On Friday afternoon the Norwegian government presented a proposal for a new shipping tax system in Norway. The system is comparable to tonnage tax systems implemented in a number of other European countries and the effective tax rate is estimated at 0.6% of the 2006-results. The details in the new system will be presented early October in the budget proposal for 2008, and will be finally decided upon in December. The new system will be applicable as from January 1 2007.

The current system, which was introduced in 1996, does not levy any taxes when the shipping company continues to perform shipping activities in Norway, and no dividend distributions are made to the shareholders. Odfjell chose to enter this system in 1996 based on the intention to continue to operate under the system in the long term and so far no dividends have been distributed to shareholders from companies within the shipping tax system. Odfjell's plan was to continue to operate under the current system. The income tax rate for undistributed profits earned within the system has therefore been zero and hence, based on this zero tax rate, tax liabilities have also been zero. Untaxed profits within the current tax system is partly capital gains from when ships were sold into the system as an internal transaction in 1996 and partly operating results in the period 1997 to 2007.

As part of the introduction of the new shipping tax system the government proposes that the untaxed profits shall be taxed at the applicable tax rate of p.t. 28% and paid over a 10 year period. Up to one third of the tax liability can be used for environmental investments rather than tax. Although the tax is payable over 10 years and the fact that we will continue to strengthen our efforts to improve our environmental performance, the effect of the new proposed rules, should they have been implemented as per 30 June 2007, would be an immediate increase in tax liabilities and a reduction of equity of about NOK 1.3 bln (USD 227 million). The equity ratio would have been reduced from 33.4% to 23.6%.

Should the proposal be passed as law, this will reduce our ability to invest in our fleet renewal in an amount of close to USD 1 bln, and our relative competitiveness will be severly hampered compared to our main competitors that are operating under international tax regimes. We are sorry to realize that entering the current shipping tax system in 1996 on the trust that we would enjoy a stable and competitive business climate in Norway for our industry seems to have been a wrong decision.