Faroe Business Report — The International Review of Faroe Islands Industry and Trade - Faroe Business Report — The International Review of Faroe Islands Industry and Trade
2005 Archive
Even though some oil industry insiders are in favor of regulatory changes in the Faroes to lower financial risks in order to increase the potential for drilling action, the oil business is still very much of a patience game.
WHEN the hunt for oil & gas was initiated off the Faroe Islands in 2000 with the First Licensing Round, hopes were high that the prize would be found with ease and that commercial production would be achieved within a decade.
It turned out not to be the case. Of the three wells drilled in the first licensing round, only one encountered convincing volumes of oil in place. The Marjun-1 success came in 2001, since when operator Amerada Hess has not been back to assess the find by carrying out appraisal drilling.
Gloom rapidly descended. The bonanza that many Faroese had quietly hoped for evaporated. But at least there was some consolation.
The Faroese Parliament (Lögting) had wisely ensured that prospecting oil companies routed their logistics needs via the islands, so providing business opportunities for at least some Faroese companies during early drilling.
But no one should have been surprised as anyone who has tracked the slow-pace race that has characterized the hunt for new resources on the UK side of the Faroe-Shetland Channel would demonstrate.
That said, the fact that, last year, Total signalled the likely commerciality of the Laggan gas discovery, that ChevronTexaco made what is almost certainly a large oil find on the Rosebank/Lochnagar licence, and that, this year, BP finally brought the Clair oilfield onstream 27 years after its discovery, is surely encouraging.
Indeed the Atlantic Frontier game may be changing for the better. While the Second Faroese Oil & Gas Licensing Round was always going to be of limited appeal to oil majors because of richer pickings elsewhere, notably West Africa, it has nonetheless attracted excellent bidders. Moreover, companies like Statoil have in fact reinforced their Faroese acreage holdings.
The Second Faroese Round covered roughly 19,000 sq.km, divided into 83 full and 39 part blocks and the work programmes initially cover seismic and other surveys as well as processing and interpretation with the purpose of maturing the licences for future exploration drilling.
In Statoil’s case, the partially privatized Norwegian state company secured three operatorships and an interest in a fourth license. One of these operated licences was secured in partnership with Shell, DONG of Denmark and tiny Faroe Petroleum. This 2,084 sq.km licence, now named Sildrekin, apparently holds a number of exciting prospects including a very large lead in some 250 metres of water, which is relatively shallow for the offshore industry.
As for licence four, this is operated by ChevronTexaco and shared with Statoil 30 percent, DONG 20 percent and OMV of Germany 10 percent. What makes this one exciting is that it is adjacent to the Rosebank/Lochnagar structure where ChevronTexaco made its big oil find referred to earlier and which may have reserves of more than 500 million barrels. But this is subject to appraisal work this year and next at least.
At the opposite end of the spectrum without a doubt is Faroe Petroleum (Føroya Kolvetni), which is headquartered in Aberdeen and listed on the London Stock Exchange. Set up as a means of ensuring Faroese participation and today led by CEO Graham Stewart, FK has a bold strategy, as evidenced by its Round Two awards.
That the company’s Round One hopes were dashed when the first and only block 002 well drilled in partnership with Italian energy giant Eni proved a failure appears not to have dented FK ambitions.
Witness the acreage awarded, that is, Sildrekin and, remarkably, the Wyville-Thomson Ridge. This licence is held 100 percent by FK and contains a giant lead along the axis of this huge undersea structure.
So what is Stewart’s strategy behind such a choice? He told the writer recently: “We’ve tried to work out where the most prospective parts of the Faroese sector are and already have attractive, prospective areas.
“Wyville-Thomson … nobody has ever drilled there. It stands out like a sore thumb, being by far the largest anticline anyone’s aware of in NW Europe. BP, Shell and other big companies … they’d all love to drill it. But, because it’s so far away from anything else, they’re unable to secure management consent to attempt anything.
“We invited them all in and they very politely declined so we thought, why not go on our own … and we did. And the Faroese Petroleum Administration was happy enough with our application, work programme and commitment to getting things done, so we secured it 100 percent.
“By working at and by derisking it, as we will do by interpreting the seismic data that exists already [to build an underground picture] and then adding to that ‘2D long-offset’, which we will shoot either this year or next, we think we can probably build a case for a well … maybe in 2006. If it turned out that way, we would invite others to come in with us. We’ve already done a lot of work on Wyville Thomson and the thing about this area is that it doesn’t need the latest generation deepwater drilling unit.”
Switching to Sildrekin licence, Stewart said there was a “frenzy” to get control of that acreage. FK was lucky to get its 10 percent.
Part of the reason for this is because Statoil has a neighbouring prospect called Brugdan, which is scheduled for drilling next year and, if that works, Sildrekin may yield an even bigger prize. If Brugdan is successful, then Sildrekin could be drilled in 2007.
But there is little prospect of anyone drilling any wells in Faroese waters this year. It is understood that none are planned and, in any case, there is now a shortage of suitable rigs.
The closest prospect for drilling would appear to be the First Round licence Ann Marie, but not until 2006. It is apparently on the same geological trend as the UK sector Cambo find by Amerada Hess, also Rosebank/Lochnagar.
This has to be disappointing for the Faroese people, but part of the solution lies in their hands, argues Stewart.
