Mongstad scandal
Encyclopedia
The Mongstad scandal was a crisis in the Norwegian
oil company Statoil
in 1987-88.
The company exceed the NOK
8 billion budget by NOK 6 billion in upgrading the oil refinery
at Mongstad
. Retrospectively the reasons for the overexpenditure were attributed to bad planning, technical miscalculations and bad project management. The executives in Statoil were also accused of inability to act and for withholding information from the Norwegian Ministry of Petroleum and Energy
. At the time the incident aroused considerable media attention.
The first warnings of a budget overspend came on 25 September 1987, when the over-expenditure was estimated at NOK 3,8 billion. On 20 November most of the board of directors
had to resign. The board was led by chairman Inge Johansen
and deputy chairman Vidkunn Hveding
since 1984. The other board members who also resigned were Thor Andreassen (member since 1978), Fredrik Thoresen
(member since 1984), Guttorm Hansen
(member since 1986) and Toril V. Lundestad (member since 1986). The only board members not to resign were the three employee representatives. Two days later chief executive officer
Arve Johnsen
also resigned, at the time the only CEO in the history of the company to resign. In January 1988 reports of a possibility of the overexpenditure accumulating another billion NOK were presented. By April the anticipated overspend was believed to be in the order of NOK 8 billion, although the final sum came to NOK 6 billion.
The enormous shock effect of the Mongstad scandal should be understood in the light of the social and political situation of Norway in 1988. Statoil was at the time a limited company
wholly owned by the Norwegian Ministry of Petroleum and Energy, who managed the entire profit. After the company had started to make a profit around 1980 it had become the guarantor for welfare in the country in the minds of people. The company's transfers to government treasury coffers exceeded that of income tax
at the time. CEO Arve Johnsen was the man who could do nothing wrong, the Labour Party
man who controlled Statoil even during a conservative government. Prime Minister Kåre Willoch
's attempt to clip Statoil's wings a few years earlier had failed. And at the same time came the bankruptcy in the largest bank, Den norske Creditbank
that had announced the start of the fall of the Yuppie age
.
The media attention on the Mongstad scandal in 1988 was enormous, and was front-page material almost daily. The tabloid newspapers battles fiercely in trying to visualise the, at the time, almost unimaginable size of NOK 6 billion. The sum was creatively recalculated in kindergarten
places, retirement home
places, fighter jets etc. Sometimes the coverage became absurd with parallels such as Dagbladet
' s example of 6 billion = enough to buy one AG3 assault rifle
for each of the country's 4,5 million inhabitants. For years the term one mong was used as a synonym
for the number 6 billion.
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...
oil company Statoil
Statoil
Statoil ASA is a Norwegian petroleum company established in 1972. It merged with Norsk Hydro in 2007 and was known as StatoilHydro until 2009, when the name was changed back to Statoil ASA. The brand Statoil was retained as a chain of fuel stations owned by StatoilHydro...
in 1987-88.
The company exceed the NOK
Norwegian krone
The krone is the currency of Norway and its dependent territories. The plural form is kroner . It is subdivided into 100 øre. The ISO 4217 code is NOK, although the common local abbreviation is kr. The name translates into English as "crown"...
8 billion budget by NOK 6 billion in upgrading the oil refinery
Oil refinery
An oil refinery or petroleum refinery is an industrial process plant where crude oil is processed and refined into more useful petroleum products, such as gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas...
at Mongstad
Mongstad
Mongstad is an industrial site located in the municipalities of Lindås and Austrheim in Hordaland, Norway. The site features an oil refinery for Statoil and other oil companies, including Shell. At Mongstad, Statoil has a crude oil terminal with a capacity of . The port at Mongstad is the largest...
. Retrospectively the reasons for the overexpenditure were attributed to bad planning, technical miscalculations and bad project management. The executives in Statoil were also accused of inability to act and for withholding information from the Norwegian Ministry of Petroleum and Energy
Norwegian Ministry of Petroleum and Energy
The Royal Norwegian Ministry of Petroleum and Energy is a Norwegian ministry responsible for energy, including petroleum and natural gas production in the North Sea. It is led by Minister of Petroleum and Energy Ola Borten Moe...
. At the time the incident aroused considerable media attention.
The first warnings of a budget overspend came on 25 September 1987, when the over-expenditure was estimated at NOK 3,8 billion. On 20 November most of the board of directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
had to resign. The board was led by chairman Inge Johansen
Inge Johansen
Inge Johannes Tjernes Johansen is a Norwegian electrical engineer and academican.-Career:Johansen was born in Gjerpen to an electrician and a homemaker. He took the siv.ing. degree, and in 1957 the dr.techn. degree. From 1959 to 1985 he was professor of high voltage technology at the Norwegian...
and deputy chairman Vidkunn Hveding
Vidkunn Hveding
Vidkunn Hveding was a Norwegian politician for the Conservative Party, and the Minister of Petroleum and Energy 1981–1983. Hveding was a civil engineer by profession.-References:...
since 1984. The other board members who also resigned were Thor Andreassen (member since 1978), Fredrik Thoresen
Fredrik Thoresen
Fredrik Thoresen is a Norwegian businessperson.He was born in Bærum, and took his civil engineering education in chemistry at the University of Birmingham, whence he graduated in 1953...
