Helga Katrín Tryggvadóttir

Icelanders are notoriously bad investors. Once someone has a business idea, everyone jumps on the wagon and invests in exactly the same thing. The infamous growth of the banking sector is one example, before the 2008 banking crash the Icelandic banking sector was 12 times the size of the GDP and Iceland was supposed to become an international financial centre. I have no idea how anyone got the idea that an island with three hundred thousand inhabitants could become an international financial centre, but many people in Iceland considered this a perfectly normal ambition.

And then there are the politicians, they have had the same investment idea for more than hundred years. Either it is building an artificial fertiliser factory, or it is building an aluminium smelter. Last year one MP proposed building an artificial fertiliser factory, in order to “lure home” young Icelanders who have moved abroad. A majority of those have moved abroad to educate themselves, but sure, who doesn’t want to use their PhD on the factory floor?

Now there is an Icelandic investor in the North of Iceland, Ingvar Skúlason, who is planning on building an aluminium smelter, at a time when aluminium prices have been dropping due to overproduction. He has already managed to sign a deal with a Chinese company, NFC, which is willing, he says, to pay for the whole construction, yet the smelter would be owned by Icelandic companies. All of this sounds kind of dubious in my ears. And everyone can see that this is not a good idea, even the banks, with a new report released by Arion Bank advising against more investment in the aluminium industry. The bank bases its analysis on the fact that aluminium price is too low at the moment to bring any profit into the country (since the price for the electricity is connected with the price of aluminium, the price the aluminium smelters pay to the National power company (LV) is low when aluminium prices are low).

But that does not stop the politicians from supporting the idea. The prime minister Sigmundur Davíð Gunnlaugsson, was present when Skúlason signed a deal with the Chinese company, praising the initiative. Skúlason also claims to have support from the Minister of Industry, which is not surprising since her only campaign promise was building an aluminium smelter and get the “wheels of the economy rolling”. Recently, Alcoa World Alumina, owned by Alcoa Inc., admitted to having bribed officials in Barein. In Iceland, however, they have never had to pay any bribes. Icelandic officials have been more than willing to do their service for free, “bending all the rules” as Friðrik Sophusson, former head of LV, was caught on tape saying.

There are currently three aluminium smelters in Iceland. Together, they use 80% of the energy produced in the country and their profit account for 60 billion ISK a year (USD 500 million). Yet, a majority of the profit is registered as debt to their parent companies abroad, leaving the Icelandic subsidiaries operated in debt but creating profits to the parent companies. The only profit that is left in the country is the wages they pay to their employees, and that only accounts to less than 1% of the national revenue. The jobs they create (which is usually the main argument for their construction), also account for less than 1% of all jobs in Iceland. The price they pay for the energy is also below the normal market price. Lets think about this for a second: 80% of the electricity produced in the country goes to international corporations that only produce 1% of the national revenue and creates 1% of the jobs, exports the majority of the profits and pays below-market price for the energy. So, 99% of the people do not get any share in the majority of its electricity production. Sounds familiar.

Maybe it is time to occupy the smelters?

Sunday Review

New York Times

Thayer Scudder, the world’s leading authority on the impact of dams on poor people, has changed his mind about dams.

A frequent consultant on large dam projects, Mr. Scudder held out hope through most of his 58-year career that the poverty relief delivered by a properly constructed and managed dam would outweigh the social and environmental damage it caused. Now, at age 84, he has concluded that large dams not only aren’t worth their cost, but that many currently under construction “will have disastrous environmental and socio-economic consequences,” as he wrote in a recent email.

Mr. Scudder, an emeritus anthropology professor at the California Institute of Technology, describes his disillusionment with dams as gradual. He was a dam proponent when he began his first research project in 1956, documenting the impact of forced resettlement on 57,000 Tonga people in the Gwembe Valley of present-day Zambia and Zimbabwe. Construction of the Kariba Dam, which relied on what was then the largest loan in the World Bank’s history, required the Tonga to move from their ancestral homes along the Zambezi River to infertile land downstream. Mr. Scudder has been tracking their disintegration ever since.

Once cohesive and self-sufficient, the Tonga are troubled by intermittent hunger, rampant alcoholism and astronomical unemployment. Desperate for income, some have resorted to illegal drug cultivation and smuggling, elephant poaching, pimping and prostitution. Villagers still lack electricity.

Mr. Scudder’s most recent stint as a consultant, on the Nam Theun 2 Dam in Laos, delivered his final disappointment. He and two fellow advisers supported the project because it required the dam’s funders to carry out programs that would leave people displaced by the dam in better shape than before the project started. But the dam was finished in 2010, and the programs’ goals remain unmet. Meanwhile, the dam’s three owners are considering turning over all responsibilities to the Laotian government — “too soon,” Mr. Scudder said in an interview. “The government wants to build 60 dams over the next 20 or 30 years, and at the moment it doesn’t have the capacity to deal with environmental and social impacts for any single one of them.

“Nam Theun 2 confirmed my longstanding suspicion that the task of building a large dam is just too complex and too damaging to priceless natural resources,” he said. He now thinks his most significant accomplishment was not improving a dam, but stopping one: He led a 1992 study that helped prevent construction of a dam that would have harmed Botswana’s Okavango Delta, one of the world’s last great wetlands.

Part of what moved Mr. Scudder to go public with his revised assessment was the corroboration he found in a stunning Oxford University study published in March in Energy Policy. The study, by Atif Ansar, Bent Flyvbjerg, Alexander Budzier and Daniel Lunn, draws upon cost statistics for 245 large dams built between 1934 and 2007. Without even taking into account social and environmental impacts, which are almost invariably negative and frequently vast, the study finds that “the actual construction costs of large dams are too high to yield a positive return.”

The study’s authors — three management scholars and a statistician — say planners are systematically biased toward excessive optimism, which dam promoters exploit with deception or blatant corruption. The study finds that actual dam expenses on average were nearly double pre-building estimates, and several times greater than overruns of other kinds of infrastructure construction, including roads, railroads, bridges and tunnels. On average, dam construction took 8.6 years, 44 percent longer than predicted — so much time, the authors say, that large dams are “ineffective in resolving urgent energy crises.”

DAMS typically consume large chunks of developing countries’ financial resources, as dam planners underestimate the impact of inflation and currency depreciation. Many of the funds that support large dams arrive as loans to the host countries, and must eventually be paid off in hard currency. But most dam revenue comes from electricity sales in local currencies. When local currencies fall against the dollar, as often happens, the burden of those loans grows.

One reason this dynamic has been overlooked is that earlier studies evaluated dams’ economic performance by considering whether international lenders like the World Bank recovered their loans — and in most cases, they did. But the economic impact on host countries was often debilitating. Dam projects are so huge that beginning in the 1980s, dam overruns became major components of debt crises in Turkey, Brazil, Mexico and the former Yugoslavia. “For many countries, the national economy is so fragile that the debt from just one mega-dam can completely negatively affect the national economy,” Mr. Flyvbjerg, the study’s lead investigator, told me.

To underline its point, the study singles out the massive Diamer-Bhasha Dam, now under construction in Pakistan across the Indus River. It is projected to cost $12.7 billion (in 2008 dollars) and finish construction by 2021. But the study suggests that it won’t be completed until 2027, by which time it could cost $35 billion (again, in 2008 dollars) — a quarter of Pakistan’s gross domestic product that year.

Using the study’s criteria, most of the world’s planned mega-dams would be deemed cost-ineffective. That’s unquestionably true of the gargantuan Inga complex of eight dams intended to span the Congo River — its first two projects have produced huge cost overruns — and Brazil’s purported $14 billion Belo Monte Dam, which will replace a swath of Amazonian rain forest with the world’s third-largest hydroelectric dam.

Instead of building enormous, one-of-a-kind edifices like large dams, the study’s authors recommend “agile energy alternatives” like wind, solar and mini-hydropower facilities. “We’re stuck in a 1950s mode where everything was done in a very bespoke, manual way,” Mr. Ansar said over the phone. “We need things that are more easily standardized, things that fit inside a container and can be easily transported.”

All this runs directly contrary to the current international dam-building boom. Chinese, Brazilian and Indian construction companies are building hundreds of dams around the world, and the World Bank announced a year ago that it was reviving a moribund strategy to fund mega-dams. The biggest ones look so seductive, so dazzling, that it has taken us generations to notice: They’re brute-force, Industrial Age artifacts that rarely deliver what they promise.

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The remarks can generally be split into two groups based on senders and views: firstly, individuals and environmentalist associations who above all protest the afore-mentioned plans for the Reykjanes peninsula; secondly, companies and institutions with vested interests in the further heavy industrialization of Iceland who demand that the Master Plan’s second phase goes unaltered through parliament — that is, as it was before the parliamentary resolution was presented, in which the planned Þjórsá dams and other hydro power plants are included in the exploitation category.

One of the remarks sent in differs from the others as it evaluates energy production and nature conservation in a larger, long-term context. That remark, written by Helga Katrín Tryggvadóttir, MA in development studies, is published here below, translated from Icelandic by Saving Iceland.

I find myself inclined to make a few remarks regarding the Industries Committee’s discussion about the Energy Master Plan. My remarks do not concern particular natural areas but rather the comprehensive ideas regarding the scope and nature of the protection and exploitation of natural areas. Since the making of the Energy Master Plan begun, much has changed for the better as researches and knowledge on energy production and nature conservation continuously advance. The social pattern as well as opinions on nature conservation have also changed rapidly since the first draft for an Energy Master Plan was published, and the emphasis on nature conservation constantly increases. With this in mind it is necessary to take into account that during the next years, this emphasis on nature conservation is likely to increase even further. Therefore it is important for the Industries Committee to remember that keeping natural areas in pending does not prevent future utilization, whereas areas exploited today cannot be protected tomorrow.

Unsustainable Utilization

The many negative impacts of geothermal and hydro power plants have not been discussed thoroughly enough in Iceland. This can probably be explained by the the fact that these are renewable energy sources and thereby, people tend to view them as positive options for energy production. Thus we often hear that it is better to operate energy intensive industries here, using renewable energy sources, rather than in countries where the same industries are powered by electricity produced by coals and oil. However, when these issues are looked at it more accurately, we have to be aware of the fact that despite hydro and geothermal power’s renewability, their current utilization in Iceland is by no means sustainable.

Using the hydraulic head of glacial rivers, hydro power plants require reservoirs which deplete vegetated land, the reservoirs get filled with mud and by time the area becomes an eroded land. When it comes to geothermal areas, exploited for energy production, the seizure of fluid is much greater than the inflow into the geothermal reservoir and therefore the geothermal power dries up by time. At that point the area has to rest for a time still unknown in the geothermal sciences. Thus it is clear that although we are dealing with renewable energy sources, they do not at all allow for infinite energy production, and additionally the power plants themselves entail environmental destruction. It is clear that the utilization of these resources has to be executed very carefully, and preferably, all further utilization plans should be put on hold until it is possible to learn from the experience of the plants built in the very recent past.

CO2 Emission

A lot of emphasis has been put on the idea that Iceland possesses huge amounts of “green energy,” meaning that this energy does not burn fossil fuels. Thereby it is assumed that no CO2 emission takes place. This is, however, far from the truth: in 2008 the CO2 emission from geothermal plants in Iceland amounted to 185 thousand tons, which is 6% of the country’s total CO2 emission¹. Hydro dams also add to the amount of carbon in the atmosphere: big reservoirs cause the drowning of vegetated land, wherein rotting vegetation emits methane gas, increasing global warming. It is estimated that about 7% of carbon emitted by humans come from such constructions². The sediment of glacial rivers affects the ocean’s ecosystems and nourishes algae vegetation by the seashore. Marine organisms play an important part in extracting carbon from the atmosphere; it is estimated that such vegetation extracts about 15 times more of CO2 than a woodland of the same size³. Annually, the ocean is believed to extract 11 billion tons of CO2 emitted by men⁴. By damming glacial rivers, entailing disturbance of their sediment and of algae vegetation, Icelanders are not only threatening the fish stocks around the country, and thus the country’s fishing industry, but also further contributing to global warming in a way which is more dangerous than deforestation, though the latter has undergone much harsher criticism worldwide than the destruction of oceanic ecosystems.

Geothermal Power Plants

In the Energy Master Plan’s second phase, possible geothermal power plants are listed in 20 out of the 25 highest seats of exploitation. If the planned hydro dams, Hvamms- and Holtavirkjun, in river Þjórsá will be kept in pending — which I rejoice as a resident of the Skeiða- og Gnúpverjahreppur region — geothermal power plants will occupy 22 out of the 25 seats. Due to the fact that so little is known about the long-term impacts of geothermal power plants, this ordering is a matter of concern. Before further construction takes place, it is necessary to wait until more experience is gained from the already operating geothermal power plants. Many of the problems connected to these plants are still unsolved, for instance the dangerous material in the plants’ run-of water as well as their polluting emissions. This has to be taken into consideration, especially near the capital area of Reykjavík where sulphur pollution is already very high⁵.

It also has to be taken into account that geothermal energy production is not sustainable, as an geothermal area’s heat supply eventually dries up. Their usage allows for 50 years of production, which of course is a very limited amount of time. If the plan is to use such energy for industrial development it has to be kept in mind that 50 years pass very quickly, meaning that the jobs at stake are no long-term jobs. At the same time, such a short-term utilization encroaches on future generations’ right to utilize the geothermal energy sources, not to mention their right to utilize these areas by protecting them for outdoor activities and creation of knowledge, as Iceland’s geothermal areas are unique on a global scale. For the last weeks, we have witnessed how the already exploited geothermal areas, or those where test-drilling has taken place, have not at all been utilized in a way that goes together with tourism and outdoor activities, as the areas’ appearance and environment have been damaged on a large scale⁶.

Economical Arguments

When it comes to economical arguments, people often tend to call for short-term employment solutions, stating that it is important to construct as many possible power plants in the shortest time in order to create as many jobs as possible. The fact, however, is that a construction-driven economy will always lead to instability, and such instability is indeed the Icelandic economy’s largest bale. Above all, Iceland’s economy needs stability and a future vision that sees further than 10 years into the future. For a stable future economy to be built, it has to happen in a sustainable way, whereas continuous aggressive exploitation of the country’s natural resources will simply lead to an era of regular economic collapses. By putting such strong emphasis on the aggressive exploitation of hydro and geothermal resources, with the appendant construction bubbles, a situation of unemployment will be sustained, broken up by occasional and differently short-lived boom periods in between.

References:

1. Birna Sigrún Hallsdóttir, Kristín Harðardóttir, Jón Guðmundsson og Arnór Snorrason. 2009. National Inventory Report Iceland 2009 Submitted under the United Nations Framework Convention no Climate Change. Umhverfisstofnun.

2. Náttúruverndarsamtök Íslands ofl. 2011. Umsögn um drög að tillögu til þingsályktunar um áætlun um vernd og orkunýtingu landsvæða. (Download pdf. here.)

3.  Worldwatch Institute. 2011. Oceans Absorb Less Carbon Dioxide as Marine Systems Change.

4. The Guardian. 2009. Sea Absorbing Less CO2, Scientists Discover. 12. janúar 2009.

5. Náttúruverndarsamtök Íslands ofl. 2011. Umsögn um drög að tillögu til þingsályktunar um áætlun um vernd og orkunýtingu landsvæða.

6. Ómar Ragnarsson. 2012. Já, það varð svona og það verður svona. Morgunblaðið. 2012. Borteigar . „Verður þetta allt svona ?“ 5. maí 2012.

See also:

International Rivers. Problem With Big Dams.

International Union for Conservation of Nature. 2009. Ocean Carbon Central for Climate Change.

These news echo the many warnings made by the opponents of the cluster of five dams at Kárahnjúkar and nearby Eyjabakkar, who repeatedly stated that the project’s alleged profitability was nothing but an illusion, but were systematically silenced by Iceland’s authorities.

Now, as these facts finally become established in the media—this time straight from the horse’s mouth—similarly bad news has arrived regarding another big Icelandic energy company. Reykjavík Energy has failed to make a profit from their 2007 and 2008 investments, effectively making them lose money. At the same time, new research shows that the environmental impacts of the Kárahnjúkar dams are exactly as vast and serious as environmentalists and scientists feared.

And yet, more dams, geothermal power-plants and aluminium smelters are on the drawing table—presented as the only viable way out of the current economic crisis.

Dividend: Close to Zero

During the last half century, Landsvirkjun has paid its owner—the Icelandic nation—only 7,8 billion Icelandic Krónur (66 million USD at present value) as dividend, which according to Hörður Arnarson is way too low and in fact almost equivalent to zero. While it would be fair to expect around eleven percent dividend from the company’s own equity, it has been at an average of two percent since Landsvirkjun was founded. The income from the Kárahnjúkar plant has been about 6 percent of its book value, which again is too low, as according to normal standards the income should be 9 percent of the book value.

