Election 2013: Norwegian opposition wins landslide victory, but coalition negotiations will prove difficult

Majority, but no natural coalition

The election results confirm IHS's forecast for the most likely post-election scenario: a majority for the opposition but not for any natural coalition (see Norway: 6 September 2013: Election 2013: Norway to move from left to right amid coalition uncertainty). Centre-right Høyre polled 26.9% of the vote and will receive 48 seats, 18 more than in 2009. The right-wing Progress Party (Fremskrittspartiet: Frp) won 16.3% and 29 seats, 12 less than in the last election. The centrist Christian Democratic Party (Kristelig Folkeparti: KrF) and Liberal Party (Venstre) received 5.6% and 5.3%, giving them 10 and nine seats respectively. This means that a Høyre-Frp government would have 77 seats and a Høyre-KrF-Venstre government 67 seats, both short of the 85 needed for a majority. As Frp has stated it will not support a government of which it is not a part, and there is strong scepticism within KrF and Venstre against co-operating too closely with Frp, Høyre leader Erna Solberg faces a tough challenge in building her favoured four-party coalition.

The results provided a silver lining for incumbent Prime Minister Jens Stoltenberg's centre-left Labour Party (Arbeiderpartiet: Ap), as it remained the largest party with 30.8% of the vote and 55 seats, despite losing nine since 2009. Of his government partners, the centrist Centre Party (Senterpartiet: Sp) polled 5.4%, winning 10 seats, and the left-wing Socialist Left Party (Sosialistisk Venstreparti: SV) just beat the 4% parliamentary threshold at 4.1%, taking seven seats. The three parties will now present their last budget, for 2014, on 14 October, before taking up their roles as opposition parties. The budget will be implemented with tweaks from the incoming government. The final parliamentary seat went to a newcomer, the Green Party (Miljøpartiet De Grønne: MDG), which polled 2.8% nationwide but gained one seat as a result of strong polling in the capital Oslo.

Outlook and implications

The four opposition parties have a month to sort out their disagreements and form a government platform with majority support in parliament. Høyre's stated aim of a four-party coalition remains unlikely; there is strong opposition within both KrF and Venstre to participating in government with Frp, and a realisation that in order to push through centrist policies there is a benefit to standing together. The two parties presented a united front throughout the election campaign. However, the division of seats means that Høyre and Frp could rely on the support of only one of the centrist parties, and there remains a possibility that in particular Venstre could be convinced to drop its centrist partner and enter government.

The most likely outcome remains a Høyre-Frp government, supported by KrF and Venstre in parliament. For this to become reality, compromises will have to be made between all parties, and Solberg will have to offer concessions. Frp's proposal to increase the use of revenue from the country's oil and gas sector is likely to be met by channelling investment outside of the state budget, in order not to breach the Høyre-supported informal "budget rule", whereby only up to 4% of the interest from the country's oil fund, the Government Pension Fund Global (GPFG), can be used to cover the annual budget deficit. Frp is also likely to be given concessions on immigration policy, with a more restrictive policy on asylum seekers. On environmental policy, Venstre and KrF are unlikely to budge on their demand that no further oil and gas exploration is undertaken in the northern coastal areas off Lofoten, Senja, and Vesterålen, with the issue probably being delayed until the next parliament.

From a broader energy perspective, the opposition's victory is cause for cautious optimism. Generally, Høyre has campaigned on a platform promising a lower tax burden for Norwegian industries and a review of the petroleum tax system specifically that would increase profitability in the sector to encourage reinvestment in the exploitation of existing fields and development of yet-undiscovered resources. It remains to be seen how a Høyre-led coalition would go about such changes in the targeted revenue-neutral way, but generally the party has expressed a keenness to reinstate stability in the Norwegian energy investment climate after the outgoing centre-left government increased taxes for oil and gas companies operating in the country, albeit marginally, and proposed major tariff cuts for the subsea Gassled pipeline that were not welcomed by international investors (see Norway: 17 April 2013: Norway delays gas transport tariff cut after investor protests). Høyre energy spokesperson Siri Meling told Reuters about the matter ahead of elections: "We will look into this if we get into government and will consider whether we should change this decision." Major investors in Gassled – including the Abu Dhabi Investment Authority, German insurer Allianz, Swiss bank UBS, and France's Caisse des Depots – have welcomed the promised effort, also referring to a stable energy investment climate that they allege has suffered under the centre-left coalition.

Another major proposal Høyre has reportedly tabled is the piecemeal reduction of state ownership in Statoil. Part-privatisation efforts will be part of the coalition negotiations, but Høyre's spokesperson on ownership matters, Svein Flåtten, told the Financial Times newspaper that his party is keen to reduce state-ownership in major Norwegian firms such as Statoil in order to encourage more competition in the sector. Høyre further expects a targeted reduction of the state's current 67% interest in Statoil to 51% to net the Norwegian state up to NOK77 billion (USD12.7 billion) under current market conditions. However, the party is intent on pursuing such a process slowly, while retaining a controlling stake for the government in the country's biggest company by market capitalisation. Besides the Norwegian state's interest, Statoil's current ownership structure features private Norwegian investors (8.9%), UK investors (5%), other European investors (7.4%), US investors (10.2%) and shareholders from elsewhere (1.4%), according to the company's website. The latter category appears to suggest particular room for expansion and Middle Eastern interests in Gassled might well extend to a potential future ownership stake in Statoil. But with intensifying co-operation between Russian majors and Statoil, interest from that side of the world might not be entirely unthinkable either. It remains to be seen, however, to what extent Høyre and its future coalition partners are prepared to offer Statoil stakes openly to the market or might want to restrict the involvement of foreign state-backed investors.

Overall, a Høyre-led coalition is likely to lead a business-friendly policy, with increased opportunities for private investors in infrastructure construction, education and healthcare, and overall reduction in state ownership in the economy, as well as tax reductions. Details of these measures will have to be hammered out between the parties in the upcoming negotiations. It is also likely that the new government will start a review process of the state's management of the USD750 billion GPFG, with a view to potentially splitting the fund and expanding investment beyond the current shares, bonds and property to include also infrastructure (see Norway: 2 July 2013: Election favourites consider change in strategy for Norway's oil fund). However, this process will be long and consensus will be sought between all political parties.

In the unlikely but possible event that the opposition parties cannot agree on a common platform, either in coalition or with a one-party Høyre government seeking support in parliament, the task of forming a government would go to Ap, as the largest party. With the eight-year "red-green" co-operation between Ap, Sp and SV at an end, the parties are already positioning themselves for opposition and for the 2017 election; on election night, Ap sought to woo KrF through national media, and Sp asserted its primary aim of pushing through its policies, regardless of coalitions. Depending on the outcome of the coming weeks' government negotiations, there is a possibility that new centre-left coalitions will be built over the next four years.