Maersk locks horns with government on oil deal
The government should be able to renegotiate the 2003 North Sea oil deal establishing the state’s share of profits through a hydrocarbon tax, accordng to green think-tank Concito.
The deal was struck with the oil consortium DUC, which consists of Maersk, Shell and Chevron, and is supposed to last until 2042 without renegotiation. Should the government choose to raise the hydrocarbon tax before then, it would be obliged to compensate the DUC for lost earnings.
While this compensation clause is considered by many to be a thorn in the side of the governmentÂ’s attempts to extract more money from the North Sea oil industry, ConcitoÂ’s chief economist, Frans Clemmensen, argues it contradicts the stateÂ’s right to set taxes.
Â“The compensation clause recognises the stateÂ’s right to tax, which makes it contradictory if it requires the state to compensate the DUC if the hyrdrocarbon tax is increased,Â” Clemmensen told Jyllands-Posten newspaper. Â“Many experts pointed this out when the North Sea deal was struck in 2003 as being problematic.Â”
The deal was intended to ensure that the state took its fair share of profits from the North Sea oil. Government support party Enhedslisten has been a particularly vocal critic of the deal, which many argue was excessively generous to the oil industry.
It took the formation of the Socialdemokraterne-led government last year for the issue to regain political importance as the new government sought new areas to increase revenue.
The oil industry reacted negatively to the decision by the government last November to re-examine the terms of the deal, arguing that it has fulfilled its obligations and expected the government to do the same.
Â”We do not see any foundation for renegotiation of the North Sea deal,Â” Anders WÃ¼rtzen, head of pulbic affairs for Maesk, said. Â“The deal lives up to what the parties agreed during the negotiations in 2003 Â– negotiations which were both long and detailed.Â”
The Tax Ministry is heading the committee which is re-examining the deal and it is expected to release a report by September on its findings. For now, there is no word on the governmentÂ’s position concerning the legitimacy of the compensation clause.
Â“The question is whether the government wants to protect its and the tax payers’ interests and throroughly examine the deal to see what they may or may not do,Â” Clemmensen said, adding that the government could choose to raise the tax and pay the DUC compensation, which would be in agreement with the deal.
According to Concito, the DUC has profited from enormous increases in oil prices since the deal was struck, leading to vastly higher profit margins than most businesses.
In 2008 the DUC had a profit margin of 28 percent. The average non-finance-related company has an average after tax profit margin of 2 percent.
The numbers concerning profits earned from the North Sea oil deal vary. Today, Jyllands-Posten put the DUCÂ’s profits between 2004 and 2010 at 88 billion kroner while Concito claims it is 125 billion. Both agree the Danish state earned about 185 billion in the same period.