At present, Landvirkjun’s total earnings have been 73 million US dollars at most, whereas it should be closer to 180 million USD, considering the owner’s 1,6 billion USD equity. It was made clear by Arnarson that the price of energy purchased by large-scale energy consumers plays a major role herein—a price that obviously has been far below any rational logic and standards.

Same Old, Same Old

In 2003, British newspaper The Guardian published “Power Driven”, Susan De Muth’s exclusive report about the Kárahnjúkar power plant, which at that point was already under construction. Among many critiques made in the article, De Muth questioned Kárahnjúkar’s allegeded profitability. She wrote:

Thorsteinn Siglaugsson, a risk specialist, prepared a recent independent economic report on Karahnjukar for the Icelandic Nature Conservation Association. “Landsvirkjun’s figures do not comprise adequate cost and risk analysis,” he says, “nor realistic contingencies for overruns.” Had the state not guaranteed the loans for the project, Siglaugsson adds, it would never have attracted private finance. “Karahnjukar will never make a profit, and the Icelandic taxpayer may well end up subsidising Alcoa.”

Siglaugsson is just one of many who critically analysed the economics of the Kárahnjúkar project, concluding that its contribution to Iceland’s economy would be about none—or in fact negative. But just as many geologists who cautioned against the risks of locating the dams in a highly geologically seismic area were dismissed by Valgerður Sverrisdóttir, then Minister of Industry, as “politically motivated and not to be listened to”, so were the skeptical economists.

De Muth’s article caused a real stir in Iceland, manifest for instance in the fact that Landsvirkjun and Iceland’s Embassy in London contacted The Guardian in a complaint about “so much space […] used for promoting factual errors and misconceptions of the project and Icelandic society as a whole.” Friðrik Sophusson, Landsvirkjun’s director at that time—who in the article is quoted calling all of Kárahnjúkar’s opponents “romantics”—actually offered The Guardian to send another journalist over to Iceland in order to do “a proper report on issues in Iceland”, this time with his “assistance.” ALCOA also sent a barrage of objections to the Guardian. All the facts presented in the article were double checked by the Guardian’s legal team and confirmed to be accurate.

This volatile response from the authorities and corporates only strengthened the article’s points on the Icelandic tradition of suppressing criticism. This was confirmed in a letter to The Guardian by Icelandic environmentalist and commentator Lára Hanna Einarsdóttir, who suggested that “an Icelandic journalist would have lost [his or her] job if he or she had been so outspoken.”

The Coming Recession

And no wonder, as the article pinpointed serious flaws in the whole rhetoric surrounding the plans to heavily industrialize Iceland, plans that would be nothing without the construction of a series of mega hydro dams and geothermal power plants. Whereas these plans were presented as a path to an increased economical prosperity, De Muth quoted aforementioned economist Siglaugsson, who voiced his fear “that a boom during the construction period, with attendant high interest rates, will be followed by a recession.”

And as time told, this was indeed what happened. In an article published in the early days of Iceland’s current financial crisis, Jaap Krater, ecological economist and spokesperson of Saving Iceland, gave it a thorough explanation:

These mega-projects in a small economy have been compared to a ‘heroin addiction’. Short-term ‘shots’ lead to a long-term collapse. The choice is between a short-term infuse or long-term sustainable economic development. The ‘shot’ of Fjardaal [Alcoa’s aluminium smelter in Iceland, powered by the Kárahnjúkar power plant] overheated the Icelandic economy.

Recognizing the dangers of overheating the economy—a point also made clear in Charles Ferguson’s recent documentary, Inside Job—leaves us with two options. As Krater pointed out:

There has been a lot of critique on the proposed plans to develop Iceland’s unique energy resources. Those in favour of it have generally argued that it is good for the economy. Anyone who gives it a moment of thought can conclude that that is a myth. Supposed economic benefits from new power plants and industrial plants need to be assessed and discussed critically and realistically. Iceland is coming down from a high. Will it have another shot, or go cold turkey?

Another Shot, Please

This spring, Landsvirkjun stated that if the company was to start its operations from scratch the aluminium industry would be its prime costumer. This particular paradox—as the aluminium industry is already its biggest energy purchaser—was just one of Landsvirkjun’s many. Another one is their suggestion that Icelanders should “settle upon” plans to build 14 new power plants in the next 15 years. And the third one is the company’s plans to sell more energy to aluminium companies—costumers who, in Landsvirkjun’s own words, do not pay a fair amount for what they get.

But Arnarson has said that the future looks better, referring for instance to the fact that the price for Kárahnjúkar’s energy is directly connected to world-wide aluminium prices, which Arnarson says are getting higher. Herein is the fourth paradox, as linking energy prices with aluminium prices has so far been disastrous for Iceland’s economy—most recently acknowledged in an official report regarding the profitability of selling energy to heavy industry. According to the report, commissioned by the Ministry of Finance and published last Friday, December 2nd, the total profitability has been an average 5% from 1990 until today, which is far below the profitability of other industries in Iceland, and much lower than the profitability of similar industries in Iceland’s neighbouring countries. The year 1990 is crucial here, as since then, Landsvirkjun’s energy prices to heavy industry have been directly linked to global aluminium prices.

It is worth quoting Jaap Krater again here, where he explains the dangers of interlinking these two prices, and describes how increased aluminium supply will lower the price of aluminium and decrease revenue for Iceland:

One might think that a few hundred thousand tons of aluminium more or less will not impact the global market. The reality is that it is not the sum of production that determines the price but rather the friction between supply and demand. A small amount of difference can have a significant effect in terms of pricing.

High Costs, Low Production

On top of this, recent calculations revealed in newspaper Fréttablaðið, show that Kárahnjúkar is Landsvirkjun’s proportionally most expensive construction. When the production of each of the company’s power plants is compared with the production of Landsvirkjun’s property as a whole, as a proportion of their construction costs, it becomes clear that Kárahnjúkar—with its 2.3 billion USD initial cost—is the most economically unviable plant.

Another Energy Company in Crisis

At the same time that Icelanders face Landsvirkjun’s confession to it’s virtually zero profitability, a damning report on another big energy company, Reykjavík Energy (OR), has been made public. It was originally published at the beginning of this year but wasn’t supposed to enter the public sphere, which it indeed didn’t until in late November. Reykjavík Energy’s biggest shareholder is the city of Reykjavík, meaning the inhabitants of Reykjavík.

As already documented thoroughly, the company—which operates several geothermal power plants, including Hellisheiðarvirkjun, largely built to fuel Century Aluminum’s production—is in pretty deep water. But the newly leaked report proves that it has sunk even deeper than generally considered. The report is a literal condemnation of the company, its board and its highest ranking managers, who get a grade F for their job. A good part of Reykjavík Energy’s investments from 2007 and 2008 are now considered as lost money.

The report also reveals that when energy contracts between OR and Norðurál (Century Aluminum) were made, for the latter’s planned fantasy-of-a-smelter in Helguvík, Reykjavík Energy’s directors completely ignored the very visible economic collapse confronting them.

Recently it has been reported that Reykjavík Energy owes 200 billion Icelandic ISK in foreign currency, which is two thirds of all foreign debts owed by Icelandic companies, whose income is not in foreign currency.

What we see here are two of Iceland’s largest energy companies, both of them public property, both having spent hugely excessive amounts of money—or more precisely, collected gigantic debts—struggling to continue to build power plants in order to feed the highly energy intensive aluminium industry with dirt cheap and allegedly “green” energy. As a result, they have ended up without profit and in a deep pool of debt.

And who is to pay for their gambling risks? As Thorsteinn Siglaugsson stated in 2003: the Icelandic taxpayer.

“No Impacts” Become Huge Impacts

To make bad news even worse, the irreversibly destructive ecological impacts of the Kárahnjúkar dams have, in the last months, become more and more visible. To quote “Power Driven” once again (as simply one of a good number of warnings on the dams’ environmental impacts):

The hydro-project will also divert Jokulsa a Dal at the main dam, hurtling the river through tunnels into the slow-moving Jokulsa i Fljotsdal, which feeds Iceland’s longest lake, Lagarfljot. The calm, silver surface of this tourist attraction will become muddy, turbulent and unnavigable.

This was written in 2003. Today, this is what is happening: because of the river’s glacial turbidity Lagarfljót has changed colour, which according to Guðni Guðbergsson, ichthyologist at the Institute of Freshwater Fisheries (IFF), means that light doesn’t reach as deep into the water as before (see photos aside and below). Photosynthesis, which is the fundamental basis for organic production, decreases due to limited light, its domino effects being the constant reduction of food for the fish. IFF’s researches show that near Egilsstaðir, where visibility in Lagarfljót was 60 cm before the dams were built, it is now only 17 cm. They also show that there are not only less fish in the river, but that the fish are much smaller than before.

In addition to this, residents by Lagarfljót have faced serious land erosion due to the river’s increased water content and strength.

This effect was warned of in an Environmental Impact Assessment (EIA) for the project by the Iceland National Planning Agency (INPA), purposely ignored and overruled by Siv Friðleifsdóttir, then Minister of Environment. Landsvirkjun had complained to the Ministry of the Environment, and the EIA ended up on Friðleifsdóttir’s table, who nevertheless issued a permit for the construction, stating that the dams would have no significant impact on Lagarfljót.

In response of the news on Lagarfljót’s current condition, Svandís Svavarsdóttir, Minister of the Environment, said during parliamentary discussion last September, that her Ministry’s over-all administration regarding the Kárahnjúkar decision-process will be examined in detail. She should demand a similar investigation into the decision making of the Ministry of Industry, whose Minister, Valgerður Sverissdóttir has, along with Landsvirkjun’s Friðrik Sophusson, openly admitted while joking on film with the US ambassador in Iceland, how they enjoyed “bending all the rules, just for Alcoa.”

All the Old Dogs

Despite all of this, Iceland’s energy companies, hand in hand with the aluminium industry, some of the biggest labour unions and industry-related associations—not to mention a majority of parliamentarians, including those of government-member social-democratic Samfylkingin—are still in heavy industry mode, campaigning for the construction of more dams, geothermal power plants and aluminium smelters. Ironically, but still deadly serious, smelter projects such as Century Alumium’s Helguvík, which is at a standstill, unable to guarantee both necessary energy and financing, continue to be presented as profitable solutions to the current crisis.

Met with little resistance in parliament, most of these plans are still considered to be on the drawing table, though most of them seem to be on hold when looked at closely. The latter is mostly thanks to grassroots activists, bloggers and commentators who have systematically reminded the public of the reality, while the bulk of journalists seem to be unable to stick to facts—being extraordinarily co-dependent with those in favour of further heavy-industrialization.

Under the banner of “solving the crisis”, “creating jobs”, and most recently “getting the wheels of work to spin again”, the heavy industry-favoured parties seem to simply refuse to listen to hard facts, even their very own. This attitude is probably best summed up in the recent words of Valgerður Sverrisdóttir, responsible as Minister of Industry, for the building of the dams at Kárahnjúkar, who in response to the news about the power plant’s close-to-zero profitability, said that she wouldn’t want to imagine how the current financial situation would be, if the dams hadn’t been built.

It is said that an old dog will not learn new tricks. And to be honest, ‘old dogs’ pretty accurately describes those making decisions on Iceland’s energy and industry affairs. In order to learn from mistakes and prevent even bigger catastrophes, it wouldn’t be unfair to ask for a new generation—would it?
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More photos of Lagarfljót’s turbid condition

These photos are from 2008, which suggests that the current condition is even worse.

The smallest aluminium smelter in Iceland uses 50% more electricity than all of Iceland’s households and businesses combined, while contributing very little to the country’s GDP. Heavy industry has often been touted by Icelandic conservatives as a cash cow: foreign companies can provide the country with jobs, while utilising Iceland’s green energy to produce aluminium in a cleaner fashion.

While the myth of the “green smelter” has been definitively put to rest, aluminium is still billed by some as being good for the economy. However, Vilhjálmur Þorsteinsson – the chair of a study group assembled by the Ministry of Industry that studies Iceland’s energy use – has come to some damning conclusions about smelters in Iceland.

Iceland’s three aluminium smelters – Alcoa in Reyðarfjörður, Norðurál in Grundartangi, and Rio Tinto Alcan in Straumsvík – consume approximately 13 terawatt hours of electricity. The entire capacity of Iceland’s electrical output is 17 terawatt hours. Furthermore, Straumsvík – the smallest smelter in the country – uses 3.6 terawatt hours. The combined total energy consumption of every home and business in Iceland (apart from the smelters) equals only 2.3 terawatt hours.

At the same time, even the best estimates of what smelters contribute to the economy only put them in the neighbourhood of contributing to 5% of the GDP. Tourism accounts for about the same percentage of the GDP while using far less of the power grid. Meanwhile, Iceland’s service sector accounts for 69.9% of its GDP, and fishing accounts for 12%.

As from 2005 Alcoa, along with national energy company Landsvirkjun, Húsavík’s authorities and – to begin with – the Icelandic authorities, has been working on the project, which would have required at least 400 MW of energy, produced by harnessing geothermal areas and glacial rivers in the North. In 2008 a Memorandum of Understanding (MOU) between Landsvirkjun and Alcoa expired, and a year later the same happened concerning a MOU between the aluminium producer and the Icelandic government, the latter not willing to renew it.

Since then Landsvirkjun has signed a few other MOUs, regarding geothermal energy commerce, with possible buyers such as data centres and silicon factories, in some ways meeting with a popular demand for less destructive and more “green” use of the geothermal energy. Regardless of what one finds about the alleged “greenness” of such enterprises this development has inevitably raised the question if Landsvirkjun would be able to feed both Alcoa’s planned smelter and at the same time these smaller, less energy intensive factories.

Environmentalists have warned of the over-exploitation of geothermal energy. In fact, as early as in 2008, when Landsvirkjun’s official plan still seemed to include only Alcoa’s smelter, Saving Iceland insisted that the damming of one or more of the glacial rivers in the North was crucial if Landsvirkjun was to provide energy for a the smelter. At that time Alcoa had already stated that a 250 thousand ton smelter would be “unsustainable” and that the company would want to build at least a 346 thousand ton smelter in Bakki. For a smelter of that size 400 MW would have been needed in addition to the already planned 400.

In 2008 Þórunn Sveinbjarnardóttir, then Minister of Environment, ruled that the project needed to undergo a joint Environmental Impact Assessment (EIA), taking into account not only the impacts of the smelter per se but the whole infrastructure around it, including the power plants and energy transportation. The company’s response, as well of others in favor of the smelter, was that the minister’s ruling was a political attack against the project, only meant to delay the process.

The first draft of the joint EIA report was ready in the spring 2010 and a few months later Iceland’s National Planning Agency published its comments on it. The Planning Agency’s comments were damming, stating that the projects impacts would be high and could not be mitigated; its greenhouse gas emissions would constitute 14% of Iceland’s total and 17,000 ha of pristine wilderness would be affected. Most importantly, as pointed out by Jaap Krater, ecologial economist and spokesperson of Saving Iceland, the Agency highlighted the “uncertainty on the full impact of the planned power plants and particularly on how much geothermal energy can be sustainably produced. Finally, the assessed energy projects will not be able to fully power the smelter, with 140 MW of capacity missing.”

This energy crisis – similar to the one Century Aluminum is facing, regarding geothermal energy for their planned smelter in Helguví, South of Iceland – is no doubt the main factor leading to Alcoa’s withdrawal, though the company and other interested parties blame the joint EIA and the current government’s energy policy. As mentioned before this has been clear for a long time – in January this year business newspaper Viðskiptablaðið reported that Alcoa was about to withdraw from the Bakki project due to energy uncertainties. The final straw, according to the paper’s sources, was Landsvirkjun’s discussions with a company called Carbon Recycling, which plans to build a methanol plant run on geothermal energy from the North. This was, however, rejected by the company only a week later. Alcoa said that the smelter was still on their drawing table and that a permit for at least 500 MW of geothermal energy existed.

Though Alcoa’s representatives, as well as Húsavík’s authorities and other parties favouring heavy industry, have since yesterday acted as Alcoa’s withdrawal is somewhat of a shocking news, Katrín Júlíusdóttir, Minister of Industry, says that it is of no surprise to her. Alcoa has, according to Katrín, had a head start on all other possible energy purchaser, which it has not used in its own favour.

In a two pages interview with newspaper Morgunblaðið today – free from even a single comment from an environmentalist or other critical perspective – Tómas Már Sigurðsson, Alcoa’s director in Iceland, does not admit that the actual energy uncertainty, addressed by environmentalists and the National Planning Agency, has been the company’s main hindrance. Tómas, however, hints at it when stating that Alcoa has from the start been clear about its thirst for more then 400 MW, given that more than that can be harnessed in the North.

