Norway’s $1.8-billion pipeline spat moves to appeals court

By Mikael Holter on 1/31/2017

OSLO (Bloomberg) -- Offshore gas-pipeline owners will face off again with Norway in an Oslo court on Tuesday in an appeal trial over tariff cuts that investors claim will cost them about $1.8 billion in income.

The plaintiffs, companies owned by investors including Allianz SE, Abu Dhabi’s sovereign wealth fund and Canadian pension funds, are seeking to overturn a 2015 ruling that the government had acted lawfully in cutting fees for transporting gas through pipelines from Norway to the UK and continental Europe.

The investors, who in 2011 and 2012 collectively spent about 32 billion kroner ($3.9 billion) buying a 44% stake in pipeline-owner Gassled, were stunned in 2013 when the government decided to cut tariffs by as much as 90% for future gas volumes, reducing projected cash flows.

“For the appealing parties, this implied a dramatic worsening of the expected return and the investments in Gassled,” Jan Jansen, one of the lawyers representing the investors, said in court on Tuesday. As a consequence, the investors faced bond downgrades, loan restructurings and a reduced ability to pay dividends, he said.

The four plaintiffs—Solveig Gas Norway AS, Njord Gas Infrastructure AS, Silex Gas Norway AS and Infragas Norge AS—said in documents filed to the Borgarting Court of Appeal that the cuts will reduce their income by as much as 15 billion kroner from 2016 to 2028. The companies bought their stakes from oil companies including Norway’s state-controlled Statoil ASA and Exxon Mobil Corp.

While two consecutive governments have justified the move by the need to stimulate offshore exploration and make gas discoveries more profitable, the international investors have said the tariff cut has hurt Norway’s reputation as a stable and predictable environment for business.

The Oslo District Court in September 2015 ruled that the government had every right to change the tariffs. But it also ordered the parties to each pay their own legal fees, giving the government some of the blame for the dispute arising. Total costs of $11 million for the first trial made the case one of the costliest ever in Norway.

Norway owns 46% of Gassled through Petoro AS, while Statoil, owned 67% by the state, still holds 5% of the pipeline network. Solveig Gas, which is held by the Canada Pension Plan Investment Board, Allianz Capital Partners and Abu Dhabi’s wealth fund, is Gassled’s second-biggest owner with 25% of the shares, followed by Njord with 8%.

The Petroleum and Energy Ministry declined to comment on Monday, as did one lawyer representing the plaintiffs.

The appeal proceedings are planned to last until April 7, though they could end a little earlier, Judge Kyrre Grimstad said in court on Tuesday.

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