Hydro’s profits point up a paradox

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NEWS ANALYSIS: Major metals firm Norsk Hydro has reported renewed profitability but still plans to cut costs and possibly jobs on its home turf in Norway. That’s put the state, which owns 44 percent of Hydro, in another uncomfortable dilemma and once again highlights the paradox of its industrial investments.

Hydro thinks costs are still too high at its Norwegian plants, like this one in Høyanger, raising questions about the goals of the state's investment. PHOTO: Norsk Hydro

Hydro’s bosses were all smiles after reporting a huge jump in second-quarter profits, but for the workers at Hydro plants in places like Sunndal and Høyanger there’s little cause for celebration. Hydro CEO Svein Richard Brandtzæg made it clear that he thinks costs in Norway are still too high, which explains why Hydro’s expansion is occurring in places where it’s cheaper to operate, like Qatar.

Hydro recently started up one of the world’s largest aluminum smelters, Qatalum, in Qatar, where energy costs are low and Hydro doesn’t have to pay compensation for the carbon emissions it’s generating. In Norway, Hydro’s carbon emissions make its energy costs much more expensive because of carbon quota requirements and a tax imposed on carbon emissions as early as 1996.

Just last week Norway’s oil and energy minister, Terje Riis-Johansen, was in the US and encouraging his counterparts from other countries to accept that energy prices should include the costs tied to carbon emissions. “We must pay for the real costs of energy,” he said at an energy conference in Washington. “That means a much higher price than what most pay today.”

That’s a price that even companies like Norway’s own Hydro, though, don’t want to pay. Therein lies the paradox: The Norwegian government, which tries to be a world leader on climate issues, is at the same time a major investor in companies like Hydro and Statoil, which not only generate emissions but try to avoid the costs of them, to remain competitive.

As Hydro spokesman Halvor Molland told newspaper Aftenposten on Wednesday, energy prices are “the most important factor” for Hydro’s profitability. That’s why Hydro is investing heavily in Qatar instead of in its Norwegian plants.

And that seems to defy the goals set by its own biggest investor, Norway’s left-center government, which publicly states that it wants to cut carbon emissions and invests in Norwegian industry to preserve jobs. The state’s investment in Hydro doesn’t seem to be doing that.

Norwegian business and trade minister, Trond Giske (left), with Hydro CEO Svein Richard Brandtzæg earlier this year. Giske says a looming government evaluation will address the "paradox" of the state's industrial investments. PHOTO: Norsk Hydro

Business and trade minister Trond Giske has been faced with this sort of paradox before, over Statoil’s investment in a controversial and polluting oil sands project in Canada, or even Telenor’s questionable safety record at operations in India. (The state holds major stakes in both Statoil and Telenor, among other firms.) Operations that would hardly be allowed in Norway are carried out overseas, or the companies head overseas to cut costs. The state’s stakes could be considered “controlling,” but the state rarely if ever exerts its control.

Giske has repeatedly claimed that the state won’t meddle in the management of a company in which it invests, even though Norway’s huge pension fund known as the Oil Fund tries to do just that. Giske admitted to Aftenposten that there are “clearer rules” for the state’s pension fund investments than there are for its own direct investment in companies.

This “paradox,” Giske said, will be addressed in his ministry’s much-anticipated evaluation of state ownership in private companies, due out within the next year. Meanwhile, the state seems caught in yet another example of setting lofty goals, but failing to carry them out through its industrial investments, because the major goal is to make money on them. Securing industrial competence, preserving jobs and being socially and environmentally responsible rank only as additional goals.

Views and News from Norway/Nina Berglund
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