Tómas also says that the price that Landsvirkjun wants for the energy is not “competitive” – or in other words: too high. For the last year Landsvirkjun has been heavily criticized for prizing its energy seriously low, mapping Iceland out as a cheap energy haven for the aluminium industry, which makes it especially interesting that now Alcoa – an international corporation and of the world’s biggest aluminium producers – claims it cannot pay for Icelandic energy.

Now, as Alcoa’s dream of a smelter in Bakki is over – after six years process, including an investment of two billion ISK (17,3 million USD) – Tómas says that the company will continue its plans of further projects in Quebec, the New York state, Norway and Saudi Arabia. Also, as repeatedly reported by Saving Iceland, Alcoa recognizes Greenland as its next Iceland, from a social and economic perspective – i.e. easy exploitable society and cheap energy – and plans to build at least a 400 thousand ton smelter there in the nearest future.

Albeit the clear fact that Alcoa’s withdrawal from Bakki does not manifest the company’s worldwide decrease in operations, it surely marks a milestone in the struggle against the aluminium industry – not only in Iceland, but also worldwide. More on that later.
_____________________________________

See also:

Alcoa in Greenland: Empty Promises? by Miriam Rose
Alcoa: Where Will the New Dams be Built? by Jaap Krater
Greenland’s Decision: Nature or Culture? by Miriam Rose

Overrun by Viking ambition, Reykjavík Energy built headquarters fit for Darth Vader, expanded ambitiously, dabbled in tiger prawn farming and flax seed production, went into the fibre optics business, invested in a new geothermal plant, speculated in places like Djibouti, and finally managed to run itself so completely into the ground that foreign investors will no longer offer the company loans.

In hopes of rescuing its multi-utility service company from the depths of abyss, the city of Reykjavík stepped in this March with a 12 billion ISK (105 million USD) loan, which is nearly its entire reserve fund set aside for the company, but still only a fraction of the company’s massive foreign debt of 200 billion ISK (1.7 billion USD).

With thousands of captive lifetime subscribers and a means of producing energy at very little cost, the company had all the makings of a cash cow. So what happened to Reykjavík Energy, an entity that less than a decade ago was a perfectly viable, municipally owned company providing the city with basic utilities: cold water, hot water and electricity?

From the top floor of Reykjavík Energy headquarters, an expansive view of Mount Hengill can be observed on the eastern horizon. The mountain range forms part of the Mid-Atlantic Ridge as it cuts through Iceland and divides the country between the North American and Eurasian continental plates. It is one of the most geologically active areas in the world.

Two thick white clouds of steam can be seen rising up from the mountain where Reykjavík Energy operates the Nesjavellir and Hellisheiði geothermal power plants. Together the plants provide hot water and electricity to more than half of Iceland’s population of 318.452.

Over the last half century, Iceland has successfully established a name for itself as a world-renowned leader in the field of geothermal energy, using it to heat 90% of the country’s buildings and nearly all 136 swimming pools in the country. As Iceland’s President Ólafur Ragnar Grímsson said at a geothermal conference last year, “We were very fortunate that while most of the world forgot about the geothermal sector, we had visionaries in Iceland. Not just scientists and technical experts, but also local councillors in towns and cities who saw the opportunities in this area.”

The President is well known today for having travelled the world during Iceland’s boom years giving laudatory speeches about the nation’s valiant bankers who led the country to economic prosperity, to the extent that some have called it cheerleading. However, since the crash he has abandoned the bankers, and now travels the world singing songs of praise for Iceland’s geothermal “visionaries,” who, instead of the bankers, helped “transform a country of farmers and fishermen into one of the most prosperous welfare economies in the world.”

The story goes, as he told it in Xiamen, China last year, “In my youth, over 80% of Iceland’s energy needs came from fossil fuel, imported coal and oil. We were a poor nation, primarily of farmers and fishermen, classified by the UNDP as a developing country right down to the 1970s. Now, despite the effects of the present financial crisis, we are among the most prosperous nations in the world, largely due to the transformation which made our electricity production and space heating based 100% on clean energy.”

He emphasises the last point that Iceland’s geothermal energy business has served to offset the effects of the economic crisis: “Yes, indeed,” he said in Abu Dhabi, Bali, and Shanghai last year, and again in New York this year, “geothermal energy has helped Iceland to survive the recent banking shock […].”

While the story that the President tells about Iceland’s transformation to geothermal energy is indeed marvellous, and it is true that the cost of heating and electricity is nowhere in Europe cheaper, one would have to be wearing rose-tinted glasses to see Reykjavík’s geothermal energy business as a saviour in the crisis. Upon closer inspection it appears that the country’s largest multi-utility geothermal energy company, which claims to operate “the largest and most sophisticated district heating system in the world,” has only driven the nation into deeper water.

A FINANCIAL BASKETCASE IS UNVEILED

When The Best Party came to power in Reykjavík after the May 2010 elections, the comedian-turned-Mayor Jón Gnarr said he was surprised to learn that Reykjavík Energy was in such a horrible financial state. “I had always had the impression that it was the wealth in the city,” he said of the company that is 94% owned by the city Reykjavík and exploits what is arguably Iceland’s greatest resource.

Yet despite the abundance of resources and a steady demand for its services, Reykjavík Energy managed to rack up a 233 billion ISK debt (2 billion USD or 1.4 billion Euros), which is nearly four times the city’s annual budget of 60 billion ISK. What’s more, 200 billion ISK (1.7 billion USD or 1.2 billion Euros) of this debt is in the form of foreign currency loans, which fluctuate at the whim of the króna.

“For months I found myself in daily meetings directly or indirectly related to Reykjavík Energy,” Jón Gnarr told me, admitting that it grew very tiresome. It was around that time, on September 25, 2010 at 11:43 pm, that he wrote the Facebook status update that would come back to haunt him in the form of political ammunition six months later [our translation]: “Reykjavík Energy is bankrupt. The city is in bad shape and its revenue has decreased. What should be done? Cut backs? Price increases? Streamlining? Where and how much? Meetings, meetings, meetings…”

Aiming to clean up the mess, Jón Gnarr’s team brought in Haraldur Flosi Tryggvason as Chairman of the Board and made him a full-time executive director with the gargantuan task of getting the company back on track. The initial ‘rescue operations’ included orchestrating a mass layoff of 65 employees in October 2010 and raising the price of heating and electricity by 27% between November 2010 and January of this year, to little fanfare from citizens and employees alike.

Though the decision to hire Haraldur Flosi was initially criticised because he had been the head attorney at Lýsing, a company that guaranteed the now-deemed illegal foreign currency loans to individuals, he is also one of the few Chairmen in the history of Reykjavík Energy to have a background in business. “We have made an effort to hire people based on professional training and experience rather than political affiliation,” Jón Gnarr told me.

In February, Haraldur Flosi had been noticeably cautious when he explained to me how the company managed to accumulate such colossal debt. “If the crash had not happened, it wouldn’t have been nearly as bad,” he said. “When the financial crisis hit, Reykjavík Energy was in a huge expansion period, so it was quite exposed to the crash, and because loans were mostly financed in foreign currency, the company’s debt about doubled overnight.”

The company chose foreign loans with a favourable interest rate of 1–2% over domestic loans with an interest rate of 10–15%. Had the company taken domestic loans at the higher interest rate, the debt would not have doubled in the crash, but it would nonetheless have been equally large today, Reykjavík Energy PR Manager Eiríkur Hjálmarsson would later tell me.

While this suggests the company’s massive debt cannot be wholly explained by the crash, Haraldur Flosi was not interested in pointing any fingers. He admitted that the company was perhaps over-optimistic in its investments, but yet his explanations were mostly framed by the economic crash.

“The biggest problem today is getting financing,” he said. “Foreigners have become sceptical of the situation here in Iceland. It’s more difficult to get access to money and it’s more expensive,” he told me, adding diplomatically, “but I think it’s the same everywhere. Many companies abroad are also struggling to adjust to this new reality. This is in a nutshell what happened.”

Less than one month later, this problem became more evident. Unable to secure loans from Deutsche Bank, Barclays, Citibank, Council of Europe Development Bank, European Investment Bank and Nordic Investment Bank, Reykjavík Energy announced on March 29 that it would be dipping 12 billion ISK deep into the city’s reserve fund, which had been set aside for a situation like this.

At the same time, the company announced that it would cease paying the city its annual 800 plus million ISK in dividends, it would continue raising the price of hot water and electricity, it would lay off another 90 employees, and it would begin selling off all assets unrelated to its core business. These assets include everything from a fibre optics business to The Pearl, a Reykjavík monument. Russian investors with ties to Ásgeir Þór Davíðsson from the sleazy Kópavogur strip club Goldfinger have already made an offer on Perlan, expressing an interest in turning the omnipresent monument into a flashy casino.

THE BEST PARTY TAKES THE RAP

Despite the fact the Reykjavík Energy had been heavily in debt for years, little had been said about it. “The state of the company should have been pretty clear for some time now,” Jón Gnarr told me, “but for some reason, while Icesave featured heavily in the public discourse, nobody talked about the state of Reykjavík Energy though the company debt is four to five times the Icesave debt.”

As soon as news of the emergency loan from the city broke, however, a blame game ensued. Fingers were pointed in all directions, but despite the fact that The Best Party is the only political party in Reykjavík that did not have a hand in running the company during the decade that it accumulated its monstrous debt, the fingers pointed were generally in the direction of Jón Gnarr and the new Reykjavík Energy directors.

It started on March 27 with an article on news website Vísir.is blaming Jón Gnarr and the new directors for making it difficult for the company to get its loans refinanced. As seems customary in the Icelandic media, Vísir based the entire story on an anonymous source: “According to our sources from the financial world, getting loans refinanced has not been going well, due to, among other reasons, comments that have been made by the directors and Jón Gnarr.”

Specifically, the article said, according to their sources, investors had received a translation of one of Jón Gnarr’s Facebook statuses: “Reykjavík Energy is bankrupt.” The status, which has since been deleted (and is quoted above in its entirety), was posted in September 2010, six months prior to the Vísir story.

This continued to be a point of contention for others, like Independence Party City Councillor and former Mayor of Reykjavík Hanna Birna Kristjánsdóttir, who publicly criticised Jón Gnarr for his comments about the company being bankrupt. She also disagreed with the idea of phrasing the city’s 12 billion ISK loan as a city bailout, which implied bankruptcy. This is despite Reykjavík Energy CEO Bjarni Bjarnarson claiming that the company would not have been able to continue paying employee salaries without the loan.

Then, on March 30, Haraldur Flosi’s predecessor as Chairman, Guðlaugur Gylfi Sverrisson, wrote a letter to the media both to make it known that when he was Chairman—between 2008 and 2010—the company had always been able to secure loans, and to accuse the new Board of fumbling a loan that was essentially a sure grab.

“In January 2010 the CFO of Reykjavík and the CFO of Reykjavík Energy met with the Nordic Investment Bank (NIB). They [NIB] expressed great desire to lend Reykjavík Energy 12–14 billion,” he wrote. “…In June 2010 when I left as Chairman, there were no doubts that NIB would loan the company the previously mentioned amount given that the company met stipulations [to raise prices].”

He concluded his letter with the implicating questions: “What changed after June 2010? Could it be that comments made by the directors and owner about the financial state of Reykjavík Energy have negatively influenced its ability to get financing?”

Sigurður Jóhannesson, a Senior Researcher at the University of Iceland Institute of Economic Studies, put it this way on a University of Iceland radio show: “I probably wouldn’t say that my company were bankrupt if I was trying to get loans, but I think that investors must look first and foremost at things like cash flow and annual financial statements. One can also read reports by rating agencies, and there is very little there mentioned about Jón Gnarr.”

If anybody knows best what the banks were thinking in 2010, however, it is probably Anna Skúladóttir who was Reykjavík Energy’s CFO from May 2006 until 2011. As Guðlaugur Sverrisson wrote, Anna met NIB in January 2010 and she confirms in conversation that “the bank expressed interest,” but told me that it was by no means a done deal. “In 2010, foreign loans weren’t just closed to Reykjavík Energy. Iceland as a whole was still on ice.”

Ultimately, the far bigger questions remain: What happened to Reykjavík Energy before Jón Gnarr and the Best Party enter the story in June 2010? And, could it be that something happened before 2010, which would explain the company’s financial state?

WHEN MONEY GREW ON TREES

Reykjavík Energy was founded through the merger of the institutions Reykjavík Electricity (Rafmagnsveita Reykjavíkur) and Reykjavík District Heating (Hitaveita Reykjavíkur) in 1999, and Reykjavík Water Works (Vatnsveita Reykjavíkur) in 2000. The company thus began on solid ground, with a long history of well-managed services to captive subscribers, respectively dating back to 1921, 1930 and 1909.

Historian (and active Left Green member) Stefán Pálsson, who worked as a curator of the Reykjavík Energy Museum for ten years before he was let go in the mass layoff last October, explained that the institutions were so lucrative that they had to find ways of spending money so that they wouldn’t show too much profit.

“They would, for example, hire hundreds of school children every summer to plant trees, make roads, and work on environmental projects,” Stefán said. “They would rationalise that we are harnessing geothermal energy from this area so we owe it to society to plant loads and loads of trees. And we give school children jobs, which makes their parents happy, which is good for society, and things like that.”

In fact, the institutions that preceded Reykjavík Energy were so lucrative that politicians could milk them to fund pet projects and other vanities. For instance, it was under Davíð Oddsson’s legacy as Mayor of Reykjavík that District Heating financed the construction of The Pearl, a well-known monument in Reykjavík, which opened to the public in 1991. “It was never supposed to turn a profit,” Stefán said. “The big tanks carry hot water, but then there is the building on top, the restaurant, and the sightseeing deck. And actually it was supposed to be even more extravagant with palm trees and tropical birds and plants.”

Nonetheless, the institutions were loaded with money and owed very little when these endeavours were carried out. It was not until after the institutions were turned into a private partnership company (sf.) in 2001 that the debt begins to amass.

A SLEEPING GIANT STIRS

If there is one person who has been most closely associated with Reykjavík Energy over the years, it is Progressive Party politician Alfreð Þorsteinsson. Alfreð’s involvement began in 1994 when he was appointed Chairman of a municipal body charged with overseeing the three institutions. It was under his leadership that the institutions were merged into Reykjavík Energy in 1999, and from then until 2006 he served as Chairman of the Board of the new company.

Alfreð, along with Guðmundur Þóroddsson, the former head of Water Works who was hired as CEO, were keen on stressing that Reykjavík Energy was now a company, Stefán explained. “We the staff were told that we were not to refer to it as an institution.”

This shift in mentality was also mirrored by a shift in the legal framework governing the company. A specific law, no. 2001/139, which was passed in 2001, gave Reykjavík Energy the right to take small loans and make payments for the purposes of running the company without the consent of its owners (the municipalities, Reykjavík, Akranes and Borgarbyggð). It also gave the company the right to operate subsidiaries and to invest in other companies. In essence, it enabled Reykjavík Energy to be run like a private company, while retaining a political management.

“The idea was that this new company was a sleeping giant that had been ineffective in the past. It had almost endless credit because it owed next to nothing, and around early 2000 that was not really something to brag about in Icelandic society; it was seen as an unused opportunity. You had this potential of taking loans to grow,” Stefán told me.

“The same argument was made to regular people who had paid off their mortgage; they were told that this made no sense, that it was downright silly. So people refinanced their homes, took a new loan to be paid over twenty years time instead of five, and this freed cash to play in the stock market, or to buy a summer house or a new jeep. I would say that Reykjavik Energy’s troubles stem from a large-scale version of the same thing.”

In the case of Reykjavík Energy, unleashing the power of capital meant buying tens of small district heating companies in the south and west of Iceland, expanding their service from five to over twenty municipalities. “You got the impression that somewhere in Reykjavík Energy there was someone with a map, putting down flags, you know with a Napoleonic dream of taking over,” Stefán jokingly remarked.

Additionally, Reykjavík Energy began investing in other companies, and by 2003, it had shares in over twenty companies, including Feyging ehf, a flax seed operation of which it was the largest shareholder. That project was abandoned in 2007 with a loss of 340 million ISK. An attempt to farm tiger prawns was also declared a failure in 2007, after seven years of work and 114 million ISK down the drain.

Alfreð, the former Chairman of the Board, is adamant that the investments were not too many or made too quickly. “When I left in 2006,” he told me, “the company’s debt was less than 70 billion ISK. The state of the company was very strong. The loans taken were all long term, to be paid off in 20–30 years.” In any case, that debt is still nearly seven times the debt that Reykjavík Energy inherited through the merger of the institutions in 1999.

BIG INDUSTRY FULL STEAM AHEAD

That being said, the bulk of Reykjavík Energy’s debt can be attributed to the construction of the Hellisheiði plant, which former Reykjavík Energy CFO Anna Skúladóttir said is “the largest investment in the company’s history.”