“To have success in Faroe, you need to have a lot more wells drilled. To get a lot more wells drilled you need to reduce the cost. To reduce that cost you need to increase the pool of potential rigs and that means changing regulations.”
At the moment, the Faroes apply Norwegian rules to rigs, not the more lenient but still rigorous UK approach that enables older rigs to operate safely and effectively on the Atlantic Frontier.
Clearly aware of the tough ride to date, Trade & Industry Minister Bjarni Djurholm said at the 2005 Offshore Faroes conference: “We have all acknowledged that our initial expectations were too optimistic and have realized that petroleum exploration takes time. However I believe that petroleum exploration will be one of the new industries that are necessary in order to move the Faroes towards a more diversified business community.”
And there’s the dilemma. To generate tangible opportunities for the Faroese business community requires real action offshore. At least Djurholm is optimistic.
He said: “I am convinced that the seismic surveys and other work that will be carried out over the next years will mature the Faroese area, so that the license holders can proceed to drilling wells and hopefully finding commercial quantities of hydrocarbons.” The dream lives on.
Set for an IPO in 2005, the Faroese oil company, Atlantic Petroleum, together with Geysir Petroleum, was awarded two new licenses in the Faroes' second licensing round.
In the second oil licensing round in the Faroes, Atlantic Petroleum was awarded two new licenses for oil and gas exploration. In cooperation with Icelandic Geysir Petroleum, the Faroese oil company applied for four license areas offshore from the Faroes, and the two licenses awarded cover approximately the same areas.
The license areas are situated close to the UK border in blocks 6104/9, 10, 14 for license 014, and blocks 6103/11, 12, 13, 17, 7 (part), 8 (part) for license 013. “Seismic research of the areas indicate several interesting structures,” Atlantic Petroleum said in a press release, referring to ChevronTexaco’s recent find in the immediate proximity, on the UK side of the border.
Atlantic Petroleum’s share in licenses 013 and 014 is 40 percent, with Geysir Petroleum as operator in both licenses. The companies have obliged themselves to, firstly, gather more data from the areas, and decision on possible drilling action is to be taken by the conclusion of the four-year license period.
Atlantic Petroleum was formed in 1998 by 18 private Faroese investors . Its corporate shareholders represent most of the major Faroese business sectors. The company participates in exploration in the Faroese and the UK sector of the North Sea, with minority shares in eight licenses.
The listing of Atlantic Petroleum on ICEX and the VMF was announced to be in January-February 2005, but was delayed slightly. “Most things are in place, but the company waits with the listing until after the Annual General Meeting, which will be held late March or early April,” said Atlantic Petroleum’s managing director Wilhelm Petersen. In December 2004, the company in its third share offering raised around DKK 28 [EUR 3.75 / USD 5] million in nominal value.
Mr Petersen noted: “We are very proud with the outcome of the share offering. It provides us with a financial base on which to continue the development of our present fields in the UK part of the North Sea and the expansion of our activities to other parts of North Sea. Today we have ongoing operations in Faroes and the UK and we are considering options in Norway and Denmark.”
According to the Faroes Oil Industry Group, FOÍB, it is of great value for the industry to share best practices and other resources in order to learn the most possible about the Faroese Shelf and the Atlantic Margin as an area of activity.
The idea behind the Faroes Oil Industry Group, FOÍB, may correspond much with the classic wisdom of desiring to avoid wasted effort on something that has already been completed by, or can be done more effectively by joining forces with, someone else. When mutual interest is at stake, especially the mutual interest of the global oil industry players which form the membership of FOÍB, the key goal is collaboration and this has an immediate impact on the industries and communities in the Faroes.
“The upstream oil industry in the Faroes is still confined to exploration activity,” Ben Arabo, chairman of FOÍB, once noted in an article. He added: “The Faroese area has all the characteristics of a frontier area and the industry is gaining valuable new knowledge about the area as each day passes. FOÍB plays an important role in this work. In an area as complex as the Faroes we have to use a collaborative approach, pooling resources and sharing best practice to gain knowledge on the Faroese Shelf and the North Atlantic Margin as a whole.”
Later, in an interview, Mr Arabo pointed out that apart from the obvious practical advantages of providing a single point of contact with the Faroese Government and its authorities, there is much indeed to FOÍB in the way of planning, sponsoring and co-sponsoring surveys and scientific research of common interest for the oil companies—often, as well, of interest to parts of the general public. In fact, FOÍB pursues a full range of issues of relevance to the Faroes through the activities of its sub-committees, covering Environmental (including Metocean), Engineering & Operations, Exploration and Geotechnical, Operational Health, Safety and Environment (HSE), Commercial & Legal. The activities of the five sub-committees are coordinated by a Management Committee, which drives initiatives, approves research plans of the sub-committees and acts as a fund holder.
‘Constructive dialogue’: The various initiatives in the FOÍB work programme reflect the stage of activities in the Faroese area, but the structure caters for future development, the chairman explained.
“For one thing, FOÍB provides a common point of contact between the companies operating in the Faroese area and the Faroese authorities and institutions on matters of broad policy and on general operational issues,” he said. “However, the organisation also ensures that jointly funded projects are managed and the results distributed in an efficient and effective manner. This is already proving very valuable not only by the data and resources made available, but also by the point that once full scale oil production activities commence on the Faroese shelf, which may happen sooner or later, it will be very difficult to recreate the groundwork that FOIB has done—it will have provided a baseline for the future.”
