State lost 100bn kr on bad North Sea oil deal

Tax Ministry figures show Denmark could have made far more on its North Sea oil fields, had it listened to the advice of experts

The Danish state has lost out on 124 billion kroner of tax income from North Sea oil as a result of the 2003 deal made by the former Venstre-Konservative (VK) coalition government, reports Politiken newspaper.

Tax Ministry figures show the deal that was struck between the-then economy and business minister Bendt Bendtsen (Konservative) and a consortium of oil companies, led by A.P. Møller-Mærsk, meant the government lost out on an additional 12 billion kroner in taxes.

The tax income would have been far higher if the government had followed the 2001 recommendations from the so-called hydrocarbon committee. The VK government's predecessors, a Socialdemokraterne-Radikale (SR) coalition, had intended to follow the recommendations but it lost the 2001 general election.

The committee recommended a tax rate of 84 percent and the ending of lucrative tax rebates for oil companies, but instead the oil companies were given a 64 percent tax rate that will last until 2043.

The deal also included a clause that would entitle the Mærsk-led consortium, known as DUC, to compensation if the government chose to the change the deal before it ended.

Socialdemokraterne tax spokesperson Thomas Jensen criticised the former government following the release of the new figures.

“I get sad thinking about how much the country could have got for 100 billion kroner,” Jensen told Politiken. “[Former PM and Venstre leader] Lars Løkke [Rasmussen] needs to account for why the VK government preferred to pad the bank accounts of oil company shareholders rather than strengthen the economy.”

Far-left party Enhedlisten also argued that Denmark could have better weathered the recession had it been earning the extra income.

“Ten billion kroner a year is several times the sum we haggle over during the annual budget,” finance spokeseperson Fran Aaen told Politiken. “It would have given significant economic room for manoeuvre that could have increased employment and welfare.”

Venstre energy spokesperson Lars Christian Lilleholt rejected the accusation that the government had made a bad deal.

“We made a really good real that ensured that the state received two-thirds of the income from the North Sea,” Lilleholt told Politiken.

Last year the government established a committee to examine whether it was possible to alter the deal and avoid the compensation clause.

The clause can only be avoided if there were fundamental changes to basis of the deal, such as large changes in the price of oil, and since 2003 the price of oil has quadrupled, meaning that the oil companies are reaping far higher profits than expected.

But in February the government decided not to make any changes to the deal. In exchange, the planned reduction in the corporate tax rate would not be extended to oil companies.

This autumn the government will negotiate changing the tax regulations for other oil companies to bring them in line with the DUC agreement. This is hoped to raise the 27 billion kroner the government hopes to spend to improve rail infrastructure, though one oil operator, Bayerngas, has threatened to end its North Sea oil investments if the changes are made.