The decision to build the plant, she said, was made in the beginning of the 21st century when it became evident that the Reykjavík area would need more hot water as the Nesjavellir plant was expected to become fully utilised. At the same time, the decision was made to harness 300 megawatts of electricity to be sold to heavy industry, as it was considered more efficient to build and run a plant that produces both hot water and electricity.

In 2006, the company reached an agreement to sell electricity to aluminium smelting company Century Aluminum Norðurál, but when the crash hit in 2008, Reykjavík Energy had yet to secure financing for phase five of the plant build-up, including the 90 MW that were supposed to go to Norðurál in 2010.

By that time, however, it had already purchased five turbines at about 5 billion ISK a pop. “Turbines must be ordered at least three years in advance,” Anna explained. “It’s like ordering an airplane.”

Two of the five will come online this year, but an agreement was reached to postpone delivery of three of the turbines until a decision has been made to continue further plant production. Of the three outstanding turbines, Reykjavík Energy didn’t have a definite energy source lined up for the third one. What’s more, there were originally seven, not five, turbines ordered, but Independence Party politician Kjartan Magnússon said he was able to back out of two of them when he took over as Chairman of the Board in 2008.

When Moody’s reviewed the company for a possible downgrade in July 2008, it noted: “The company’s financial profile has continued to weaken during the course of the year, mainly due to the company’s exposure to unhedged foreign currency debt, the company’s primary source of funding. Conversely, 80% of its revenues today are in Icelandic krona derived from its operations as Reykjavik’s primary multi-utility.”

Despite the risks involved, however, it has essentially been government policy to attract heavy industry to the country. In the span of a decade, Iceland’s aluminium production went from 4% of the country’s GDP in 2000 to 14% in 2010—surpassing the country’s fish exports and making Iceland one of the largest aluminium producer in the world. “The ‘heavy industry agenda’ was a big part of the bubble in Iceland,” Minister for the Environment Svandís Svavarsdóttir said.

“The Left Greens always put a question mark next to heavy industry, but it was really the mainstream view. When we suggested that it was possible to do something else, people said, well ‘do you want to knit socks and pick mountain herbs?’ The Left Greens were considered a very foolish party for not wanting to proceed with heavy industry.”

Following the city’s bailout, though, it has been increasingly debated whether a municipally owned company should take the risks associated with making these kinds of heavy industry deals given that the city and its taxpayers are accountable. Not only is Reykjavík Energy financially incapable of continuing with phase six of the Hellisheiði plant for the time being, but they have also for the first time turned their back on the company’s heavy industry policy.

“We think that Reykjavík Energy should fulfil its role as a service company that provides people with electricity, hot and cold water, and sewage disposal,” Jón Gnarr explained. “We don’t think it should participate in heavy industry or other risky investments.”

BLOWING THE LID OFF 2007

Though it was undoubtedly unfortunate that Reykjavík Energy was in the middle of raising capital for the Hellisheiði plant when the crash hit, the company nonetheless made some very questionable decisions in 2007 at the peak of Iceland’s financial boom. For instance, the Board decided to buy shares in Hitaveita Suðurnesja for 13.4 billion ISK despite the fact that the company didn’t have any spare funds. The shares were paid for in entirety with a five year loan, which is due to come back to bite the company in 2013.

Perhaps, though, the spirit of the times is best captured in Reykjavík Energy’s decision to boost its geothermal operations overseas through a subsidiary company called Reykjavík Energy Invest (REI). At the same time as the banks had reached nearly ten times the nation’s GDP by expanding offshore, Reykjavík Energy also aspired to a world domination that made Ólafur Ragnar Grímsson proud. “I allege that if we continue like this,” he told a TV2 reporter in October 2007, “the Icelandic energy ‘outvasion’ can be an even bigger operation than the banks.”

The event that the President was praising is now commonly referred to as the REI scandal, in which Reykjavík Energy briefly merged its subsidiary company Reykjavík Energy Invest with Geysir Green Energy, a private company owned by, amongst others, FL Group and Glitnir bank, which were highly implicated in Iceland’s banking collapse.

According to an article that appeared in Fréttablaðið on October 4, 2007, REI’s project list included the building and buying of about 700 MW of energy in the United States, Philippines, Greece, Indonesia, Germany and Ethiopia. Their goal was to produce three to four thousand megawatts before year-end 2009, at which time they planned to go public. “These are very ambitious goals that will lead to the biggest geothermal energy company in the world,” FL Group Chairman Hannes Smárason told Fréttablaðið.

Though Reykjavík Energy Chairman of the Board at the time Haukur Leósson sincerely believed that the merger was in the best interest of the company, noting that they had negotiated 10 billion ISK for the use of Reykjavík Energy’s brand name alone, it is widely believed that there was foul play involved. When the former CEO of Glitnir and Chairman of REI Bjarni Ármannsson admitted in 2009 that the merger between REI and GGE had been a mistake, Independence Party politician Gísli Marteinn Baldursson wrote on his blog, “Hopefully he now realises that there were other things than our deliberation that have done more damage to Iceland and one would wish that more had shown care.”

Ultimately, the grand plans never materialised. After the company introduced the idea to the Board, news of the meeting went to the media and people were especially outraged to hear that key staff at Reykjavík Energy were being given special stock options. “There was so much anger,” Svandís Svavarsdóttir recalled. “I did a lot of interviews in the span of two to three days. I’ve never felt anything like it. It was like everything was burning in society. There was a lot of heat.”

The controversy led the Independence Party and Progressive Party majority municipal government to fall apart, and a new majority between the Social Democrats, Progressives, Left Greens and Liberal Party formed with Dagur B. Eggertsson becoming Mayor of Reykjavík.

While the so-called ‘100 day majority’ reigned, a steering committee headed by Svandís with representatives from every political party was set up to look into the events and to determine whether any lessons could be learned. The more they learned, the more it became clear to them that the merger should be stopped. They felt that Reykjavík Energy had developed too far from its owners and on its own initiative.

“In many ways, the REI story is a prototype of the financial crisis. Politicians decided to allow private individuals into public entities and let them behave as if they owned what belonged to the public,” Svandís told me.

“We saw that on a large and small scale in society. We saw it in the privatisation of the phone company, the banks, in the privatisation plan of the right-leaning government, which ruled for far too long, for eighteen years, but in Reykjavík this was basically the same thing that happened.”

At the same time as the REI deal was being discussed, an attempt was also made to privatise Reykjavík Energy. Part of such a proposal, which was put forth by CEO Guðmundur Þóroddsson and Vice President Hjörleifur B. Kvaran on August 28, 2007 rationalised that “[i]t is time to unleash the energy of free enterprise so that Iceland’s expertise and knowledge can be used to the fullest extent in the geothermal energy company outvasion.”

On September 3, 2007, the Board actually approved sending the proposal to the owners of the company for approval, e.g. the Mayor of Reykjavík, the City Manager of Akranes and of Borganes. However, the idea fell by the wayside when the frenzy erupted over Reykjavík Energy Invest. “Since then it hasn’t been brought up again, and I doubt it will be,” Svandís said. “Well I hope not.”

Reykjavík Energy Invest still exists today though its ambition is far from the grandiose dreams of its founders. Independence Party City Councillor Kjartan Magnússon, who became Chairman of Reykjavík Energy in January 2008, a few months after the REI scandal exploded, explained: “We decided after I became chairman to fulfil our commitments in projects abroad, in Djibouti for instance, but to stop the financing of such projects thereafter, and instead focus on selling knowledge and expertise.”

Said Anna Skúladóttir: “Unfortunately, looking back I think that everyone ran around crazy in 2007, it didn’t matter whether it was the municipality, State, companies, individuals—everyone was blinded. Hopefully we’ve learned something from this and can look forward.”

It might be noted that in 2009, Reykjavík Energy purchased a 7.1 million ISK Mercedez Benz ML 350 for Anna’s personal use. Anna went on to return the car in 2010 after Icelandic tabloid DV ran an indignant story about it.

A ROSY STORY INDEED

Though the crash alone is a convenient excuse as Reykjavík Energy’s debt doubled in 2008 due to fall of the króna and financing became more difficult, it could also be said that Reykjavík Energy was as much a victim of the financial crisis as Iceland’s banks were a victim of the United States mortgage crisis.

Truth be told, Reykjavík Energy managed in less than a decade to run a perfectly viable company into the ground, despite having the ingredients of a cash cow. As President Ólafur Ragnar Grímsson tells Icelanders, foreign leaders and journalists alike, geothermal know-how in Iceland is first class, and people come from all over the world to see it firsthand.

“We have great competitive advantages,” Ólafur said at a geothermal conference last year. “One is that Iceland is the only place in the world where you can, in a single day, witness all the aspects of geothermal utilisation. You can witness three geothermal power plants, a greenhouse town in a farming area, a world famous international spa, a medical clinic, as many swimming pools as you want to and visit fishing companies that use geothermal energy for drying their products.”

He continued: “…When we bring people here, they are inspired, they have a vision. They leave Iceland full of hope, inspired by the possibilities. That is very important, because political decision-making and even business decision-making need more than mere calculations. They also need a vision and inspiration—hope. That is what we can give.”

With all the geothermal know-how in the world, however, Iceland’s largest multi-utility geothermal energy company was inspired by a vision that took hold of Iceland during the financial bubble, which grew rapidly for a decade, peaked in 2007 and then burst in 2008.

When we called up the President to ask about his geothermal rhetoric, he explained, “The reason why I have emphasised the geothermal experience of Iceland as well as the technological know-how is that I believe this the most significant contribution we can make to the battle against climate change, which seriously is the most fundamental threat that the world faces.”

He added: “Even if one company in Iceland does badly it doesn’t mean that we should think to take this away from other countries, and quite frankly there is such a strong demand from the world to have access to Icelandic cooperation in this area that our problem is to meet the requests and they come from poor countries in the developing world to rich countries in Europe and the Western world.”

Despite the dark outlook presented by rating agencies for Reykjavík Energy, Jón Gnarr is optimistic. “The state of Reykjavík Energy is still difficult, and it’s very sensitive to exchange rates,” he told me, “but I believe that the plan that we have initiated is very good, and I am confident that the state of Reykjavík Energy will improve.”

_______________________________________________________________________________

In addition:

HEADQUARTERS

Price tag: 4.271,7 BILLION ISK

As the company struggles to stay afloat, its headquarters, which were built in 2002 under the chairmanship of Alfreð Þorsteinsson, stand as a symbol of what many believe to have been the excessive and ill-founded investments of the municipally owned company.

“A service company for the people of Reykjavík has no business building a house like that,” Independence Party representative Kjartan Magnússon disapprovingly told me. “The people of Reykjavík felt it was part of a power game. When you come into this house, it’s a sign of power.”

Similarly, former employee and historian Stefán Pálsson called it a monstrosity. “You would expect it to be Darth Vader’s Headquarters. It is my advice to politicians connected with Reykjavík Energy never to allow themselves to be interviewed outside the building.”

On a visit to the infamous headquarters, Chief Press Officer Eiríkur Hjálmarsson, a company veteran since 2006 and the lone survivor in the PR department after the October layoffs, showed a photographer around the building. He took us to top floor to see the view over Mount Hengill, where the company operates the two power plants at Nesjavellir and Hellisheiði.

Since our visit, that floor has been put on the rental market. The advertisement is telling: “Fantastic 745m² office space on the sixth and top floor in Reykjavík Energy is available for rent immediately. The building is fully equipped with the best of the best and has access to a big rooftop balcony with a vast unhindered view over the city…”

It continues: “In the house is a staffed reception, World Class (luxurious fitness centre), with optional access to lecture rooms, a library, computer room, and more […]Special housing for those with demands. Blue prints and more information can be solicited from our sales men, trod.is.”

The ad doesn’t mention it, but the building also houses impressive art, including a 35 metre tall granite fountain by artist Svava Björnsdóttir, which travels through all five floors of the building, and a Foucault Pendulum, which takes 26 hours to knock down all the pins before they pop up again.

However, former Chairman of the Board Alfreð Þorsteinsson doesn’t think it’s overly extravagant. “The main fault of the house is that it is considered beautiful and chic,” he said. “If it had been built as a one or two story house nobody would have said anything. Should we have built an ugly house?” Furthermore, he said the top-class kitchen, which has been heavily criticised is “not unlike other kitchens in Reykjavík.”

—

THE REI SCANDAL

The course of events

January 25, 2007

Former Reykjavík Energy CEO Guðmundur Þóroddsson proposed to the Board that Reykjavík Energy create a subsidiary company called Reykjavík Energy Invest (REI), which would oversee all of Reykjavík Energy’s stakes in ventures abroad, including Enex, Enex-Kína, Galantaterm and Iceland American Energy. The Board approved.

March 7

The Board additionally agreed that Reykjavík Energy would put two billion ISK into REI towards future projects. A report that was commissioned at the January 25 Board meeting and then delivered at the March 7 Board meeting noted: “There is great interest amongst Icelandic investors in environmentally friendly energy, for instance, Geysir Green Energy hf, Atorka hf and Enex hf. The first two named have already requested a partnership with Reykjavík Energy in the outvasion.”

June 11

Reykjavík Energy Invest was formally founded. Appointed to the Board were Björn Ársæll Pétursson, Haukur Leósson, and Björn Ingi Hrafnsson. Reykjavík Energy CEO Guðmundur Þórodsson would replace Björn Ársæll Pétursson as CEO in September.

September 11

Former CEO of Glitnir Bjarni Ármannsson was appointed Chairman of REI and bought stock worth 500 million ISK.

September 20

The Directors of REI met with banksters Hannes Smárason from GGE and Jón Ásgeir Jóhannesson from FL Group to discuss merging the companies.

September 22

Chairman of REI Bjarni Ármansson met with Chairman of GGE Hannes Smárason to flesh out the details of the merger.

September 23

Chairman of REI Bjarni Ármansson and Chairman of Reykjavík Energy Haukur Leósson met with Mayor of Reykjavík Vilhjálmur Þ. Vilhjálmsson at his home to brief him on the merger. Vilhjálmur did not inform his colleagues in the Independence Party about the merger until October 2, which greatly upset them, and led to a rift in the Independence Party.

October 3

Reykjavík Energy held a Board meeting and an owners meeting to introduce the merger. Invitations to the meeting were sent out the previous evening, which is extremely short notice. Nonetheless, the Board approved the merger, save for Svandís Svavarsdóttir from the Left Green party, who did not vote.

News of the meeting and specifically news that key staff were being given special stock options blew up in the media. The majority government between the Independence and Progressive parties collapsed. A new majority, dubbed ‘The 100 Day Majority’ took over. A steering committee headed by Svandís Svavarsdóttir began investigating the events that led up to the merger and proposed to City Council that the merger be thwarted.

—

‘OUTVASION’

Yes, it’s a made up English word

The term ‘outvasion’ is a direct translation of the Icelandic word ‘útrás,’ which is often used to describe Icelander’s expansion overseas. The ‘útrásavíkingar’ or ‘outvasion Vikings’ refers to the businessmen who set out to conquer the world with a Viking-like ambition that ultimately brought about Iceland’s downfall in 2008.

In the video above, Indian author Arundhati Roy talks about her recently published book, Broken Republic: Three Essays, and how the Indian government is, along with international mining corporations, violating the indigenous of India, destroying their lands and displacing them, leading to a constantly increasing gap between the rich and the poor. One of the book’s essays, titled “Mr Chidambaram’s War”, focuses on the Dongria Kondh tribe in Odisha, who have fought against Vedanta’s and ALCAN’s bauxite mining for aluminium production over the last decades.

The following text explains Broken Republic’s content briefly:

War has spread from the borders of India to the forests in the very heart of the country. Combining brilliant analysis and reportage by one of India’s iconic writers, Broken Republic examines the nature of progress and development in the emerging global superpower, and asks fundamental questions about modern civilization itself.

Landsvirkjun’s new plan was presented at the company’s annual general meeting, which took place on April 15th. According to the company’s director, Hörður Árnason, the planned power plants are to be built in several rivers, including Þjórsá, Tungnaá and Hólmsá, as well as geothermal areas in the north of Iceland. The construction of Búðarháls Dam in Tungnaá has already started and Landsvirkjun plans to start energy production there in 2013, whereas all the other options are still being looked at in the making of a framework programme concerning the use and protection of Iceland natural resources.

These plans are presented as a way to increase Landsvirkjun’s profitability as the the company is heavily indebted after the Kárahnjúkar disaster, especially in comparison with other European energy companies. This means that even more loans are needed for the construction of the new power plants, which later will have to be paid up by the same method. In other words: A vicious circle.

