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Why Norway’s railways could be forced to open up for new competition

Norway will be required to open up its rail contracts for other firms to bid on towards the end of the year, something the government has previously said it would halt.

Published: 5 October 2023 10:45 CEST

Pictured is the terminus at Bergen train station.

Norway will be forced to open its railway contracts rather than directly award them under EU rules. Pictured is the terminus at Bergen train station. Photo by Vidar Nordli-Mathisen on Unsplash

European Commission regulations mean that Norway will need to open up for rail tenders from December 25th 2023, rather than directly award contracts to firms.

This is because of the EU’s fourth railway package. The same regulations entered into force in Norway on June 1st 2022.

However, up until now, the country has been using exception options to directly award passenger train contracts in eastern Norway.

Under the current exemptions, which expire on December 24th, opening for tenders can be avoided when directly allocating contracts to public train companies. Norway’s Vy and Flytoget are two examples. Sweden’s SJ also operates in parts of Norway.

Norway’s government has long wanted a permanent exemption from the EU rules. In 2021, as part of the Hurdal agreement it was formed on, the government pledged to be permanently exempted from the EU’s fourth railway package.

While Norway is not an EU member, it is a member of the EEA (European Economic Area).

The European Commission has said it has yet to receive letters or any other requests about being exempt from the railway package, Norwegian newswire NTB reports.

Kjell Brataas, a senior advisor in the Norwegian Ministry of Transport, told NTB that Norway had communicated a desire for exemption in February of 2022.

“In this meeting, Norway’s representatives received positive feedback from the commission that they are open to discussing in more detail how the exception rules can be applied with regard to Norwegian circumstances,” Brataas said.

“We are now considering further dialogue about this,” he added.

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Four key things to know about Norway's revised budget for 2024

The government continues to tap the oil fund for public spending

The current government isn’t the first to use the country’s oil and gas wealth to cover public spending costs. However, the revised budget will take public spending drawn from the oil fund close to the limit.

Subsequent governments have limited themselves to using 3 percent of the value of the sovereign wealth fund where Norway’s oil and gas revenues are invested to top up public spending.

The extra 9 billion kroner the government plans to spend from oil revenues will bring the total spending from the fund to nearly 419 billion kroner, which equates to around 2.7 percent of the fund’s value.

This also means that the use of oil money in Norway will be 34 billion kroner higher this year than last year.

Norway’s finance minister, Trygve Slagsvold Vedum, said that staying under the 3 percent threshold was important for the government.

“It has been important that we are now under the action rule, even though we are making a heavy defence and security lift. The oil fund must be a generational fund,” he said.

However, some analysts have previously suggested that the 3 percent limit is too generous and could deplete the fund.

The increase in oil spending comes after a couple of cautious years where the government tried to limit spending from the fund to curb inflation.

READ ALSO: Could Norway’s 1.3 trillion dollar oil fund run dry?

Significant increase in defence spending

The revised budget’s main focus is increased defence spending. The Norwegian Armed Forces will receive around 7 billion kroner more in defence spending as part of the revised national budget.

In the months leading up to the revised budget, PM Jonas Gahr Støre said that Norway would hit the NATO “two percent target”.

The two percent refers to member countries allocating at least two percent of their GDP to defence spending.

Some 2 billion kroner will increase immediate operational capability, while 5 billion would be spent on a long-term defence plan.

The cost of living increases to ease, but interest rates to remain high

The Norwegian government has noted that the economy had outperformed its expectations and forecasts from last autumn when the initial budget was presented.

Furthermore, unemployment has remained low at 1.9 percent and the government expects this to rise to 2 percent during the rest of 2024.

It also expects the consumer price index to rise by 3.9 percent for 2024. The good news for consumers is that a real wage rise, meaning salary increases outpace the cost of living, is looking more likely as the year progresses.

Looking ahead to 2025, inflation is expected to slow to 2.8 percent.

Overall, the government expects the mainland economy in Norway to grow by 0.9 percent this year.

Despite the optimistic outlook from the government, the figures are unlikely to move the needle regarding interest rate cuts.

Norway’s central bank has brought the key policy rate to a 16-year high of 4.5 percent to curb inflation, and it isn’t expected to cut rates until December at the earliest.

“Today’s budget gives no reason for Norges Bank to change the interest rate plans, which now point towards an interest rate cut in December,” DNB’s chief economist Kjersti Haugland told public broadcaster NRK.

The government doesn’t have a majority for its budget

The most interesting side plot of every budget and revised budget is that the minority coalition comprised of the Labour Party and the Centre Party will rely on the support of the Socialist Left Party to get majority support for its proposals.

This means the budget’s contents usually change throughout negotiations between the government and its budget partner.

The Socialist Left Party has said it will advocate for an increase in the child benefit for the oldest children and a new tax on oil companies that would fund investment in offshore wind.

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