* Proposals come in surprise announcement
* Government trailing in polls before Sept. 12-13 election
* Climate change central in election campaign
(Adds industry reaction, detail, bullet points)
By Nerijus Adomaitis and Nora Buli
OSLO, Aug 31 (Reuters) - Norway's government has proposed
overhauling taxation of its oil and gas firms by scrapping some
incentives, it said in a surprise announcement on Tuesday,
further heating up a pre-election debate over the future of the
country's top industry.
If passed by parliament, the proposals would remove
deductions that some economists say encourage excessive
risk-taking by oil firms, and would also cut reimbursements for
exploration costs.
"The changes mean that the tax conditions will be tighter
and have a more neutral effect on investments. At the same time,
we are making sure that companies have predictable framework
conditions," Finance Minister Jan Tore Sanner said.
Norway is western Europe's largest oil and gas producer and
companies operating on the Norwegian continental shelf include
Equinor, Shell, TotalEnergies,
ConocoPhillips, as well as Aker BP and
Lundin Energy.
Under the proposal, a special tax rate paid by oil firms
will effectively be raised to 71.8% from 56% currently, but the
overall tax rate would remain at 78%, the finance ministry said.
The proposal would also phase out the reimbursement system
for exploration costs, which was introduced in 2005 to reduce
financial risk, especially for smaller players, and to encourage
exploration.
A SURPRISE DECISION
Parliament last year introduced temporary incentives for oil
firms to keep developing reserves amid a plunge in the price of
crude during the coronavirus pandemic.
While the move has triggered a flurry of new oil and gas
development plans, preserving jobs at industry subcontractors
across Norway, it could also pose a risk of overinvestment as
costs are shifted from companies to taxpayers.
Equinor, Norway's biggest oil company and majority
owned by the state, told Reuters it did not know in advance
about the announcement. "Those are extensive changes in the tax
regime and we need more time to understand those," company
spokesperson Sisel Rinde said.
Some analysts also said the full impact was not immediately
clear.
"It looks like it would reduce tax deduction from 89.6% to
78% on investments. How it would affect investments appetite,
(that) would depend on the discount rate," Teodor Sveen-Nilsen,
an analyst from the Sparebank 1 Markets, told Reuters.
Environmentalists welcomed the proposed tax changes.
"The measures mean the start of a much-needed change away
from climate-hostile and unprofitable oil exploration," Frode
Pleym, head of Greenpeace Norway, said in an email.
Environmentalists and some opposition parties have called on
the government to stop all exploration on the Norwegian
continental shelf to reduce greenhouse emissions.
According to the latest opinion polls, the centre-right
minority government is set to lose the Sept. 12-13 parliamentary
elections, with climate change and the future of Norway's oil
and gas industry at the centre of the debate.
The main opposition Labour party, which is set to win the
elections, said it needed more time to study the proposals,
deputy leader Hadia Tajik told the NTB news agency.
The populist rightwing Progress Party, on which the minority
government relies to pass its budgets, said the proposal was
"unbelievable".
"With this proposal, I can immediately say that the
government will not survive budget talks this autumn," Progress
Party leader Sylvi Listhaug told the e24 business website.
($1 = 8.6903 Norwegian crowns)
(Additional reporting by Terje Solsvik and Gwladys Fouche;
Editing by David Goodman, Grant McCool and Mark Heinrich)
