characteristics of the company. • Wage and incentive schemes shall be formulated so that they promote value creation in the companies and are perceived as reasonable. (Vote against equity option schemes.) • On behalf of the owners, the board shall exercise independent control of the company management. • The board shall adopt a plan for its own activities and work actively to develop its own competencies.  • The company shall be aware of its responsibilities to society at large.

30. A professional owner The State will comply with internationally recognized Corporate Governance principles: • The Norwegian Code of Practice for Corporate Governance • The State’s principles of Good Corporate Governance • OECD Guidelines on Corporate Governance of SOEs

31. Agenda State ownership – developments Department of Ownership – key facts Policy, principles and implementation Relationship MTI – Board of Directors

32. BACK-UP State ownership in order to secure… • national ownership and foundation of key companies • control over important natural resources • a stable ownership in Norway • long term growth, industrial development and production in Norway

33. Board of Directors: (1) Responsibility • Responsibility and liability set out in the companies act • Legal obligation to act in the best interests of the company and to treat all shareholders equitably • The Board of Directors shall monitor the management and give strategic guidance • Mandate set out in the articles of association • Hire and fire the CEO – no interference from the state

34. (2) Nomination • There should be established (external) Nomination Committees • The Government is together with other shareholders represented in the Nomination Committees which prepares the elections

35. (3) Composition and independence • Broad shareholder representation • The composition of the board shall be characterised by competence, capacity and diversity and shall reflect the distinctive characteristics of each company • Separation of Chair and CEO • Mainly independent board members • 1/3 members elected by and among the employees, acting in the interest of the company and all shareholders. Shall have access to the same information as the other directors • 40 percent female board members in listed companies and SOEs

36. (4) Remuneration • The remuneration of the Board of Directors should reflect the board’s responsibility, expertise, time commitment and the complexity of the company’s activities • No link to the company’s performance • Members of the Board of Directors and/or companies with which they are associated should not take on specific assignments for the company in addition to their appointment as a member of the board

37. Corporate Social Responsibility • High ambitions and conscious priority on R&D • Open and constructive handling of restructuring processes • Environmental considerations in the entire value chain • Work against corruption within each company • Ethical guidelines • Equality/diversity/apprentice schemes Social responsibility can contribute to good long-term development

38. References • The State’s Ownership Report 2008www.ownershipreport.net • The Government’s Ownership Policywww.ownershippolicy.net