Saving Iceland and other environmentalists have repeatedly warned against large-scale energy projects as a counterweight to the current economic crisis, e.g. in an article in Icelandic newspaper Morgunblaðið in October 2008 where Jaap Krater, ecological economist and one of Saving Iceland’s spokespersons said:

How did the [Alcoa] Fjardaal smelter contribute to Iceland’s economic crisis? The two billion dollars for the construction of the country’s largest dam [Kárahnjúkar] had to be borrowed by the state. That led to a more than significant increase in the current account deficit, which is now felt in increased inflation and depreciation of the currency. The economic cost now needs to be coughed up.

And he then continued:

Note that any schemes that demand new power plants associated with a significant amount of borrowed capital will have this effect, whether an expensive dam or power plant is meant for aluminium, a silicon refinery, data centre or some other purpose.

During a recent presentation of Landsvirkjun’s plans, held in the University of Iceland, the company’s representatives highlighted their interest in three possible energy purchasers; data centers, the European energy market (through a marine cable) and above all the aluminium industry. Like repeatedly reported by Saving Iceland all proposed aluminium projects in Iceland are on hold at the moment, because of either financial or energy-related uncertainties but due to massive mismatch in media coverage it is hard to get a clear picture of the situation.

At the same time as Landsvirkjun proudly presents its plans for a “new Kárahnjúkar dam”, the company, along with the minister of industry, states that the Icelandic nation has to settle up on a joint energy policy. There was never a joint reconciliation upon the Kárahnjúkar Dam, in fact it split the Icelandic nation in two conflicting arrays, which reveals Landsvirkjun’s democratic jargon as nothing but clear Orwellian Newspeak. It is known to both the company and Iceland’s authorities that Icelanders will never reach an agreement about such large-scale energy production, especially when it is aimed to be sold to aluminium companies.

After many years of preparations the Greenlandic government say the final decision on Alcoa’s proposed smelter will be taken at the spring 2012 of the parliament. It is more likely, as the global history of the industry and the evidence in Greenland tells us, that the decision has in fact already been made undemocratically behind closed doors, despite the decreasing support of the Greenlandic people. In fact Alcoa and the Greenland government are so keen on passing the project that they have just hired an eighth employee at their national company Greenland Development- formed to enable the industry to go ahead. Juaaka Lyberth’s explicit remit is to influence public opinion on the smelter through the media. Greenland Development paints a rosy picture of an aluminium future for Greenland, but will their promises of prosperity come true? A comparison to Alcoa’s Fjardaal project in East Iceland suggests that many will not.

Local employment?

“The aluminum project is a major project that will offer a large number of stable and lasting jobs.” says Minister for Industry and Mineral Resources, Ove Karl Berthelsen.[1]

Despite this claim Alcoa recently asked the Greenlandic government’s permission to use Chinese contractors to build the two hydro dams and smelter. Chinese workers would be paid half the salary of members of the Greenland Workers Union. They claim this will be necessary to make the project competitive and that the Greenlandic labour force will not be sufficient[2].

Greenland Development responded immediately to this unpopular news by sending out a press release explaining why competitiveness was so important. The release explained that since the financial crisis China has increasingly dominated the market for aluminium smelting due to their low cost of construction and production. Building a smelter in China costs $3000/ton of production capacity compared to $4500 – £5000/ton in Iceland or Saudi Arabia. Greenland is in direct competition with these prices and will have to provide very good terms for the company if they want the project to go forwards[3]. ‘Good terms’ means cheap labour and foreign workers over Greenlandic contracts.

The labour question has dominated debate on the smelter in Greenland recently. Bjarne Lyberth, Head of the organisation Against Aluminium Smelter in Greenland is concerned that other important issues are being sidelined:

“In my view the issue on cheap foreign labour is just one of many problems. There is a risk that this becomes perceived as the main hurdle to the project and other serious cultural, social, health, environmental and, economic impacts just become “minor issues” to deal with later.”

However, the promise of jobs is usually cited as the biggest rationale for building such huge industrial constructions, and it is a very tempting one in economically deprived rural areas where smelters are often built. When the decision on the Fjardaal aluminium smelter and associated Karahnjukar dams was pending, the Iceland government made similar claims. They promised the Confederation of Icelandic Labour that the ratio of Icelanders to foreign workers at the dam construction site would be about 8:20, amounting to 3000-5000 jobs for Icelanders[4]. In reality the construction company Impregilo only employed around 100 Icelandic workers out of 1100 employees at the site. Many of these workers were Chinese, Portuguese and other non EU nationalities. Impregilo claimed that Icelanders didn’t want the work as it was not as highly paid as they had hoped, and there was a high turnover. In contrast the Chinese workers were very stable despite tough conditions[5]. Increasing company profit by using temporary low paid foreign labour is known as ‘social dumping’.

The construction of the dams was plagued with controversy as it was revealed that foreign workers were being paid less than Icelanders and made to work in unsafe conditions without proper equipment[6]. 1700 work related injuries were reported during the dam’s construction, 120 resulting in long term or permanent inability to work. Four workers are known to have died from injuries on the site[7] [8]. There is evidence that when the Icelandic coalition of unions became vocal about the treatment of workers in the press they were silenced by bribes from Impregilo who promised to pay into the union’s pension funds. A few years later it was revealed that the payments had not been made and the union (ASI) raised rights of foreign labourers again. Shortly after the funds were finally paid and ASI’s complaints ceased.

National income from aluminium export?

Greenland Development‘s recent news release explains;

‘The project economy of each individual project is decisive. The competition is as such between countries that it among other issues hinges on the terms a host country will provide for a new project. Countries in Asia, the Middle East and Latin America are all trying to develop smelter projects. Only projects that are competitive on a global scale will have a chance to become real projects and be implemented[9].’

In reality, being ‘competitive on a global scale’ with countries such as China means selling energy and labour as cheaply as possible and providing tax breaks that make the project attractive to the company – minimising benefit to the host country. National unions of workers the Greenland Employers? Association and the Organisation of Greenlandic Employers have warned that the only income from the project in its first few years will be tax paid by its employees, and with much workforce coming from abroad on low wages this is likely to be very little[10]. The government has also said that company tax should not be counted on for the first fifteen years, suggesting that large tax breaks have been given[11].

In Iceland predictions that the smelters could be an economic drain and not a boost are increasingly being proven. Energy prices paid by the smelter operators were kept from the Icelandic public until very recently following a scandal when it was revealed that  Century Aluminium had been paying a fifth of domestic prices – the cheapest energy for aluminium production in Europe[12]. Prices for Alcoa’s Fjardaal smelter were accidentally revealed by then company Chairman Alain Belda when he claimed that Iceland was charging some of the lowest rates in the world, just $15 per MWh (megawatt hour)[13]. The deals they made link energy prices to the cost of aluminium so when the market drops the taxpayer can end up subsidising the companies rather than profiting from them.

In the run up to Iceland’s dramatic financial crash in 2008 the OECD concluded their country report by warning Iceland that ‘large scale public investments are inherently risky’ and strongly advised them not to approve further aluminium developments until it was clear whether they would get a long term profit from existing ones:

‘No major investments in energy-intensive projects, including those already in the planning phase, should proceed without prior evaluation within a transparent and comprehensive cost-benefit framework (including environmental impacts and inter-generational effects).[14]’

Two years earlier a report by Icelandic bank Glitnir warned that any benefit from large scale aluminium developments “is probably outweighed by the developments’ indirect impact on demand, inflation, interest rates and the ISK exchange rate”. Similarly economist Thorsteinn Siglaugsson claimed that “Kárahnjúkar will never make a profit, and the Icelandic taxpayer may well end up subsidising Alcoa”[15]. A 2009 report by Economist Indriði H. Þorláksson concluded that the industry would have negligible benefits on the Icelandic economy, possibly causing long term damage, and should not be considered a way out of the financial crisis[16].

Despite all of this evidence Greenland Development have dedicated another recent news article on their website to trying to disprove that Iceland’s crash had anything to do with the smelters. Though they admit that ‘high investment in construction also played a role which put pressure on the economy’, this was ‘hardly significant‘. Instead they claim that aluminium industry ‘has been crucial in earning foreign currency for Iceland during the crisis‘[17].

In another article Greenland Development’s website enthusiastically claims that the aluminium price is likely to rise in the coming years due to demand for ‘green’ cars and solar panels and economic growth in Asia[18]. Though this would somewhat increase Greenland’s chances of making a profit there is no guarantee of market stability, which has been very volatile in recent years. A critique of the concept of ‘green aluminium’ can be found here[19].

Already there seems to be some degree of caution in Greenland about taking too much of the burden of construction costs and loans which caused so many problems in Iceland. The Greenlandic government is considering bringing in a third party to ownership of the project instead of taking the whole of the 50% stake they were offered by Alcoa.

Public more sceptical now

Despite Greenland Development’s expensive propaganda war, public support for the Alcoa smelter has been steadily decreasing. People’s organisations Avataq and the newly formed Against Aluminium Smelter in Greenland have worked hard to discover the truth about the environmental and social impacts of the smelter and the ethical track record of the company abroad. As a result Greenland Development reported that their own October/November 2010 survey of public opinion revealed rapidly changing attitudes:

‘there is a very low degree of knowledge, as well as a less positive attitude towards the project than in previous years. Of the citizens that have expressed either a positive or negative attitude towards the aluminium project, there is thus now only a small majority (54 percent) who are positive.[20]’

The main reason for the ‘increased scepticism‘ towards the project was ‘concern about the possible environmental consequences‘ with 20% of those interviewed believing that the project ‘can have a markedly negative impact on nature and the environment‘ compared to only 7% the previous year[21]. This was identified to be mainly due to critical media coverage and Greenland Development’s ‘information manager’ was hired shortly afterwards to address this. Environmental protection group, Avataq, says Greenland Development has deliberately tried to distort public opinion about the aluminum industry. Their head Mikkel Myrup explains:

“Greenland Development has assumed a role as an aluminium industry propagandist, and do that rather primitively. But this wouldn’t be possible without strong support from the civil servants in the central administration and the smelter municipality administration. The civil servant’s pro industry influence on the cabinet members and the parliament is a massive democratic problem, because they suppress and/or ignore information that would equip the politicians with a wider, and more realistic knowledge base from which to make enlightened decisions.”

With three operating smelters Icelanders have had a good opportunity to assess the benefits of the industry which has been promoted as their economic saviour. A recent online poll by news outlet Visir revealed that only 13% of participants thought heavy industry was the most important area to focus on. Despite high level promotion of the industry’s benefits by certain sectors of the national leadership evidence shows that tourism and fishing are still the most important and growing industries for the Icelandic people[22].

Wealthy Individuals Seeking To Buy Icelandic Citizenship

Ten people promising to invest millions in Iceland’s renewable energy field have applied for citizenship directly with parliament. The reaction from within parliament has been one of both bewilderment and suspicion.

The ten individuals are apparently from outside the Schengen area. By Icelandic law, this would normally mean they would need to live here, work, not leave the country for more than six months at a time and remain a resident of Iceland for seven years before they could even qualify for citizenship. However, Iceland has made exceptions in the past for those applying directly to parliament – most notably with certain athletes and chess player Bobby Fischer.

These ten individuals, however, have said that they intend to invest millions in the country if they are granted citizenship, news website Eyjan reports. Róbert Marshall, chairman of the parliamentary general committee – which handles citizenship requests – told Kastljósið (a daily news report show on the National TV station RÚV) that while he would not comment on these specific applications, he does believe that the government should examine whether or not the promise of citizenship could be used to attract professionals and investors.

Minister of the Interior Ögmundur Jónasson, however, quite bluntly told RÚV that “citizenship is not for sale”, adding, “It is my opinion that Icelanders should tread carefully when old Mammon is about.”

There is in fact apparently an entire philosophy around why these ten are trying to entice the government with cash in order to get citizenship. The lawyer representing the group, David Lesperance, has a website outlining this philosophy. In one article, he writes in part, “Many countries having a heavy reliance on a tiny percentage of its members for funding, job creation and creative capital. Therefore, it is reasonable to assume that that there will be a major restructuring amongst Nation States and other forms of Collectives in the early part of the 21st century as these Golden Geese reconfigure their relationships with these entities. Will Nation States recognize the need for a new deal with their Golden Geese before their departure causes that Nation State to join many other collectives in the dustbin of history?”

For her part, Prime Minister Jóhanna Sigurðardóttir says she has worries and suspicions about the applicants. Their cases are currently at the parliamentary general committee pending review.

Rich People Seeking To Buy Citizenship With Interesting Backgrounds

Of the ten wealthy individuals claiming they will invest millions in Iceland if they are granted citizenship, at least one has run into legal trouble over suspicious business dealings.

As the Grapevine reported, ten individuals being represented by a lawyer, whose speciality seems to be tax shelters, have all applied for citizenship with parliament. They do so with the offer that if so granted, they will invest millions in Iceland’s geothermal energy sector. Reaction from within parliament has ranged from cautious to suspicious, with Minister of the Interior Ögmundur Jónasson saying that “citizenship is not for sale”.

Some digging (i.e. Googling) was done on some of the people applying for citizenship, and some interesting revelations were brought to light.

Nearly all the applicants have experience in the energy field around the world, primarily in Russia, eastern Europe and Asia. However, one of the applicants, Aaron Robert Thane Ritchie, was forced to pay a $40 million fine to the Securities and Exchange Commission in 2008 for his company’s involvement in an illegal late trading scheme.

In related news, chairman of the parliamentary general committee (which handles applications for citizenship) Róbert Marshall emphasised that he does not want to sell citizenships; only that the promise of Icelandic citizenship has been used in the past to attract athletes and artists, therefore using citizenship to attract investors who could create jobs was not entirely out of the question, and needs further examination.

Some say aluminum is vital to Iceland’s budding economic recovery. Others say the industry was at the root of the nation’s 2008 economic collapse.

Part of the cure — or cause — of Iceland’s spectacular economic meltdown sits here on a rugged fiord backed by frigid blue waters and snowcapped mountains.

It’s a massive aluminum smelter on the harbor’s edge, sprawling over a few hundred acres. Owned by Century Aluminum Co. of Monterey, Calif., and fueled by geothermal energy and hydropower, the plant churns out nearly 300,000 tons of aluminum a year, to be shipped to customers around the world.

When Iceland’s economy collapsed in 2008, pushing the country to the brink of bankruptcy, production here and at two other smelters continued, which helped keep exports alive through two years of painful recession. Now a budding economic recovery is underway, and Iceland is on track for a faster return to sustained growth than other debt-ridden nations in Europe, such as Greece or Ireland.

But that has only stoked a fierce debate over how big a role aluminum production should play in the future of this sparsely populated island. The metal already accounts for about one-seventh of Iceland’s entire economic output.

It’s a bitter fight pitting pro-business groups against environmental activists and others suspicious of the industry.

Lured by low energy costs, foreign aluminum companies are eager to expand operations. Their supporters say that large-scale investment projects are vital to spur economic growth and create jobs.

But such plans alarm those who not only warn of irreparable damage to the environment but blame Iceland’s ardent embrace of “Big Aluminum” for causing the country’s financial troubles in the first place, by igniting an unsustainable economic boom.

If the expansion plans are approved — two new plants are under discussion — what was traditionally a nation of fishermen would be on its way to becoming one giant aluminum smelter in the North Atlantic, critics say.

“We’re going too fast in a short time,” said Andri Magnason, a writer and filmmaker who is highly critical of the industry. “We’re putting all our eggs in one basket.”

It’s a basket that has grown to remarkable size, compared with other parts of the economy, in the last decade.

Iceland’s oldest aluminum smelter was established 42 years ago, but up until 2000, aluminum never accounted for more than about 3% of gross domestic product, on average.

That changed when the government began aggressively courting metals companies and approved construction of two large plants. By 2008, Iceland was producing about 870,000 tons of aluminum a year, virtually all of it destined for buyers abroad. That year, aluminum exports eclipsed fisheries exports in value for the first time in the island’s history.

The smelting companies import bauxite, the raw material for aluminum, from countries including the U.S., Ireland and Australia; bauxite is not mined in Iceland itself.

But smelting it here allows Iceland, with its many rivers, waterfalls, hot springs and volcanoes, to exploit its own natural resources by supplying the aluminum plants with hydropower and geothermal energy at competitive prices. Otherwise, there would be no market for all the clean energy Iceland is capable of producing.

“We are based in the middle of the North Atlantic Ocean. We are not connected to the mainland Europe grid,” said Bjarni Mar Gylfason, chief economist for the Federation of Icelandic Industries. “So we export energy in the form of aluminum.”

Iceland’s three smelters now consume at least five times as much electricity as all 320,000 of the country’s residents. The plants provide jobs for about 1,400 people.

Environmentalists acknowledge that by using clean energy, the plants in Iceland pollute less than coal-fired smelters in other countries. But they warn that the aluminum companies are extracting heat from the Earth faster than it can be replenished. Although the subterranean heat is virtually inexhaustible from a global perspective, digging too many wells to tap into the hot water and steam, without allowing enough time for nature to renew the supply, can deplete a local site over time.

