Exporting the “Norwegian Model”: The effect of administrative design on oil sector performance

Norway has administered its petroleum resources using three distinct government bodies: a national oil company engaged in commercial hydrocarbon operations; a government ministry to direct policy; and a regulatory body to provide oversight and technical expertise. Norway's relative success in managing its hydrocarbons has prompted development institutions to consider whether this “Norwegian Model” of separated government functions should be recommended to other oil-producing countries. By studying ten countries that have used widely different approaches in administering their hydrocarbon sectors, we conclude that separation of functions is not a prerequisite to successful oil sector development. Countries where separation of functions has worked are characterized by the combination of high institutional capacity and robust political competition. Unchallenged leaders often appear able to adequately discharge commercial and policy/regulatory functions using the same entity, although this approach may not be robust against political changes. Where institutional capacity is lacking, better outcomes may result from consolidating commercial, policy, and regulatory functions until such capacity has further developed. Countries with vibrant political competition but limited institutional capacity pose the most significant challenge for oil sector reform: Unitary control over the sector is impossible but separation of functions is often difficult to implement. ► The “Norwegian Model” separates commercial, policy, and regulatory functions in oil. ► We study ten oil-producing countries to assess the separation of functions model. ► The model is useful where there is institutional capacity and political competition. ► Consolidation of functions can work better when political power is concentrated. ► Countries with low capacity may also be better off consolidating functions.