(member since 1984), Guttorm Hansen
Guttorm Hansen
Guttorm Hansen was a Norwegian writer and politician for the Labour Party. He started his career as a mechanic, but after 1945 he was a journalist and editor of magazines and newspapers. Via local politics in his native Namsos he was elected to the Norwegian Parliament in 1961, serving six terms...
(member since 1986) and Toril V. Lundestad (member since 1986). The only board members not to resign were the three employee representatives. Two days later chief executive officer
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
Arve Johnsen
Arve Johnsen
Arve Johnsen is a Norwegian industrial executive and politician.He was educated in business administration with the degree siviløkonom from the Norwegian School of Economics and Business Administration in 1957 and in law with the degree cand.jur...
also resigned, at the time the only CEO in the history of the company to resign. In January 1988 reports of a possibility of the overexpenditure accumulating another billion NOK were presented. By April the anticipated overspend was believed to be in the order of NOK 8 billion, although the final sum came to NOK 6 billion.
The enormous shock effect of the Mongstad scandal should be understood in the light of the social and political situation of Norway in 1988. Statoil was at the time a limited company
Aksjeselskap
Aksjeselskap is the Norwegian term for a stock-based company. It is usually abbreviated AS or A/S, especially when used in company names. An AS is always a limited company, i.e. the owners cannot be held liable for any debt beyond the stock capital...
wholly owned by the Norwegian Ministry of Petroleum and Energy, who managed the entire profit. After the company had started to make a profit around 1980 it had become the guarantor for welfare in the country in the minds of people. The company's transfers to government treasury coffers exceeded that of income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
at the time. CEO Arve Johnsen was the man who could do nothing wrong, the Labour Party
Norwegian Labour Party
The Labour Party is a social-democratic political party in Norway. It is the senior partner in the current Norwegian government as part of the Red-Green Coalition, and its leader, Jens Stoltenberg, is the current Prime Minister of Norway....
man who controlled Statoil even during a conservative government. Prime Minister Kåre Willoch
Kåre Willoch
Kåre Isaachsen Willoch is a Norwegian politician from the Conservative Party. He served as Minister of Trade and Shipping in 1963 and 1965–1970, and as Prime Minister of Norway from 1981 to 1986...
's attempt to clip Statoil's wings a few years earlier had failed. And at the same time came the bankruptcy in the largest bank, Den norske Creditbank
Den norske Creditbank
Den norske Creditbank or DnC is a defunct Norwegian commercial bank created in 1857. In 1990 it merged with Bergen Bank to create Den norske Bank...
that had announced the start of the fall of the Yuppie age
Yuppie
Yuppie is a term that refers to a member of the upper middle class or upper class in their 20s or 30s. It first came into use in the early-1980s and largely faded from American popular culture in the late-1980s, due to the 1987 stock market crash and the early 1990s recession...
.
The media attention on the Mongstad scandal in 1988 was enormous, and was front-page material almost daily. The tabloid newspapers battles fiercely in trying to visualise the, at the time, almost unimaginable size of NOK 6 billion. The sum was creatively recalculated in kindergarten
Kindergarten
A kindergarten is a preschool educational institution for children. The term was created by Friedrich Fröbel for the play and activity institute that he created in 1837 in Bad Blankenburg as a social experience for children for their transition from home to school...
places, retirement home
Retirement home
A retirement home is a multi-residence housing facility intended for senior citizens. Typically each person or couple in the home has an apartment-style room or suite of rooms. Additional facilities are provided within the building, including facilities for meals, gathering, recreation, and some...
places, fighter jets etc. Sometimes the coverage became absurd with parallels such as Dagbladet
Dagbladet
Dagbladet is Norway's second largest tabloid newspaper, and the third largest newspaper overall with a circulation of 105,255 copies in 2009, 18,128 papers less than in 2008. The editor in chief is Lars Helle....
Assault rifle
An assault rifle is a selective fire rifle that uses an intermediate cartridge and a detachable magazine. Assault rifles are the standard infantry weapons in most modern armies...
for each of the country's 4,5 million inhabitants. For years the term one mong was used as a synonym
Synonym
Synonyms are different words with almost identical or similar meanings. Words that are synonyms are said to be synonymous, and the state of being a synonym is called synonymy. The word comes from Ancient Greek syn and onoma . The words car and automobile are synonyms...
for the number 6 billion.