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Norwegian oil and Serbian lithium: How similar is Serbia to Norway?

“The money that would remain for us, we cannot even imagine. It’s literally a parallel with Norway before and after oil. It’s Serbia before and after lithium,” said the President of the Serbian Parliament, Ana Brnabić, speaking about lithium during her visit to Valjevo.

This is the latest in a series of statements by state officials, including President Aleksandar Vučić and Minister of Mining and Energy Dubravka Đedović Handanović, indicating that the Jadar project of the British-Australian mining company Rio Tinto is far from being “closed,” as Brnabić stated while she was Prime Minister.

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The main argument of state officials in favor of opening a lithium mine in the area of Loznica and Krupanj is the financial benefit for the residents of those areas, the workers who would work there for high wages, and for the state budget due to the payment of mining royalties and other taxes and fees.

Rio Tinto has allocated $2.4 billion for the construction of a lithium-borate ore mine and refinery suitable for battery production over the next 15 years.

Recently, the main representative of Rio Tinto in Serbia, Marijanta Babić, estimated that the state would annually receive around 180 million euros from taxes and mining royalties.

Economic benefits from mining and processing lithium would certainly exist, although the public is more concerned about the costs and the effect on the environment it would cause.

But in any case, comparing lithium in Serbia and oil discoveries in the North Sea for Norway, as Brnabić used to emphasize the economic importance of the Jadar project, is, to say the least, exaggerated.

How inappropriate it is to compare the potential effect of a lithium mine for Serbia and oil discoveries in the North Sea for Norway can be seen from the revenues the Norwegian state generates from oil, but also how it manages those revenues.

The estimated cash flow of Norway’s budget from the oil industry in 2023 is 84.2 billion euros, which is 58 billion euros less than in 2022.

Last year, the Norwegian budget received 41 billion euros from taxes on oil and gas alone.

Revenues of 666 million euros are planned for this year from taxes and fees, including land surface fees and environmental taxes.

The state-owned company SDFI (State’s Direct Financial Interest) generates ownership revenues from oil and gas fields, pipelines, and refineries. This year, net cash inflows of 25 billion euros are planned on this basis.

Finally, there is the state energy company Equinor, formed from Statoil, in which the state owns 67% of the shares.

This company has been on the stock exchange since 2001, and the expected dividend income from Equinor to the state in 2024 is 3.25 billion euros.

These revenues do not include tax revenues from the salaries of employees in the company.

However, truth be told, in the early 1970s when oil exploitation began, even state revenues were not as high.

In the first few years, there were no revenues for the budget, but investments and exports grew.

It was not until 1981, ten years after the start of exploitation, that the share of oil revenues in state revenues reached 20%, and by the end of the 1970s, tax revenues began to be measured in billions of dollars.

The share of oil and gas revenues in state revenues reached 36% last year.

If the state consolidated budget were to receive 180 million euros annually from lithium, and considering that the budget for 2024 is 17.4 billion euros, this would make up only one percent of today’s Serbian budget.

It should be noted here that the state charges oil companies a standard profit tax of 22% (in Serbia it is 15%). Then it also charges a special tax of 71.8%. The combined marginal tax rate is 78% of realized profit.

The mining royalty in Serbia is three percent of the company’s revenue.

However, perhaps an even bigger difference between Norway and Serbia than the amount of expected revenues is the way of management and ownership of the ore.

Namely, in 1972, the Norwegian state established the company Statoil to manage oil and gas wealth.

By 2001, when it went public on the New York Stock Exchange, selling 33% of its shares, Statoil had already become an international player. Statoil changed its name to Equinor in 2018.

This brings us to another difference between Norway and Serbia. Lithium in Serbia will be mined by a foreign company that will extract both the ore and the profit from the country and send it to its shareholders, while Norway sets aside huge billions of oil revenues and invests them.

Over time, the Norwegian state pension fund has become the world’s largest sovereign fund with $1.62 trillion under management.

Just in 2023, this fund earned $223 billion in profit for its shareholders, the citizens of Norway.

We have never heard any state official even hint that lithium revenues, no matter how small compared to Norway, would be used in this way.

In the end, the transparency of Norwegian data on oil revenues and the operations of the state oil company, covering data from 1971 to the present, including published financial reports from 1972, are on a completely different level from the transparency and reporting of our state institutions and state-owned enterprises.

Source: Danas

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