Norway to Offer up to $3.3 Billion State Guarantee for Long-Term Power Purchase Contracts

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Researched by Industrial Info Resources (Sugar Land, Texas)--At a time when several national power utilities are struggling to plan for future industrial power shortfalls, the Norwegian government has come up with an innovative plan that will be introduced in next year's budget. The government will offer a guarantee of up to $3.3 billion for the purchase of power contracts for companies in power-intensive industry sectors.

Under the proposal, the state will guarantee up to 80% of the contract value for companies in the wood products, wood processing, chemicals and metals industries, provided that the company has an electricity consumption of 10 gigawatt-hours per year and the power contract has a term of at least seven years.

A previous scheme had to be abandoned by the government as it failed to meet the requirements of the European Economic Area (EEA) agreement and European authority guidelines for state aid. Under the terms of the EEA agreement, the guarantees are able to cover up to 80% of the contract value.

The proposed guarantees are designed to offer long-term security and to safeguard jobs in the selected industries. The scheme will be administered by the Guarantee Institute for Export Credits (GIEK), the Norwegian central government agency responsible for guarantees and export credits insurance. The guarantees will be arranged on a commercial basis, using the power purchased as collateral.

The government hopes that a state guarantee scheme on the proposed lines will increase investments and lead to value creation in the domestic industry, helping alleviate problems previously encountered by the energy industry in obtaining long-term financing for long-term power deals.

Whether the proposal will make the Norwegian budget next year is uncertain. A general election will be held September 14, and the current center-left coalition government appears to be struggling to hold on to its majority from the 2005 election.

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