Valutaeksponering i den norske F-35-anskaffelsen : hvordan blir valuta håndtert og hvilke konsekvenser kan det medføre?

The Norwegian government will from 2015 to 2024 procure up to 52 F-35 aircraft with an expected cost (P50) of NOK 67.9 bn. in 2015-values. About 80 percent of the total procurement cost is estimated in USD, which makes the cost very sensitive to changes in the exchange rate. Exchange rate uncertainty is a systematic uncertainty, which means that it affects many or all cost elements at the same time, and in the same direction. This report explains our recommendation for how the Norwegian F-35 Program should handle currency and currency uncertainty in their cost estimates. We also look at what factors that can affect the exchange rate, and whether it is possible to predict future exchange rates. The Norwegian exchange rate regime has been flexible since 1993, which means that the exchange rate is a result of supply and demand. Due to high oil prices, the Norwegian currency (NOK) has remained strong for several years. When the oil price decreased at the end of 2014, the NOK depreciated. In 2012, when the Parliament decided to procure F-35, the Norwegian currency was significantly stronger than it has been since the end of 2014. If it remains weak during the procurement period, the total acquisition cost can be significantly higher than initially expected. The reserve for uncertainty includes exchange rate uncertainty. The Armed Forces’ own framework for procurement projects, PRINSIX, states that this kind of uncertainty should be covered on a portfolio level, not project level, as the uncertainty is beyond the project’s control. The Norwegian F-35 Program uses forward interest rates to estimate the expected exchange rate in the procurement period. Exchange rate uncertainty is also handled in the annual uncertainty analysis, by applying currency factors on all costs, one factor for procurement costs and one for operating costs. We recommend that the F-35 Program continues to use forward interest rates to estimate future exchange rates, and that the uncertainty span should be risk neutral. One way of calculating this span is to find how volatile the exchange rate has been over the last 10 years, and then assume that this volatility can be applied to the estimated exchange rate also for the next 10 years. We call this the volatility method, and recommend using this method in the uncertainty analysis. Empirical studies show that it is very difficult to estimate a model that predicts exchange rates any better than a random walk model, which means that the best prediction of the exchange rate tomorrow is the exchange rate today. Therefore, we assume that the market expectation is the best information we have available, and we recommend using a symmetric uncertainty span. When studying how the price adjusted expected cost has changed since the project was approved in 2012, we see that currency adjustment and price adjustments have increased the total cost, while actual cost estimate changes have reduced the total cost. If we do not include currency adjustments, P50 is below the 67.9 bn. limit, but by including the currency adjustment, almost all of the contingency reserve is consumed. If the NOK remains weak for most of the procurement period, it could be necessary to reduce the number of aircraft or other investments in the Armed Forces. The F-35 Program cannot influence the currency uncertainty, and the temporary supplement allocations for the F-35 procurement should therefore be adjusted for cost increases due to changes in the exchange rate. This can be related to the principles for a sustainable defence economy.