As the written ‘Scope and Objectives of FOÍB’ declare: “We will maintain and expand the knowledge base for the Faroese area, obtaining new data for the benefit of the development of an offshore oil & gas industry in the Faroe Islands. We will continue and build on constructive dialogue with interested parties in the Faroes as a forum for industry communication with the Faroese Authorities and other interested parties.”
With an extensive list of publicly available reports, the records indicate that environmental issues have been imperative in many of the joint projects in FOÍB.
Accordingly, the Environmental Sub-Committee has focused on the ecosystem to provide a baseline for future reference and the main delivery is the Regional Environmental Impact Assessment (EIA), the overall objective of which is to “provide the best available basis for environmental decision-making and management strategies in line with Faroese national regulations and international standards for this kind of work.” Likewise, a considerable amount of metocean data has been gathered through the Metocean Sub-Committee by continued funding of wave and current data series acquisition. As to matters of health, safety and the environment, the Operational HSE Sub-Committee has worked with Faroese authorities on addressing emergency response in connection with future offshore activities in Faroese waters, an activity that has materialized in several major offshore emergency response exercises.
Since the 13 oil companies that were awarded licences in the first licensing round established FOÍB, another licensing round has been awarded, adding new oil companies to the list of license holders—and new potential FOÍB members.
Bitland Enterprise offers a viable option for the deployment and showcasing of cutting-edge technology projects, using the distinctive Faroese geography and demographics as the physical framework for ultimate 'reality-testing'.
What began as a business consultant’s sporadic contacts with a senior manager of a global semiconductor giant, two years later turned into an incorporated joint venture of Faroese information and communication technology companies reaching out to attract international development project partners.
“We are encouraging ICT companies, researchers and investors to take a closer look at the enticing opportunities that lay latent in research and development projects carried out in the right environment,” said Bitland’s executive manager, Ólavur Gregersen.
“Bitland Enterprise is a non-profit organization dedicated to developing new ways of deployment for advanced technology,” he added. “Our main focus is on projects with clear relevance to potential commercialization and consumer value.”
What makes Bitland appealing to project partners, according to Mr Gregersen, is the potentially valuable knowledge that can be gained from research and development under such special conditions as those present in the Faroes. “Not only are we offering an extremely distinct geographical area,” he added.
“The Faroes have a complete demographic, natural and technological environment, all in miniature, which makes them practically and financially ideal for many types of research and development projects.”
Seeking to attract leading ICT companies, research institutes and venture capitalists, the Bitland Enterprise envisions such organizations collaborating in order to maximize the potential of leading edge information and communications technology through the deployment of successful value-added utilization strategies and world-class technology showcasing in the Faroe Islands.
‘A discreet setting’: Founded in February 2004, the Bitland Enterprise has launched nine projects in its first year, some of which are completed while others are still running. One of these projects is the ‘Safety at Sea’ project, the purpose of which is to develop a conceptual scheme for personal safety at sea that exploits new telecommunication opportunities.
Another example is a deployment experiment involving telecommunication and wireless technology. “By forging an early strategic alliance and utilizing the distinctive showcase and market-testing potential of the Faroe Islands,” a project description reads, “(…) and Interactive Device, together, can emerge as the unquestioned international leader in mobile, WiMax-certified handheld communications devices and the leading source of a cost-effective, high-speed, robust, scalable and secure end-to-end solution with high quality of service and customer care subscriber management features.”
The description continued: “The goal of the (…) Project [is] to develop a WiMax-certified, thin-client handheld device using WiMax-enabled silicon and ultimately capable of supporting multiple 4G technologies; to showcase a proof of concept business model for a mobile, scalable, end-to-end thin-client solution for worldwide markets with customer care managed by (…) proprietary ISMS software, and to augment and showcase the current secure and dynamic hosting capacity (…).”
In terms of general feasibility for technology-intensive development projects, Mr Gregersen said that contributing factors constituting a competitive Faroese advantage are identified by a number of geographical, cultural, economic, technological and political features.
“The country is geographically and culturally distinct, and an autonomous, self-governing territory of the Kingdom of Denmark, but not a member of the EU,” he said.
“The Faroes have exclusive treaties governing trade, fisheries and other international issues. We have a 20 percent corporate tax which is very low by OECD standards. Crime is negligible; the arts are flourishing. We have a highly advanced and liberalized telecommunications infrastructure, a super-fast undersea fiber optic cable linking to Iceland and Scotland, providing nearly unlimited broadband connection to the rest of the world. Digital media broadcasting is highly developed; wireless connectivity is common and about 75 percent of all households have a least one computer; well above half of the total population are on-line, and so forth.
“It all adds up to the fact that the Faroes offer a great environment in which to test new concepts in a real-life, yet in a discreet and contained setting.”
While acting as a coordinator of collaborative efforts to promote Faroese exports, the Trade Council also serves as an information source for foreign companies seeking business contacts in the Faroe Islands.
If you were looking for a focal point to which you could turn for information on the business environment of the Faroe Islands, or anything else of relevance to your quest for business opportunities in the Faroes, where would you start? The Faroe Islands Trade Council, naturally.