“They have presented it … like it’s endless. Just drill a hole and everyone can get some,” said Magnason, the filmmaker, whose documentary “Dreamland” sharply criticizes the aluminum industry in Iceland. “It’s not like that.”

He and others suspect officials of offering sweetheart deals to the aluminum firms. The electricity rates that the state-owned power companies have offered the smelters have not been publicly disclosed.

There are other potential environmental costs. For Iceland’s biggest smelter, which opened in 2007 in the eastern part of the country, the government built a series of dams and a massive reservoir that environmentalists fear will speed up erosion and harm the area’s population of deer and pink-footed geese. (The mother of pop star Bjork, herself a major opponent of the aluminum industry, went on a hunger strike to try to stop the project.)

Anti-aluminum activists also say the deal to build the eastern smelter, owned by Pittsburgh-based Alcoa Inc., helped trigger the financial spiral that led to Iceland’s undoing.

Critics say the deal put Iceland in the sights of foreign investors, who suddenly started pouring money into the island, a boom that lasted from 2003 to 2008. Awash in unprecedented amounts of cash, Icelandic banks started lending and investing heavily. Interest rates shot up as businesses and credit-happy residents took out loans for all sorts of purchases.

Housing prices soared; so did the value of the currency, the krona. The banks became so over-leveraged that their liabilities equaled 10 times the entire country’s GDP, prompting some commentators to describe Iceland as a giant Viking hedge fund.

When the global financial meltdown hit in late 2008, the Icelandic economy imploded. Businesses collapsed, unable to pay back their loans; at one point, the stock market had lost 95% of its value from its height.

Others say it makes no sense to blame the Alcoa smelter deal for setting off the spiral.

“Of course it marked the beginning of an economic boom,” said Gylfason of the industries federation. But with global markets speculating madly everywhere at the time, “I’m sure that this economic crisis and this economic boom would’ve happened without the smelters being built.”

Now Iceland’s economy is starting to grow again, perhaps by a modest 2% this year, according to international forecasts. And Alcoa is pushing for permission to build another large smelter in the north.

Gylfi Zoega, an economist at the University of Iceland, said new investment in a major project could provide a shot of confidence without inflating expectations.

“The economy is in such a slump now that a boost would not create irrational exuberance,” Zoega said, though he warned against turning to the aluminum industry for “a quick fix.”

Environmental concerns have so far delayed a deal for Alcoa. Also, Iceland’s left-leaning government is far cooler toward the aluminum industry than its predecessor, which voters tossed out in anger over the country’s economic crash.

But opponents of the proposed Alcoa smelter aren’t resting easy.

“America is not allowing Alcoa into Yellowstone Park. But we are giving up our Yellowstone parks for Alcoa,” Magnason said. “Why does Alcoa not get the same permission in its own country while we are eager to sacrifice our own areas for it?”

Here in western Iceland, the smelter at Grundartangi sits in plain view from a nearby highway. Cars and trucks trundle in and out of the complex on an access road that a group of environmental activists tried to block three years ago.

The plant began operations in 1998 and employs more than 400 people. Production capacity increased steadily during Iceland’s boom years. Its owner, Century Aluminum, is now hoping to build another smelter outside Reykjavik, the capital, near the site of an old U.S. military base, but the plans have encountered a number of delays.

Century, a publicly traded company, also operates plants in Kentucky and West Virginia and mines bauxite in Jamaica.

“It’s very sensitive there. We’re right in the midst of a number of negotiations,” said company spokesman Michael Dildine, who declined to elaborate. “We typically keep a very low profile in Iceland.”

Activists are keeping pressure on the government to hold the line on aluminum’s expansion. The current environment minister is sympathetic to their concerns, but Magnason is worried that economic considerations may prevail.

“It’s like putting a lid on something that’s about to explode,” he said. “We have had some progress. But in other ways, when you have a billion dollars waiting to flow into the economy, when you have 9% unemployment … things can go wrong.”

While history—meaning: ‘the past’—does not change, history—meaning: ‘the narration of past events’—does in fact change. This is because we view history through the lens of the present. As events unfold, the meaning and significance of the past changes. And because our view of the past changes we constantly need to change our history textbooks.

So, it is pretty hard to predict how any event, let alone a whole decade, will be remembered. Because we do not know what the future holds, or what academic fads will reign among future historians, it is exceedingly difficult to say with any certainty how future historians will judge this first decade of the 21st century. Still, even if we lack the necessary hindsight of history, we can make some pretty good educated guesses.

A DECADE OF PROGRESS

The first decade of the 21st century in Iceland will most certainly be remembered as a decade of progress and achievement by those future historians who will emphasize social and cultural history. Important milestones were met in the history of human rights and equality, most recently with the 2010 law, which gives gay couples the right to marry. Another milestone was reached in 2009 when Jóhanna Sigurðardóttir became the first woman to serve as Prime Minister of Iceland and the first openly gay person to serve as a PM anywhere. An important step in world history.

Also, Iceland became a truly multicultural society as large numbers of foreigners, primarily Eastern Europeans, migrated to Iceland in search of work. And despite the occasional flaring up of xenophobia, Icelandic society welcomed these immigrants. By the end of the decade, Reykjavík authorities had even acknowledged that people from other cultures had the right to construct their own houses of worship, finally granting the nation’s small Muslim community the right to build their own mosque.

The decade was also important in Icelandic cultural history. The arts flourished and Icelandic musicians enjoyed considerable success both in Europe and America.

All in all, Iceland in 2010 is far more cosmopolitan than it was in 2000.

A DECADE OF FAILURE

However important these developments are, I would argue that none of them is as important as the colossal, utter and inexcusable failure of the Icelandic economic miracle, which certainly is the defining event of the decade. The neoliberal experiment of creating prosperity by slashing taxes and regulations in order to turn Iceland into some sort of business friendly tax haven and global financial centre finally ended with the complete collapse of 2008.

The reason the public went along with this experiment in the first place was that Icelanders had been led to believe they lived in a country characterised by fair play, equality and—above all—honesty. Iceland was ranked as the least corrupt society in the world and Icelanders believed they were governed by honest politicians and that their businessmen were equally hardworking and honest.

The collapse and its aftermath showed Icelanders that this had been a mirage. The bankers, hailed as financial wunderkinder were actually looters. The politicians incompetent morons. Like the hapless Minister of Economic Affairs, caught like a deer in the headlights, without a clue as to what to do when they were faced with tough choices. Others, bursting with arrogance and delusion, like former Minister for Foreign Affairs Ingibjörg Sólrún Gísladóttir, declaring that those who dared protest the inaction and incompetence of politicians were “not the nation.” Davíð Oddsson refusing to step down from the chair of the Central Bank. The managers of Kaupthing contemptuously declaring that they had absolutely nothing to apologise for.

A DECADE OF SQUANDERED TRUST

Trust is obviously important for all societies. But too much trust, as well as undeserved trust, is dangerous, and I would argue that one of the greatest weaknesses of Icelandic society at the beginning of the decade was excess trust: excess trust in politicians, business leaders and the market ideology. One of the main reasons for the protests that began in the fall of 2008 is the public’s realisation that the elites, both political and economic, had betrayed the trust that they had enjoyed.

In fact, this appears to be part of a global pattern: everywhere, trust in politicians and business leaders has collapsed. Everywhere the reason is the same. The economic failure and financial collapse, caused by reckless financiers and complacent politicians, are not the primary reason—the real reason is that people feel they were betrayed by their elites.

During the bubble, people tolerated growing income inequality because they were promised that the wealth would trickle down. It turned out the public was not allowed to share in the wealth, only the debts, because when the crash came, the public was forced to shoulder the cost of bailing out the speculators. To make matters worse, the left wing government, which promised to protect the homes and families, has been unable to come up with a comprehensive plan to help the public, and no concrete steps have been taken to increase social justice.

LESSONS LEARNED

This is not all bad, of course. People have learned the hard way that it is impossible to build permanent prosperity for an entire society on speculation, market manipulation and corporate raiding.

Icelanders have also learned important modesty. But at a steep price. Historically, Icelanders have been plagued by a certain mix of insecurity and selfimportance. During the boom years the insecurity was replaced by arrogance, creating a poisonous certainty and delusions of grandeur that fuelled the Icelandic financial bubble. As the bubble burst, people realised that Iceland was not the centre of the universe. To paraphrase the Borat-esque mangled Icelandic of the first lady: Iceland is certainly not “the most big country in the world” (stórasta land í heimi).

Finally, Icelanders have also learned that protest can be effective. It is not so long ago, that it was a commonly held belief that Icelanders were somehow genetically incapable of political protest. Groups like Saving Iceland were vilified and political activists were considered suspect. The financial collapse rekindled a spirit of political engagement that had all but died out during the bubble.

One can hope that this newfound political engagement and activism will lead to more democratic politics and more responsive politicians.

Iceland is a country in constant change. A volcanic kingdom, since the dawn of time a war has waged between fire and ice. The remote island nation lies across a fissure between the continental plates of America and Europe, which are in constant rift, tearing tissues of earth apart and sporadically releasing surges of lava and gushing geysers. Since man learnt to harness this earthly power, the culture of Iceland has changed dramatically.

Suspended from the ceiling of the world, Iceland is a leading light in renewable energy production. A land of magnificent glacier-carved fjords and heat that blisters up through the earth’s core, it produces energy far beyond its domestic needs – all from hydroelectric power and geothermal plants. But this clean, cheap energy brings in polluting industry and international corporations.

A vast 80 per cent of energy produced in Iceland is used for aluminium production. Iceland has traditionally been very environmentally conscientious but now, due to economic desperation and political mismanagement, some Icelanders fear that its future is being determined by international aluminium and electricity companies. With two more smelters being built, environmentalists say that the chance to protect Iceland’s fragile ecosystems and spectacular wilderness is running out.

While some Icelanders are desperate for investment to stoke the economy that went bust in 2008, many are far more skeptical as to whether aluminium is the source of light at the end of the financial tunnel.

Heroin for a dying town

Iceland is a prosperous country, but its prosperity is concentrated in its capital, Reykjavik. Small towns have suffered a much harder blow from the financial crisis and are in steep demise. It is these communities that are most willing to welcome companies, such as American smelting company Alcoa, onto their land to build huge aluminium plants that will employ large numbers of people and keep the towns alive for a few more years. Construction of these projects employs many people, but once that is done, power stations and aluminium plants need relatively few employees.

“Aluminium is like an instant fix, you’re a heroin addict and your economy has been suffering and you need something to fix it right away. Smelting companies outstretch a hand with candy and what do you do?” Says Icelandic political commentator Egill Helgason. In order to provide energy for the factories, the municipality must take out large loans to build power plants. By law, companies are able to approach these communities directly to make deals. Like many people from Reykjavik, Helgason advocates a diversified economy that focuses on sustainability and the growing arts and tourism industries.

The latest controversy in Iceland was the devious acquisition of geothermal fields by Canadian company Magma Energy. The southern municipality of Reykjanesbær has been in monumental debt since the economic crash and has been forced to sell its schools, community centres and investments to private companies.

Head of the Left Greens parliamentary committee, Bergur Sigurdsson explains how the fields were first sold to a private Icelandic company called Geysir Green Energy that soon went broke. They were then sold cheaply to a Swedish puppet company of Magma Energy to evade an Icelandic law that prevents non-European companies from buying Icelandic companies.

The Icelandic community was outraged and an anti-sale campaign ensued, led by singer, Bjork. One month ago, the sale went through and the geothermal fields of Reykjanesbær are now owned by Magma Energy.

Magma CEO Ross Beaty now denies that he took advantage of Iceland’s economic depression, but in May of this year, he told Hera Research Monthly:

“We would have been farther along had (the global economic crisis) not happened, although we may not have had opportunities that we took advantage of. For example, going into Iceland was strictly something that could only have happened because Iceland had a calamitous financial meltdown in 2008.”

Cheap energy, minimum red tape

The aluminium industry began in the 1960s as an attempt by the Icelandic government to diversify its economy from fishing and sheep farming. Back then, the plants were of humble size and provided good revenue to a country that had an excess in electricity.

In 1998, in order to encourage energy and aluminium development, the Icelandic government opened up the law so that power over physical planning rested with local governments. It was called the ‘Cake Slice’ law and each municipality skirting the highlands was given control over their slice of the highlands. This made it a piece of cake for corporations to then come in and wage local deals to build power plants and factories. They also provided incentives, such as funding sports centres, healthcare and schools.

From that seed grew what has become a corporate aluminium empire, where international companies have leverage with local governments and continue to squander electricity from Iceland for the cheapest price in the world.

“You have something cheap- in Bangladesh it’s labor, in Iceland it’s electricity- companies aren’t going to think twice about exploiting you for it,” says head of Icelandic Nature Conservation Association, Arni Finnsson.

While he acknowledges opportunism on the corporations’ part, he believes that the federal government should take more responsibility.

“Irrespective of the owner, you need to have law on conservation, you need to have law on physical planning and you need to have law on environmental impact assessment. These legislations in Iceland are weak,” Finnsson says.

Iceland has three active aluminium plants that collectively produce 800,000 tons of aluminium per year. This makes Iceland the largest producer of aluminium per capita in the world, but because Iceland is so remote, the energy price has no competitive advantage and is cheaper than energy that is sold in Ghana.

The two largest smelters are owned by American companies Alcoa and Century Aluminum. Now, another two plants owned respectively by these companies are under construction, but due to Iceland’s bad economic reputation, they cannot get loans and have consequently both been stalled.

You can’t have your cake and eat it too

Smelters require a huge amount of electricity. In order to create that electricity, hydroelectric dams or geothermal plants must be exclusively built. The last dam built was the Kárahnjúkur Hydroelectric plant for Alcoa to run their smelter. Two glacial rivers were harnessed, and a sweeping fjord in the highlands was flooded to produce enough hydroelectricity.

The municipality of Kárahnjúkur had several prosperous years while the dam was being built -although Alcoa imported most of its workers for cheaper labor- and now the population is again in decline with unemployment on the rise. The municipality is still paying off its debt for building the dam.

Diversity not debt

John Perkins is an economist and author who has studied the practices of corporations across the globe. He says that companies Alcoa and Century Aluminum persuaded officials from municipalities to take out huge loans to build electricity sites to power the aluminium companies at a price that was extremely cheap. So cheap that they ended up in massive debt.

He believes that Iceland could make more money by harnessing its existing power to create different industries that would employ more people.

“From a national standpoint, the country would be way better off if it could find other ways to use its energy resources,” he says.

“They are essentially giving their resources away at a loss. It’s a self destructive mechanism that puts the country in huge debt which they cannot get out of without the assistance of the International Monetary Fund.

Andri Snaer Magnason is an Icelandic writer who published a book and made a documentary called ‘Dreamland’ that puts Iceland’s environmental and economic issues into global perspective. The book has sold 18, 000 copies.

“The plans for new smelters are actually madness, they are a gold rush, a craze, on a scale you’ve never seen in a developed country,” he says.

Geothermal is not strictly renewable

On top of the two planned smelters not having adequate loans to go ahead, the limits of nature are getting in the way. Arni Finnsson is very skeptical of geothermal energy. He says that research is limited and that there are no models showing gerthermal power stations lasting more than 30 years. In that sense, it is not renewable and some scientists think it may take hundreds to a thousand years for the heat to replenish.

“We cannot provide energy without destroying far too much and limiting the options for future generations. This nature is unique, you wont see it in any other part of the world,” he says.

“Sadly, I don’t think the government has power today to stop the new projects. In northern Iceland they’ve realised that Alcoa is pretty much in control.”

Environmental groups, such as Saving Iceland, are worried that more dams will be built, and Mr. Finnsson also argues that hydropower, like geothermal power, is not renewable. Dams have a finite lifespan as well, he said, because over time they fill with silt.

For now, Iceland no longer remains under a cloud of ash, but a cloud of uncertainty as it searches for environmental and economic solutions.

Small and Cute – For Concerned Icelanders

Ross Beaty, CEO of Magma Energy, has repeatedly been asked if he´s exploiting Iceland´s economic turmoil to claim control over the country´s resources, which he has always denied. On the 26th of August last year when he appeared on Kastljós, an ‘after-news special’ program on RUV (Icelandic National Broadcasting Association), Beaty also denied being interested in more power plants. “No, we´re focusing on this now. This is a small nation and it doesn´t serve our purposes to become to big”.