Chiefly consisting of a team of business developers and consultants, the Trade Council is a governmental agency under the Ministry of Trade and Industry. Historically, the Trade Council has played a significant part in creating business links between Faroese and foreign companies. Organizing joint marketing and promotional initiatives, which include trade delegations as well as participation at international trade shows, the Trade Council pursues its officially mandated development objectives with a spirit of both enthusiasm and professionalism.
“We work to stimulate Faroese exports,” said the Trade Council’s Áki Johansen, department manager international trade.
“The Trade Council runs a number of programs,” Mr Johansen continued, “some of which involve the international trade department. In practical terms, this means providing Faroese exporters with all kinds of relevant information, including issues of export duties, tariffs, traceability, production standards, etc. It also involves organizing joint Faroese participation at international trade fairs, exhibitions and the like. In addition, we coordinate what we call trade delegations, which in effect is a form of group business trips to establish new business contacts in different parts of the world.”
‘Constant lookout’: This year, the Trade Council is putting together a series of ‘National Pavilions’ in order to showcase Faroese products and services at several international events, Mr Johansen said.
“We’re going to have National Pavilions on the European Seafood Exposition 2005 in Brussels on April 26-28, the Icelandic Fisheries Exhibition 2005 in Kópavogur on September 4-7, and the Offshore Europe 2005 in Aberdeen. Also, we will participate in the North Atlantic Fish Fair 2005 in Tórshavn on May 3-5. As for trade delegations, we are going through the options in order to decide which trips to schedule.”
Among the trade delegation candidates are finding strategic partners in Estonia for marketing and sale of seafood and technology products; visiting Reykjavík to see how information and communication technology is being used in public administration there; a trip to Boston to study cooperation between MIT University and business corporations; a matchmaking trip to London to explore creative ventures and potential business opportunities; a fact-finding trip to Murmansk in Russia to gain new insights on demands for maritime services; and a flight to China to learn about possible venues of commerce in the fishing industry.
The Trade Council, however, also maintains an information service for foreign businesses seeking to link up with purchasers or suppliers in the Faroes.
“We are constantly on the lookout for fresh opportunities for Faroese companies seeking to enter new markets,” Mr Johansen said. “At the same time, we assist foreign companies looking for potential business contacts in the Faroe Islands with basic information, for instance, on the overall business environment, on how to conduct business with Faroese companies and so forth.”
Formed some twenty-five years ago, the Faroe Islands Trade Council is commissioned to ‘develop industries, crafts and services and in this context provide advice and information on technology, finance, management and export.’ Likewise, according to the regulations governing the Trade Council, its job is to ‘build bridges between the political will and industry on issues of business development,’ while its activities should ‘aim to develop the exporting capacity of Faroese businesses, develop selected and new industry sectors, focus on selected areas of development and develop the commercial infrastructure.’
In cooperation with the Icelandic Stock Exchange, the VMF is finally about to be launched, with hopes of attracting foreign investors -- and stimulating a new culture of investment among Faroe Islanders.
Following years of careful consideration and practical preparation, VMF, the Faroese Securities Market, is entering commercial reality in anticipation of several new listings in the near future. Since the formation of a corporate entity entrusted with the mission of establishing a securities market suited to the miniature scale of ecomomic life in the Faroe Islands, the VMF accepted government bonds in late 2003 as the first listings on the securities market.
According to officials, the market is expected to grow at a slow pace until it reaches the first level of maturity after about ten years.
Not expecting hectic trading to take place anytime soon, the general idea is that a few investment objects, most notably one or two publicly owned companies, perhaps Faroese Telecom or Atlantic Airways, could be floated on the market within the next few years. Also, a few private corporations and investment companies are expected to undertake IPO during the first five years of the new securities market.
As of early 2005, one industrial corporation, the predominantly Faroese-owned oil company Atlantic Petroleum, joins Faroese government bonds to pioneer the VMF. According to VMF estimates, the combined market value of listed objects after ten years is likely to total DKK 6 billion (EUR 800 million / USD 1 billon).
In order to establish itself in a cost effective manner, the VMF elected to cooperate closely with the ICEX, the Icelandic Stock Exchange, in effect implying that trading on the VMF occurs via the ICEX, with clearing and settlement of transactions performed in Denmark by the VP Securities Services.
Said VMF’s president and CEO, Sigurd Poulsen: “After the first five years, our predictions are that the VMF will have floated nine industrial corporations, two investment companies and five listings of government bonds.”
Firm belief: Since the formation of the VMF, there has been much discussion about how to organize the Faroese securities market, Mr Poulsen said. In the beginning, there were plans to organize it as an independent ‘alternative’ market. Later though, it was determined that this was not the optimal solution, as it would be too likely to keep away institutional investors from responding to opportunities to invest locally in Faroese securities. Moreover, it seemed clear that foreign investors would not become interested in the Faroese market unless it was organized as an ‘official’ market.
“The solution was to cooperate with another securities market, so that the VMF’s investment could be held to a minimum,” Mr Poulsen explained. “In this way, the Faroese market would eventually become more attractive to both the international and the institutional investor. We concluded after some investigation that to meet our goals, cooperating with the ICEX was the cheapest and best solution.”
Through its collaboration with the ICEX, the Faroese securities market has become a part of the NOREX Alliance, a strategic cooperation of Nordic and Baltic stock exchanges, consisting of the ICEX, the Copenhagen Stock Exchange, the Oslo Stock Exchange and the OMX Stock Exchanges in Stockholm, Helsinki, Riga, Talinn and Vilnius.
“Association with the NOREX Alliance was another strong argument for the consensus that Faroese securities will eventually become attractive to the international investor,” Mr Poulsen said. “VMF securities are listed in DKK, as this is the currency of the Faroes and the depository for the securities will be on the depository VP Securities Services; the reason for using the VP is simply that it is the best solution for the Faroese market.”
According to Mr Poulsen, the most critical phase for the VMF’s success is the launching period and the initial years, until the total value of listed securities reaches a critical mass.
“We will have to attract listings to an extent that arouses the natural interest of investors, issuers and the general public,” he said. “It is therefore essential that the Government systematically follows through on its political plans to privatize publicly owned companies and, likewise, that some attractive private corporations become listed. We are dealing with a number of conditions that will have to be met in order to make this a success, but we believe quite firmly that it will take off.”
The Faroese Maritime Authority is preparing for an upgraded international ship registry that will place the Faroe Islands in a strong competitive position with high standards and an attractive fiscal regime.
A country with a large proportion of its population skilled in the maritime trades and professions; situated in the middle of the ocean, physically as well as mentally; and with tangible ambitions to establish itself as a serious player in the highly competitive industry of international ship registries. That’s a picture of the Faroe Islands, set to become a favored flag jurisdiction of international merchant vessels.
“We are developing our open ship registry to become an attractive alternative to serious international shipping firms while building on our present image of high quality administration and services,” said Óli Hans Hammer Olsen, managing director of the Faroese Maritime Authority (FMA).
In addition to being professionally trained and internationally experienced as a master mariner, Mr Olsen holds a master’s degree in Shipping and Logistics. Since he was installed as managing director of the FMA a few years ago he has worked enthusiastically to refine the general quality and competitiveness of Faroese maritime administration. His expectations are high in anticipation of new adjustments to the existing open international ship registry, the FAS. Also on its way is a tonnage tax regime, planned to serve as an option to the present 20 percent company profits tax principle used under the FAS system.
According to the Ministry of Finance, a tonnage tax plan will be presented to Parliament in the first half-year of 2005, while a series of legislative updates for the FAS are likely to be in place later in the year. “This is a matter we take very seriously and we are working closely with the Ministry of Fisheries and Maritime Affairs to have a really competitive registry ready as soon as possible,” said the Finance Minister, Bárður Nielsen, in January. A few weeks later, the Minister of Fisheries and Maritime Affairs, Bjørn Kalsøe, joined hands with the Finance Minister and the Minister of Social Affairs and Health, Hans Pauli Strøm, to set up a commission to review the FAS system in order to enhance the registry’s competitiveness. Chaired by Mr Olsen, the commission’s agenda includes the financial competitiveness of the FAS, fiscal matters, registration fees, manning costs in terms of social security, taxes etc, and overall cost levels.
Competitive cluster: With a small and easily accessible adminisration in the Faroes, a revamped FAS is set to become both robust and competitive in the international marketplace, according to Mr Olsen. He cited the islands’ unique base of technical skills in maritime matters which will combine with their advanced organisational infrastructures.
“Our natural advantages in this area are many,” Mr Olsen noted. “For one thing there is the competence and skills of our many officers at sea, mariners, and land-based technicians and administrators with a working connection to fisheries and nautical industries. Our people are intimately connected to the sea, both as professionals and in their daily lives. Given our experiences with both closed and open ship registries, some interesting recent research into the international shipping market and its conditions and demands has also provided a few clues. In the face of globalization, we have reason to update the legal framework of the FAS and to introduce a tonnage tax regime. The idea is to utilize our effective, no-nonsense approach in conjunction with recognized international standards for safety at sea, minimum safe manning on ships, certification on ships upon survey, and so forth.”
Of a total population of about 48,000 the Faroe Islands have, according to official estimates some 3,400 qualified navigators and trained marine engineers; that’s about one-eighth of the country’s entire workforce. Many of the ship officers are educated at the Faroe Islands’ two Maritime Academies while others are trained abroad. While Faroese ship officers enjoy a high reputation with major shipping companies, the islands have an enviable maritime cluster with shipyards and numerous mechanical workshops specializing in marine machinery plus a host of services for the maritime industries.
Covering hundreds of commercial fishing vessels, the closed Faroese ship registry is rigorously controlled by standards that generally go further than international minimum stipulations in a number of areas, including safety at sea. The open registry, on the other hand, is aligned directly to International Maritime Organisation (IMO) standards and related international conventions.
“All regulations issued by the FMA correspond to and fulfill the requirements laid down by the the IMO,” Mr Olsen maintained. “Whereas our closed registry will remain extra rigorous, the FAS will be fully on par with international standards. Still, the technical expertise derived from our experiences with the closed registry proves extremely valuable for the effective administration of the FAS.
“So while the consensus is that the FAS Act of 1992 is in need of an upgrade in line with with the introduction of a tonnage tax system, once we’re there, I believe we will be very competitive.”
The Faroes is facing economic challenges that may necessitate structural change in order to diversify industry and increase productive domestic and foreign investments.
There is a saying from the ancient wisdom of the Viking Hávamál that would seem to capture the current economic reality of the Faroe Islands: ‘A lone fir in an open field withers away.’ As if proving the point, nary a lone pine grows upon the wind-swept mountainous slopes of the Faroe Islands. What trees do abound, lie in sheltered valleys and behind stonewalls close to the nurturing eye of the watchful gardener.