Because of exactly these comments, the announcement that HS Orka had sought permission to do test drilling in Hrunamannaafrétti, from Flúðir and into Kerlingarfjöll in search of geothermal areas garnered a considerate ammount of attention. Keep in mind that a research permission is not a permission to raise a power plant, but still, just drilling one test hole can cause a considerate ammount of damage on pristine land. Then, just a few days later, RUV news reported that Suðurorka, an energy company owned by HS Orka and The Icelandic Power Company (a consulting company), has plans of building a dam in Skaftárhreppur, the 150 MW Búlandsdam, over the next four years. HS Orka seems therefore to be on the warpath.

Biggest and Best – For the Shareholders

In the interview with Kasljós (26th of August 2009), Ross Beaty stated that he wishes to found the worlds biggest and best company in the field of geothermal energy. He claims to have done so before with another company, Pan American Silver, which he built up and in the year 2007 had become the biggest silver company in the world. In that same interview he also declares himself as a devoted environmentalist. An advertisment from Magma Energy tells us that “Magma intends to exert itself for an increased energy production of HS Orka in Reykjanes and in that way advance job-growth and higher quality of life in the south-peninsula”.

It´s an interesting fact that a devoted environmentalist has spent almost half of his life on running a mining company, whereas such operations fall quite short of being categorised as “sustainable” or environmentally friendly. It will also be interesting to see whether Magma will put more effort into striving for a “higher quality of life” than the CEO´s former company, Pan American Silver, with it´s operations in four countries in the South- and Middle-Americas, including Peru. Strikes and demonstrations are common amongst the employees of the company´s silver mines there. Understandably enough, because the company brags about the unrelenting profits every three months. Authorities have a tendency not to demand any social responsibility towards their employees in the cases of companies like Pan American Silver, for fear of driving them away.

The radio channel RPP (Radio Público de Perú) has described the circumstances in the mines, where it was revealed that the mortality rate amongst the workers is high, the work camps are unheated and there are no sewage lines in place, causing the nearby rivers to become contaminated. The descendants of aboriginals in the Andes mountains have been promised riches for working in the mines, but realise to late that all the promises were nothing but empty words. Those who have sought assistance from labor unions in an effort to secure their right usually end up getting laid off. Last year, more than 4500 people had lost their job because of their affiliation with CGPT, the country´s biggest labor union. Mario Huamán, CGPT´s president, said in a recent interview that “it doesn´t matter how many times we sue. It´s like these companies have absolute immunity.”

A “Strong” Investor – Financed with Public Money

The argument being used for the neccessity of putting HS Orka into Magma´s hands, is the claim that the company is in a need for a strong foreign investor. But it doesn´t look like Magma is so financially strong. The company has financed itself largely through loans from Icelandic partners; when Magma bought Orkuveita Reykjavíkur´s (OR, Reykjavík Energy) share in HS Orka last fall, much of the price was covered with loans from the seller to the buyer. The rest Magma secured with Icelandic currency bought at a so-called “off-land market”, a market where currency can be bought at much lower rates than the official ones. The Icelandic króna does not grow stronger with this kind of trading, but strengthening it is the main argument for calling out to foreign investors.

This time around, a large portion of the selling price is paid through an acquisition of a loan HS Orka had from Reykjanesbær. The web based news-forum Eyjan reported that Magma had announced the companies intentions to seek out Icelandic pension funds to finance further research and development of HS Orka. There’s nothing abnormal about the fact that Magma has to take a loan to pay for the investment in HS Orka, but if the company is as financially stable and strong as it’s representatives state it is, then why doesn’t it take the loans from a foreign party instead of getting a loan from the ones they are buying the shares from?

SA, the Confederation of Icelandic Employers, welcome the decision on Magma’s takeover of HS Orka and specifically states that the change of ownership will grant HS Orka a chance to continue their build-up of the Reykjanes power plant. Although Icelandic power companies are not financially strong at the moment, it’s the lack of harnessing permits, rather than lack of finances, that’s holding back further “development” (ie. enlargement) of the Reykjanes power plant. Said permits are being held back, because according to Orkustofnun (National Energy Authority), the energy in the Reykjanes peninsula is already over exploited.

Recommencing the Sortie: Íslandsbanki’s Export of Knowledge and the Bank’s Role in the Sale to Magma

Magma’s takeover of HS Orka can be traced back to Íslandsbanki’s (Bank of Iceland, formerly known as Glitnir) energy sortie along with the Independance Party’s plans of privatising the energy sector in Iceland. Advances to that end started in the years 2006-2007 and now the results have begun to see the light of day.

The privatisation process of HS Orka began under the joint rule of the Independance Party and the Progressive Party. At that time, Iceland’s economic boom was at it’s peak in the eyes of the public, but in reality the foundations of the banking system had already begun to crack. At the start of the year 2007 the state sold it’s share in HS Orka to Geysir Green Energy, which at that time belonged to FL Group, a holding company directed by Ásgeir Magnússon. He is currently the president of Magma Energy Iceland, a daughter company of Magma Energy.

On the 2nd of February of 2007, Glitnir announced that the bank planned to open an office in New York with the purpose of “strenghtening the operations of the bank in North-America, especially within the fields the bank had specialized in; renewable energy, especially geothermal energy and the food industry, mainly fishing industry.” That office wound up in the hands of Magnús Bjarnason and his co-workers who founded the advisory firm Glacier Partners from that office. That company, along with another of Magnús’s firms, Capacent Glacier, were Magma’s consultants in the takeover of HS Orka.

Íslandsbanki has now wiped the dust from it’s dormant energy sortie, with an announcement made on the 2nd of May this year. According to Channel 2 news from that day, Íslandsbanki is going to open an office in New York which will provide “financial consultation for investors in the fishing- and geothermal energy sectors.” When the Channel 2 reporter asked if Íslandsbanki was preparing a knowledge sortie, the answer from Birna Einarsdóttir, the bank-president of Íslandsbanki was “er, yes…, I would say we were going into export of knowledge”.

An announcement from the bank states that “Íslandsbanki has focused on providing service to companies working in the fishing industry and in the field of geothermal energy. The bank now plans to focus more strongly on the international scene and provide financial consultation to foreign companies wishing to invest in these sectors.” The resemblence of the new plan to the one from 2007, which ended with the canadian company taking over the third largest energy company in Iceland, is mildly said uncanny.

This article originally appeared in the June issue of the independent newsmagasine Róstur.

Aluminium is a metal that many take for granted in hundreds of artifacts but fewer understand where it comes from and its real costs. Behind the shining image of aluminium is a dark side of environmental catastrophes, political manipulations and cultural genocide.

Out of This Earth: East India Adivasis and the Aluminium Cartel written by Felix Padel and Samarendra Das is an extraordinary book that explores the aluminium industry over its entire life cycle, from the mining of Bauxite to its various end uses.

With a foreward by Arundathi Roy it focuses on the Adivasis struggle against  mining activities in the state of Odisha (former Orissa). There industrialization is imposed under the guise of development, growth and poverty alleviation, a process that has already displaced thousands of people and destroyed tribal society‘s structures. The book traces a hidden history of how one country after another has swallowed promises of prosperity and plunged into a cycle of exploitation and unrepayable debt. One of the real contributions of Out of This Earth is the commendable effort of the authors to painstakingly trace the forces that actually drive and control the global aluminium industry – how it is driven by a cartel that fuses mining companies, investment bankers, government deals, metals traders and arms manufacturers.

Aluminium has become a product of ‘strategic’ use for war-mongering forces in the world, which naturally push for the growth of the aluminium industry at any cost in order to ensure a constant supply of aircrafts, tanks, bombs and missiles.  Out of This Earth quotes the official biography of Alcoa (Aluminum Company of America, one of the world’s oldest and biggest aluminium companies) which states: “War was good to Alcoa”!  As the book mentions: “The quest for military supremacy… is a driving force and key source of profit behind aluminium production, now as much as ever.” (pp 284-285).

The ‘profitability’ of the aluminium industry is something that the industry and its sponsors are very fond of projecting. Out of this Earth explains how exactly the manufacture of aluminium is made so ‘profitable’ – through massive state-sponsored tax breaks and subsidies (on land, water and electricity for instance) and more importantly by keeping the price of the main raw material bauxite abysmally low. To explain the essentially unstable nature of the profits made Padel and Das quote the sudden breakdown of Iceland’s entire economy (as a result of what they term ‘aluminium capitalisation’), with high loans amounting to more than ten times what the country really had taken to finance aluminium companies.

The book is a good example of how capitalism and violence are intertwined in the the case of the mining industry. Praful Bidwai, political analyst and activist, referred to the book as a passionate and a factually-rich account of conditions in Odisha, where extreme poverty and great wealth of natural resources exist simultaneously. “The book tells us, in a very engaging way, about what is happening to people who live there, who are profoundly disempowered and have worst of social indices. It brings out how the so-called free market sustains a state of deprivation in Odisha by looking at connections between local and global finance, trade exchanges etc. One can read in the book the quality of sheer violence and brutality in running a system like this, which is based on destroying people,” he said.

During Saving Iceland’s fourth direct action camp, which took place in the summer of 2008, Samarendra Das, one of the authors of Out of This Earth, visited Iceland and spoke publicly about the situation in Orissa, the global effects of aluminium production and the connection between the struggle in Iceland and in India. Some of Samarendra and Padel’s articles have been published on this web:
Agya, What Do You Mean by Development? and Double Death – Aluminum’s Link with Genocide.

The economic effects of heavy industry must take into account both short and long term economic policies.

Statements put forth without reasoning sometimes obtain more significance than they merit. Two such statements that are held aloft about the building of energy plants and heavy industry are particularly dangerous.

On the one hand that they are necessary and that they might even be the way out of the crisis and on the other that the future of the Icelandic economic system is best insured by utilizing energy resources and with heavy industry. One looks to the short term and the other to the long term but both are questionable, probably wrong and even dangerous.

The economic impact of heavy industry must take into account both short and long term economic policies, In the short term, say 3-5 years the goal is to restart the economy. In the long term the goal is to promote growth in the economic system to provide citizens with the good things in life. To do so the economy has to provide the highest augmented value to the nation for its work, capital and resources.

Short term impact
In the short term the effects of heavy industry on the job market, construction and the related creation of jobs has mostly been looked at. Those effects must not be underestimated but one must bear in mind that these are mostly in the short term. The effect of each heavy industry project can be from several hundred to a few thousand yearly jobs but as experience has shown and as can be seen in economic predictions which take into account heavy industry projects, these effects wear off.

The effect of heavy industry, which is financed by foreign capital, on the currency is quite unclear in the short term. For a very short time they can strengthen the value of the Icelandic krona but it is quite likely that a longer term negative effect will soon become visible. First foreign loans would come into the country but payments and interest in the following years would very likely be higher than the income in foreign currency. It is worth pointing out that domestic loans to the energy industry will very likely be expensive in the next years. This is why heavy industry is not very likely to improve the currency situation or add to financial stability in the short or average term.

The short term effects of the power and heavy industry on state finances is not great. Temporarily there will be a higher income and less compensation indemnification but these effects will fade after the construction phase but then income in these areas become part of the routine operations. Because of depreciation of investments, among other things, there is not a marked increase in tax payments in the first 5-8 years after big construction projects as can be seen from the financial records of Icelandic aluminum company´s.

Economic effects in the long term
In the long term the value of heavy industry must take into consideration the permanent economic effects and in comparison with other choices in the utilization of man power, capital and natural resources, In general it is considered sensible to let the free market decide for the most part what is produced, where and how. So that the free market works and yields profitable results certain criteria must be met so that the pricing on the utilization of natural resources is normal and that negative effects such as pollutions is given a price that appears in the cost of the production. Transparency in these matters is the prerequisite of sensible decisions.

Many things point to the economic effects of heavy industry in the long term being a lot less than than generally has been believed and that it does not meet cost´s to grant economic concessions and by binding the use of natural resources far into the future. The economic value of heavy industry is largely based upon how the augmented value is split between domestic and foreign parties. As the situation is now around 2/3 of the augmented value goes to foreign parties but only about 1/3 to domestic parties in the form of wages, profits for domestic parties who sell there work and services to the industry as well as taxes of the profits of the operation.

It can be estimated that jobs and derived jobs from the average aluminum smelter in Iceland are only 0,5% to 0,7% of the whole labour force. It can be calculated that the economic impact of this labour force can hardly be more than 0,5% of the gross production for the country. Many believe that the economic effect of individual constructions on the work degree is none. That is they exclude other other job opportunities and the effect is decided by the operation increasing general productivity in the country or not.

The second part of economic effects is taxes that are paid of profit. The income tax for an average aluminum smelter after the period of depreciation is over could be 1-1,5 billion kronas a year. That is around 0,1% or even less of the countries gross production. The third part is the economic gain from energy sales to the industries. Little is known of this part but it is clear that the smelters have received a pretty good deal on the purchase of energy.

The long term economic effects of an average smelter could according to the aforementioned be between 0,1% to 1% of the gross annual production. Bearing in mind that heavy industry uses between 75-80% of all energy produced in the country the question of this being a profitable use of natural resources for the nation weighs heavy.

Conclusion
The economic effects of heavy industry in the short term can not justify the weight that they have been given as a response to the economic crisis. They have a limited temporary effect on the job market and no real positive effects on currency matters and state finances. Heavy industry construction is therefore not a real tool to get out of an economic depression. There are no real arguments for letting short term viewpoints have an effect on decisions on heavy industry construction.

Viewing the current pricing on use of natural resources, pollution issues and the taxing of foreign heavy industry it is questionable that economic arguments support further construction. The use of natural resources by its rightful owners call for a thorough examination and changes in these matters before decisions are made. The use of natural resources is such an important issue for the nation that decisions regarding it must not be taken on the basis of short term viewpoints, localized interests or uncertain economic terms.

Iceland is developing its hydro and geothermal resources in the context of an energy master plan, mainly to provide power for expansion of the aluminium industry. This paper tests perceptions of geothermal energy as low-carbon, renewable and environmentally benign, using Icelandic geothermal industry as a case study.
The application of geothermal energy for aluminium smelting is discussed as well as environmental and human rights record of the aluminium industry in general. Despite application of renewable energy technologies, emission of greenhouse gases by aluminium production is set to increase.
Our analysis further shows that carbon emissions of geothermal installations can approximate those of gas-powered plants. In intensely exploited reservoirs, life of boreholes is limited and reservoirs need extensive recovery time after exploitation, making geothermal exploitation at these sites not renewable in the short to medium term. Pollution and landscape impacts are extensive when geothermal technology is applied on a large scale.

Krater and Rose – Development of Iceland’s Geothermal Energy – Download as PDF
The full publication will be available from Jan. 15, 2010. ISBN 9781849350051.

“People were screaming, saying that the politicians were traitors,” explained Jón Bjarki Magnússon, a student who arrived at City Hall just in time for the vote. “It was a weird feeling to see it happen, to see these people down on the floor raise their hands and the decision is made and to see all these angry people above them not able to do anything.”

The September 15th city council meeting stretched on for over three hours, during which time onlookers shouted and boo-ed as city council progressed toward approving the 32.32% sale of Iceland’s HS Orka to the Canadian-cum-Swedish firm Magma Energy Corp.

Reykjavík Energy had agreed to purchase shares in HS Orka from Hafnarfjörður but the Competition Authority prohibits the energy firm from owning shares in competitors, explained the Progressive Party’s Óskar Bergsson. “It is my opinion that the sale was necessary to comply with the law, solve a dispute with a neighbouring municipality and strengthen the financial status of [Reykjavík Energy].”

They had no choice, they said. It was a done deal, they said. It is a wise move for the Icelandic economy, they said. And so the sale was approved; three protestors, including Jón Bjarki, were arrested; and the mayor, along with her councilmen and women celebrated the sale with a champagne toast behind closed doors.

A brief but complicated history of Hitaveita Suðurnesja
“Before this all started, in 2007, the state owned 50.9% of [Hitaveita Suðurnesja], the municipalities owned the rest,” recounts Júlíus Jónsson, CEO of HS Orka. “Then the state [run by the Independence Party] decided to sell their shares to Geysir Green Energy [owned by the FL Group, an Independence Party supporter].”

By July 2007, Geysir and Independence Party stronghold Reykjanesbær each owned roughly a third of the company, Reykjavík Energy and Hafnarfjörður each claimed a sixth and four other municipalities owned just over 1% between them.

In June 2008, Alþingi passed new energy laws that mandated the separation of private energy production from competitive operations thus Hitaveita Suðurnesja was divided into HS Veitur, managing distribution of electricity, water and heat, and HS Orka, taking care of energy productions and sales.

Júlíus continued: “Then in July, 2009 Reykjanesbær sold all their shares in HS Orka to Geysir Green Energy and bought all Geysir Green Energy’s shares in HS Veitur. At that time Geysir Green Energy sold 10.78% to Magma Energy.”