The majestic lone fir tree of the Faroe Islands is its fishing industry. Yielding some 65 percent of the total income from abroad, fish and fish-related products account for more than 95 percent of the registered export of goods. Like the solitary fir of the Hávamál, the industry remains vulnerable to the vagaries of international commerce, or perhaps more accurately, to the shifting winds of European tastes.
In 2004, for example, 80 percent of the Faroese export was to EU countries. At the same time, the favorable dollar-euro exchange has fostered increased sales of Alaska Pollock in Germany and France with a corresponding 17 percent decrease in groundfish prices.
Like the ever-watchful gardener, the Faroese Government strives to protect and nurture the industry with a variety of initiatives. Given the international market reality, it is a formidable task. Its efforts have, nonetheless, captured the interest and imagination of many nearby fishing nations, especially with regard to its fishing-days regulatory scheme.
Although the Faroe Islands is an extremely modern community and enjoys a well-developed transport and telecommunications infrastructure, the overall business environment remains compromised by dependency on a single, lone industry. Keenly aware of the economic potential of diversification, the Faroese Government has endeavoured for a number of years to construct the regulatory framework necessary to foster the growth of new industries and has welcomed foreign direct investment (FDI). The government drafted a comprehensive industrial policy that was adopted by the Faroese Parliament and endorsed by both labour and industry. Subsequently, regulatory guidelines for the IT and tourism industries, among others, were crafted. Currently, the Faroese Government is updating its industrial policy to enhance the flexibility of labour and capital as well as the innovative capacity of the economy. Thus, hopefully a few more economic trees will be planted, thereby creating a thriving forest of new industrial initiatives spread throughout the country.
Urgent privatization: To foster an economic environment that would promote innovative FDI and the creation of new and innovative businesses, the Faroese Parliament, several years ago, adopted a 20 percent corporate income tax and revised the corporate accounting requirements as well as the tax regulations regarding investments. Moreover, after diligent strategic planning, the Faroese Securities Market, the VMF (Virðisbrævamarknaður Føroya) was established in collaboration with ICEX (Icelandic Stock Exchange). The Faroese government bonds expiring in 2004, 2006 and 2008 were listed on the exchange in 2003. At the close of 2004, the predominantly Faroese-owned oil company, Atlantic Petroleum (Atlants Kolvetni), elected to be listed on the Faroese Securities Market in March 2005. Other companies are sure to follow.
The VMF is a facilitation market, as stocks are actually listed on the ICEX. The legal and financial requirements generally associated with listing a company are not as burdensome as with the major international exchanges and hence the options available to local Faroese companies to gain access to needed investment capital are greatly enhanced. Another important aspect regarding the formation of a securities market in the Faroe Islands is the added benefit of keeping investment in the Faroes. Historically, excess funds were maintained in passive savings accounts or placed into a variety of financial instruments abroad, often Danish government bonds. The existence of a local securities market with local companies registered will ensure a ready source of funds for capital intensive industries, as well as innovative companies that wish to develop ideas with elevated risk, but with greater potential for exceptional return.
The establishment of the securities market, moreover, is a precursor to the privatisation of the several government-owned companies. Liberalisation has been effected by the government, yet privatisation, while much debated, remains elusive. A clear strategic path that would unleash the potential of the many government-owned enterprises has yet to be finalized. The management of the incumbent telco, Faroese Telecom, has long stated that it operates at a disadvantage in a liberalized telecommunications market because the government has taken no steps to effect its privatisation, which would enable it to gain access to capital and to implement innovative international initiatives. The same holds true for United Seafood, a major fisheries concern, effectively owned by the government through its investment fund, as well as the national air carrier, Atlantic Airways, and the major bank, Føroya Banki, all directly owned by the Faroese Government.
The urgency of privatisation is well understood, however, and no doubt further strides toward this goal will soon be realized. Johnny í Grótinum, a senior economist with Føroya Sparikassi, a leading privately-held bank in the Faroes, in an address before gathered dignitaries at the Faroe Islands annual oil conference, noted that the surest foundation for economic development in the Faroe Islands was the opening up of the investment market to unrestricted FDI in privatized government enterprises. “The Faroese economy is facing certain structural issues in the capital markets that need to be addressed forthrightly,” said Mr í Grótinum. “The occurrence of both a booming economy and large surpluses in the balance of payments in the 1990s could be a symptom of unhealthy conditions in the capital markets as these factors imply that capital was flowing overseas without attracting capital from abroad.”
“Productive investment in Faroese industry and innovation will ensure our future welfare,” Mr í Grótinum continued. “Investment stimulates a productive society, which in turn attracts more expansive investment thereby increasing the potential for even greater economic gain and social welfare. Historically, this potential only occurs, however, when passive public ownership is abandoned and companies are enabled to demonstrate and realize their inherent potential through capital provided by foreign investors.” The perverse economic winds that besieged the fisheries industry, most especially the aquaculture industry, over the last several years severely impacted the economy and triggered the Faroese Government to open up the industry to greater foreign investment.
Renewal by necessity: Just like most other countries in a world of economic interdependency, the Faroese economy is not self-sufficient, yet enjoys an essentially balanced current account. In 2001, the government enjoyed a budget surplus of DKK 697 (EUR 93.7 / USD 122) million, which spiralled down to DKK 191 million in 2002 and DKK 22 million in 2003. The 2004 budget registered a negative DKK 204 million and a similar amount is anticipated for the 2005 budget. The overall Faroese budget is augmented by the Danish block grant, which by agreement is fixed at a DKK 630 million until 2006, and direct payment by the Danish Government of some DKK 280 million to cover joint administration of such areas as the police and the judiciary.
As the Faroese Government takes over more and more of the governmental areas now administered by the Danish Government, the block grant will steadily diminish and, as a consequence, will require more business initiatives that yield increasing revenue for the country. This downward spiral of the budget will hopefully reverse itself once fisheries prices again stabilize and newly established enterprises begin to spin off profit, but this trend highlights the absolute necessity of expanding and diversifying the industrial and investment base.
The economic policy of the Faroese Government is considered “neutral”, a politic phrase adopted by the leadership of the Governmental Bank of the Faroe Islands (Landsbanki Føroya) to describe the current fiscal initiatives of the government.
Yet, “neutral” may very well be the best approach at the present. According to the economists of the Governmental Bank, the Faroese Government has elected to support expansion via tax cuts and domestic investment. The Governmental Bank, which issues an annual comprehensive report on the Faroese economy bearing the deceptively and elegantly simple title ‘Information Memorandum’, considers business in the Faroes generally to be “healthy” and “well-consolidated” (Information Memorandum 2004). “The economic soil of the Faroes seems robust enough to meet the current challenges of the recent slowdown in economic growth,” notes Jesper Engedal, an economist with the bank, “yet further liberalisation of foreign direct investment, privatisation and other progressive initiatives would be beneficial to the economy. As long as these initiatives foster competition and investment and are well regulated, they will support further growth and diversification.
“Yet, overly expansive policies that are not well regulated and carefully implemented can be damaging, so there is need for a measure of wisdom and patience at this stage in the economic development of the Faroes.”
The Faroe Islands has faced formidable economic challenges in the past and undoubtedly many more will sweep across the mountains and swirl in the valleys in the decades ahead. Tumultuous gales have been known to blow down many a pine in the Faroes, but many a seedling is planted anew, for the Faroese are keenly aware that to survive and prosper in the heart of the North Atlantic a forest of new initiatives must be planted and well nurtured.
Newcomer Faroe Agency is run by a team of experienced shipping and management professionals on a strong footing with Russian and international shipowners -- and is growing at a staggering rate.
In late 2004 when Faroe Agency opened for business, there were no questions asked as to the perceived prospects of success. Which seemed reasonable; industry veteran Árni Dam, also known as the Honorary Consul of Russia, with long-time shipping and finances administrator Maria Lava, internationally experienced shipping agent Karl-Erik Reynheim and Russian-born communication specialist Ivan Eginsson, had joined forces to form their own Faroese shipping agency and management company. The four partners each had a 25 percent stake in the new company, with Mr Dam as Managing Director and Ms Lava as Financial Manager.
Overwhelmingly, the incorporation of this welded team as an independent company was received with high expectations, and quite rightly so—it didn’t take more than three months before the new company, according to sources, had won over a stunning 80 percent of the market for foreign vessels calling at the Port of Tórshavn.
Mr Reynheim sounded confident. “Our ambition is to become the leading agency of the Faroes and beyond that to grow continuously in terms of quality of service,” he said. “People should know we mean business.”
The four partners, who used to manage Faroe Ship’s Agency Department, left their former employer following its surprise merger with Icelandic rival Eimskip. “As soon as they knew we had started our own agency, a whole host of ships signed up with us,” Mr Reynheim noted. “That was a reassuring sign but it also puts us under pressure to live up the expectations. The great thing is that since we opened for business, we have been able to work on an altogether different level than before. Possibilities and opportunities are much more open now, as Faroe Agency is dedicated to services that correspond more directly to our core competencies.”
In addition to crew management, technical management, operations management and chartering, Mr Reynheim referred to a range of services including arrangements for forwarding, supplies, bunkering, repairs and health care as well as safety related issues.
Earlier in his carreer, Mr Reynheim was based for a number of years in continental Europe, Africa and Britain, laying a decades-long foundation of experience in domestic and international shipping and management. “We have extensive experience in dealing with ships of all types,” he said.
Talking straight: Likewise of importance for the success of any shipping agency and management company is the extent to which in-depth local area knowledge can be utilized on strategic and operational levels, Mr Reynheim maintained.
“Knowing most of the players around here and maintaining good connections with business leaders and authorities as well as the political system, is something we see as an integral part of running the business.”
According to conventional wisdom, there can only be very few people in the Faroe Islands, whose contact lists are comparable to that of the Honorary Consul of Russia, Mr Dam. Respected for his leadership skills and popular with the news media, Mr Dam represented to a large degree his former employer’s public image, just as much as he now reflects the identity of Faroe Agency.
“At times when there is a concern about the way things work, I will contact whoever is in charge,” he remarked. “Sometimes you have to remind people in high places so that they don’t forget the important matters they have to deal with. You have to talk straight in order to make your point clear, no matter whether the receiving end is a mid level manager or a minister of the government.”