According to press releases heralding this initial transaction between Magma and Geysir, throughout the sale “Magma was advised by Glacier Partners… and its affiliate Capacent Glacier… and Mannvit Engineering provided a third-party evaluation of HS Orka’s operations.” Interestingly, Geysir’s Director of Business Development, Davíð Stefánsson, is also a Partner at Capacent Consulting, focusing on corporate strategy in the energy sector, and Mannvit Engineering is a shareholder in Geysir Green Energy. It’s curious, therefore, how Capacent and Mannvit were deemed suitably objective to advise Magma Energy through their purchase of shares from Geysir Green Energy.

“Then Reykjavík Energy made their contract with Magma and, along with Hafnarfjörður, sold them 32.32%,” Júlíus further explained. So today Geysir Green Energy and Magma are proud owners of 55.2% and 43%, respectively, and four municipalities hold on to just under 2% of HS Orka.

Was it ine vitable ?
This sale to Magma Energy has been in the works for sometime it would seem, with the wheels set in motion with the Independence Party selling the state’s share in Hitaveita Suðurnesja to their cronies—infamous banksters Hannes Smárason, Bjarni Ármansson and Jón Ásgeir Jóhannesson— at Geysir Green Energy to ensure transfer of what is now HS Orka to private hands.

“In the beginning of 2007, the government of the Progressive and Independence parties decided to put the state’s share in Hitaveita Suðurnesja up for sale and barred public entities from bidding,” said Þorleifur Gunnlaugsson, a Left-Green city councilman and Reykjavík Energy board member. “Representatives of those same parties have now sealed the deal in the municipal government.

While it’s true that Reykjavík Energy’s partial ownership of HS Orka contradicted Icelandic competition laws, critics have been questioning the speed at which the deal was passed, the lack of options presented to keep HS Orka in the hands of the public and the overall timing of the deal. Municipalities are, indeed, strapped for cash in these trying economic times, but the value of green energy is such that it would seem to be most sensible to hold on to it for dear life. Or at least to consider doing so.

The guaranteed revenue of owning a stake in a geothermal plant could very well have proved to be a life vest for drowning municipalities — times when the nation is in such a weakened financial state are also those in which interested parties are going to suss out the most lucrative deal for themselves, possibly paying far less than the resources are worth.

Júlíus noted that there were, at one time, as many as thirteen parties interested in purchasing the shares in HS Orka, but only two offers were made and there was allegedly no comparison. No information on the second bidder in this case has been made public, but their offer must have been laughable if not strong enough to rival the appallingly low deal wrangled by Magma, explained below.

Dagur B. Eggertsson, former Mayor of Reykjavík and Vice Chair of the Social Democrats, asserts that “now is probably the worst time in history to sell shares,” and criticizes the majority in the municipal government for failing to investigate alternate solutions.

“It was not inevitable,” Dagur insisted. “During this period we have seen examples of big energy-related deals that have been turned over by the city government but the thing is that the two political parties in power in city hall now are the same parties that gave away Icelandic banks to their friends, so they have a reckless record with privatisation. Not all privatisation is bad but you can privatise in such a manner that everybody is losing, and that is the sad case of a lot of privatisation in Iceland.”

Who is Magma Energy ?
According to their website, Canadian Magma Energy Corp. is a “geothermal pure play focused on becoming THE pre-eminent geothermal energy company in the world.” With its hands in geothermal operations along the west coast of the United States, throughout South Americaand, most recently, in Iceland since its inceptionin early 2008, it would appear that Magma is indeed dedicated to achieving their lofty corporate goal of industry domination.

“I’m an entrepreneur so I’ve started many, many companies, that’s what I do. This time around I wanted to build something green, so I looked at geothermal and it was just perfect, it just fit,” explained Ross Beaty, CEO of Magma Energy, of his foray into green energy following more than thirty years heading up precious metal mining companies. “I went to Iceland earlier this year and looked at opportunities and it seemed that HS Orka could benefit from capital infusion, reorganisation of its shareholding to stronger positions and it looked like there was an opportunity to do something that would help us and help HS Orka and, in the big picture, help the country of Iceland.”

Strike while the nation is poor
However, since Magma’s appearance on Iceland’s radar, their intentions have come under fire, with the general public seeming to doubt the Canadian firm’s interest in helping Iceland, rather than simply helping itself at Iceland’s expense. Earlier this year John Perkins, author of Confessions of an Economic Hit Man, paid a visit to Iceland expressly to warn the nation of what was to come. “You may be the first developed country to really be hit by the hit men,” he said. “Like the people in Latin America [Iceland has] incredible resources, the old fish industry and cheap energy. Energy and water are scarce resources on the planet today. Iceland must protect its resources.”

When confronted with claims that Magma Energy is an economic opportunist, praying on a country that is already on its knees following the economic collapse, Mr. Beaty responded “that is ignorance and complete nonsense. It’s just because Icelanders don’t know what we’re all about and they don’t understand the world that we live in. We’re in Iceland because it has opportunities for the long-term benefit where we can deploy capital and we can improve the condition of an Icelandic company for the long term.”

“We’re here because Iceland is a core geothermal country that has great resources, many of them untapped, and it’s simply a core business for us to get involved with countries like that, be it Iceland, Indonesia, the Philippines or, for that matter, North America,” said Mr. Beaty. “I particularly enjoy the hypocrisy of some people who don’t want foreign companies to be in Iceland but have no problem with Icelandic companies going to other parts of the world to do geothermal development, but that’s a whole different subject. There’s a lot of hypocrisy and a lot of finger pointing in situations like this, but that’s the way of the world I suppose.”

Out with the old and … back in with the old
The general concern that seems to be brewing around Magma Energy’s involvement in Iceland is not unfounded, however, as the deal struck with Reykjavík Energy reeks of the economic wheelings and dealings that led to the collapse precisely one year ago.

The Share Sale and Purchase Agreement entered into by Reykjavík Energy and Magma Energy Sweden AB reads: “Payment of the Purchase Price shall be by: (i) wire transfer of ISK 3,616,988,813… and (ii) delivery to Arctica… of a bond issued by the Buyer in favour of the Seller… evidencing an aggregate indebtedness of an amount in USD equivalent to ISK 8,439,640,562 calculated using the mid rate for the USD/ISK exchange rate as posted on the Central Bank of Iceland’s website at 11:00 2 (two) business days prior to the Closing Date.”

To put it in terms that have become alarmingly familiar: Magma Energy will pay ISK 3.6 billion to Reykjavík Energy upfront, with a remaining ISK 8.4 billion provided to Magma as a bullet loan from Reykjavík Energy, with the sole collateral being a bond in HS Orka reissued to Reykjavík Energy by Magma. Also, according to Magma’s financial statements “the bond is repayable in a single instalment in seven years and bears interest at an effective rate of 1.52% per annum.” Magma will repay Reykjavík Energy in US dollars using the Central Bank’s exchange rate according to the strength of the króna at the time of the deal being signed now, in 2009.

Magma’s financial statements further state the “purchase of the Company’s interest in HS Orka will be financed by cash on hand and the credit facility available to it, or from other sources of capital available to the Company” and that, as of June 30, 2009, cash and equivalents totalled $4.5 million, working capital was $2.7 million and Magma’s undrawn credit was $20 million. This would imply that Magma Energy is some $5 million short of paying even their initial down payment to Reykjavík Energy, contradicting the purchase agreement guaranteeing sufficient liquid assets to complete the transaction and, one would assume, making Magma a poor candidate for a loan for the remaining ISK 8.4 billion.

“I’m very sceptical. It reminds me of what has been going on in Iceland before and to see this happen and stuff like them buying a company with a bullet loan and just using shares in HS Orka as collateral,” worries Jón Bjarki. “How the fuck do they do that? It stinks. The whole thing stinks. I just don’t trust these people anymore. I don’t think anything has changed here. John Perkins came to Iceland and he said that what is going to happen is that we are going to start to sell our natural resources away, you won’t realise what’s happening but that’s what happens after crises like this in Iceland. This may be a small step but it’s a very scary step.”

Wave the red flags
More possible cause for contention, the term of usage rights Magma Energy is purchasing allows for an initial 65 years with the option of renewal for another 65 years. “This poor deal becomes even clearer when we compare it to other contracts that Magma Energy has made,” explains Social Democratic MP Ólína Þorvarðardóttir, referring to Magma’s 10-year term in Nevada with the possibility of extending for another ten.

From a purely business perspective Mr. Beaty argues that such a long-term is proof positive that Magma is invested in building as strong and successful a company as possible. He says: “If you’re building a house and you want to have a really nice house and you have a leasehold agreement that gives you ownership rights for your house—if you have a short leasehold agreement you’re going to build a really crummy house because you know that, after a while, you’re not going to own anything. If you have a decent term you’re going to build a nice house and it’s going to run well and be nice to live in.”

However some critics of the agreement have their doubts about Magma Energy’s dedication to HS Orka and Iceland. “To my knowledge Magma has plans for maybe five to seven years in Iceland and then they want to exit with good profits,” projected Dagur B. Eggertsson. “So they will probably just sell their 130 year contract for their own profit but not for the profit of the people.”

Who is Magma Energy Sweden AB?
Magma Energy Corp. and Magma Energy Sweden AB are, essentially, one and the same. The “Sweden AB” suffix was added when it came to light that Magma Energy Corp. was not permitted to purchase shares in Icelandic natural resources because corporations outside the EEA would not guarantee EEA regulation of resources. Thus a Swedish shelf company was established to skirt Icelandic laws. The listed president of said Gothenburg-based shelf company is Lyle E. Braaten, a long-practicing Vancouver based lawyer and secretary and general counsel of Magma Energy Corp.

Said Mr. Beaty of this: “It’s legal nonsense that comes out of particular Icelandic laws that say the only companies that can be involved in the Icelandic energy business are European community companies. So Canadians, or anywhere else in the world for that matter, can only get involved by incorporating a subsidiary in the EU.”

Due to an agreement between the Canadian and Swedish governments regarding taxation, Sweden was ideal for Magma’s EU P.O. box for the Canadian firm to avoid double taxation.

As for Magma Energy’s operation in Iceland being regulated in accordance with the EEA and Icelandic law, Mr. Beaty doesn’t “know that it really matters. Magma is going to be following the best practices that I’ve followed all my career. All kinds of things that are demonstrably at world standards. We’re not interested in raping and pillaging, we’re interested in doing long-term sustainable development and if you can do that in any industry you can do it in geothermal.”

This raises concern about the ease with which foreign firms can incorporate themselves within the EEA and the purpose of laws prohibiting non- EEA ownership if they are so easily manoeuvred around.

Transparency, please
Throngs of unanswered questions and intense circulation of rumours surround the Magma Energy deal. Halldór J. Kristjánsson and Finnur Ingólfsson (there’s a name that should ring a bell for those familiar with Icelandic corruption and shady deals) are thought to be involved, and some even suspect Ross Beaty of just being the face of a company being run by Icelandic banksters-cum-green energy enthusiasts, all of which feed the fears of the general public that could be calmed through widespread corporate transparency.

Daði Rafnsson, author of the popular Economic Disaster Area blog, while adamant that transparency is the means by which Iceland can rebuild itself as a nation and avoid suspicion, said, “I think it’s going to be really hard. For business here we’re always going to run into situations of knowing somebody on the other side of the table, but too often the same people are on both sides of the table, that seems to be a reoccurring theme. It’s hard to not be connected in some way but people should know about it. That will go a long way in educating people on who to vote for, who to not vote for, who to trust.”

Iceland’s privatised future
In her frighteningly poignant tome Shock Doctrine, Naomi Klein writes “When communities get hit by great shock large corporations and other power blocks use the opportunity to push a pointed policy where public property is given to private parties on a silver platter, for a disgraceful price.”

The partial sale of HS Orka to Magma Energy is, undoubtedly, a landmark in Iceland’s political economy, but that is not to say that it is destined to be a precedent. For the time being it appears to have opened a floodgate, as a Chinese aluminium company has shown great interest in the possible acquisition of 32% of the Þeistareykir geothermal plant in Húsavík—their representatives have already met with Húsavík officials to discuss the possible deal. The future of Iceland at this pivotal point in its history is largely dependent on ongoing critical thought by policy makers on the long-term well-being of Iceland’s resources.

As Noam Chomsky warns: “Privatisation does not mean you take a public institution and give it to some nice person. It means you take a public institution and give it to an unaccountable tyranny.”

For the time being it is likely best that Iceland stops to evaluate its current situation. Many argued that the Magma Energy deal was passed too swiftly, that not enough time was given to contemplate the possible consequences of the foreign privatisation, that the public didn’t know enough or just didn’t care. But contemplation is imperative, the public needs to know and the public must care. Now is not the time to grow complacent.

“It’s weird to see what they do and to feel like you can’t really do anything,” bemoans Jón Bjarki. “After the protests this winter, people who were there feel like ‘what can we do? Nothing seems to change no matter what.’ For a period of time people were doing stuff, trying to let their voices be heard, but nothing changes and it all seems pointless. The thing is, there are so many reasons to be against all this but people don’t even know it is happening.”

Now the plan is to push through an aluminium smelter in Helguvík with all its appropriate energy construction. Svandís Svavarsdóttir, the minister of environment, recently said that there is not enough energy on the Reykjanes penisula to fulfill the smelter’s energy needs. Others have pointed out that harnessing the geothermal areas there will be such a massive attack that the areas will most likely dry up in a short time. Katrín Júlíusdóttir, the minister of industry, has stated her positive opinion about Landsvirkjun producing energy for Helguvík – and the Þjórsá river comes immadeatly up to one’s mind. She also seems to be willing to renew the memorandum of understanding between the government and Alcoa, which according to the latter’s plans means that the whole geothermal areas in north-east Iceland have to be harnessed and dams built in one or more glacial rivers.

Recent studies about the economical impacts of heavy industry and the beneftits of energy realization to aluminium smelters, give the ideas that all the propaganda about the benefits of the Kárahnjúkar Dam were built on nothing. In a report about the economical impacts of heavy industry, economist Indriði H. Þorláksson says: “The country’s primary benefits of the operations of heavy industry plants owned by foreign parties, are the taxes they pay. It is supposed that the tax payments of an avarage aluminium smelter is around 1,2 billion ISK per year. That is only about 0,1% of the national production.” And a new report made by four economists by the request of the minister of finance, says that the selling of energy to heavy industry is simply not economically beneficial.

Other results – e.g. if the energy selling actually was beneficial – would most likely not impact most environmentalist’s opinions. But these results actuate the pleading of those who have claimed that the government and corporations connected to the heavy industrialization of Iceland are simply lying to people about the economical benefits of the constructions. It really should not have surprised anybody; the title of the Minsitry of Industry’s sale brochure, Lowest Energy Prices, says everything that has to be said about the realization of energy to heavy industry here in Iceland.

Further aluminium smelter construction in Iceland is an experiment to maintain life in an unsustainable economic system, which is based on the idea of constant production. Production that insists that raw materials like bauxite – aluminium’s main material – is constantly mined, transported from one continent to another, processed in many energy consuming steps until in the end, it becomes a product, ready for consumption.

Many of the aluminium adherents in Iceland have restorted to the theory of demand and supply, as an argument for continued and increased aluminium production: while people still buy aluminium, it has to be produced. The theory fits completely to the consumer society we live in, but its premise is that the demand is real and natural, but not made up. The consumer society is built on made-up “needs”, which people are taught to ask for. Capitalism’s constant production and the paralell aggressiveness towards the earth, would not add up if it would not be for these false needs. Therefor, it is absoloutly inevitable that environmentalists’ idealolgy bases on opposition to capitalism’s over-production and over-consumption.

The critique on aluminium production here in Iceland has unforunately often been built on a very shallow ideology. Instead of looking at the aluminium industry as only one part of the extra-ordinary complicated web of global capitalism – and one of its bases – it has been seen as a single phenomenon, which has to be replaced by something else. Words like “green industry” have therefor become leading in the mainstream environmenatlist discussion. But there exists a different critical way of looking at heavy industry and ecological destruction in general.

A critique on heavy industry, based on deep ecological thought, does not need to include any ideas about what comes instead of aluminium if this “instead” means a different kind of industry or other destructive operations. Instead there simply is unspoiled nature, which is enormously necessary for the planet we live on – not from a beauty perspective, but because of the fact that the nature is the premise of life. Deep ecology bases on the idea that the man is not more superior than the ecosystem’s other forms of life, but is rather only a part of the ecosystem and has therefor no rights to deplete it, expect in a completely sustainable way. Sustainability is a difficult consept, which governments and corporations have managed to steal and put into their rhetoric, and therefor been able to sustain lies and hoaxes about the real meaning of it. The fundamental idea of sustainability is that we return to the natural world as much as we take from it.

Protecting the nature, for nature’s sake has thus nothing to do with the economical situation. Claiming that radical ecological ideologies only fit in when enough money exists is a complete absurdity. It is not like the last years of “prosperity” here in Iceland were marked by very ecologically friendly ideas.