A former sea captain, Mr Dam pioneered the Faroese shipping agency business, serving Russian vessels. As Russian language skills were not common in the Faroes in those days, and still aren’t, Mr Dam faced a tough task, having to communicate in Russian without knowing much of the language. Today, 35 years onwards, between five hundred and one thousand Russian vessels annually call at the port of Tórshavn and elsewhere in the Faroes.
“It wasn’t always easy,” he recalled, “so you had to be a little creative in some situations.”
When it comes to serving Russian customers, Mr Eginsson, the youngest member of the Faroe Agency team, is himself a native Russian turned Faroese . A trained journalist with exceptional language skills, his Faroese is better than that of the average native Faroe Islander. “We are all very excited about this business,” he remarked.
The Port of Fuglafjørður, allegedly one of the most industrious fisheries harbors in Europe, handles half a million tonnes annually while offering high capacity services for the maritime and fishing industries.
According to official mfigures, the Port of Fuglafjørður each year has a throughput of fish and seafood products that ranks among the largest in Europe, unloading and loading hundreds of thousands of tonnes of fish and other goods. In 2004, some 500,000 tonnes were handled through the harbor, most of which consisted in the unloading of pelagic fish to the Havsbrún fishmeal factory.
Committed to the continual development of the Port of Fuglafjørður, the municipal authorities along with local industry have invested tens of millions of DKK in construction, equipment and various installations over the past four years.
“Modern and well-functioning harbor facilities are a priority in this town,” said the mayor, Sigurð S. Simonsen. “Statistics indicate that our harbor is one of the largest unloading ports in Europe for fish and seafood. Last year 350,000 tonnes of raw fish and frozen seafood products were unloaded; with oil and other goods included, the total weight of unloaded goods amounted to 415,000 tonnes; the harbor shipped 85,000 tonnes of fishmeal, fish oil, salmon feed, frozen seafood and oil, making the annual throughput as much as half a million tonnes.”
Carrying a draft of 6 to 14 meters, Fuglafjørður offers an excellent natural harbor, affording secure, all-weather anchorage in the roads as well as the safe berths. Stretching around the head of a deep, horseshoe shaped fjord by the same name, the Port of Fuglafjørður plays a significant role in the pelagic fisheries of the North Atlantic. The deep, easily accessible fjord is surrounded by three steep mountains, each of them between 600 and 730 meters high. Like the rest of waters surrounding the Faroe Islands, the fjord and the adjacent seas are ice-free year round.
Nestled in the heart of the Faroes on the island of Eysturoy, the municipality of Fuglafjørður encompasses the town of Fuglafjørður, the neighbouring region of Kambsdalur and the old village of Hellur. Thanks to the hectic business activity at the harbor area, Fuglafjørður contributes a very sizeable proportion of the overall gross domestic production of the Faroe Islands. Home to Havsbrún, a large fishmeal processor and salmon feed producer, the town generates nearly 20 percent of all Faroese export according to official figures, although its 1600 inhabitants represent only 3 percent of the total population of the islands.
Mr Simonsen added: “The level of business activity at the harbor places high demands on equipment and functionality and over the past four years we have invested around 30 million krones [EUR 4.7 / USD 6.2 million] in improvements, in addition to Havsbrún’s 10 million krones investment in their fishmeal quay.”
The harbor master, Kristian Oluf Christiansen, once maintained: “In the harbor of Fuglafjørður your vessel can stay safely under all weather conditions. You will also find facilities for repairing all mechanical, hydraulic, electrical or electronic problems as well as repairs of your fishing gear. Fuglafjørður can also supply provisions, bonded goods, bunkers and more.” Mr Christiansen pointed out that Fuglafjørður has a wide harbor area with some 1,000 metres of total quay length and good mooring space.
Well accustomed to working with foreigners, the Port of Fuglafjørður each year receives several hundred foreign-flag vessels. In addition to the only fishmeal production plant in the region with a production capacity in excess of 2000 tonnes per day, there is a salmon processing facility, Faroe Islands’ largest cold store, a world-renowned trawl and purse seine manufacturer, a high capacity oil depot and a host of service providers for the maritime and fisheries industries. In connection with the cold storage facility, a new Border Inspection Point (BIP) has been established to facilitate transit of third country fish and other products into the European Union; the BIP station in Fuglafjørður is one of three such stations in the Faroe Islands.
Welcome to the 2013 Edition of the Faroe Business Report
It brings me great pleasure to present to you the 2013 edition of the Faroe Business Report. I’m proud to note that this is the 8th volume in the series that we initiated back in 2005 in a process that has been a marvelous experience with a great deal of learning involved. From the outset the Faroese business community and public authorities have been unwavering in their support of this long-term project, which we believe has an important mission — to tell the business world about the Faroe Islands. There is indeed much to tell, as you will observe from glancing through the pages of this publication. Read more...
Tí virðið á tínum umdømi er ómetaligt
Hví munu fleiri og fleiri fyritøkur og stovnar síggja miðvíst arbeiði við samskifti sum ein hornastein í øllum væleydnaðum virksemi? Eitt svar er at krøvini til umstilling í dagsins umhvørvi vaksa við rúkandi ferð, sum ger tað neyðugt hjá mongum at regluliga dagføra sína vitan og sínar førleikar.
Hetta ber so í sær eitt vaksandi medvit um virkissamskifti og almenn viðurskifti. Og júst her kemur Faroe Business Report inn í myndina...