From Iceland — Foreign Investment Racism

Foreign Investment Racism

Published September 17, 2010

Foreign Investment Racism

“An empty barrel makes the loudest sound” (Icelandic proverb)
Since the discussion in your paper regarding the geothermal industry and Magma is on such a low level and dumb people keep repeating dumber things til eventually people start thinking they’re true, I decided I needed improve the signal to noise ratio by pointing out some relevant facts before this “foreigner investment racism” escalates and the stupid people continue to make more noise. (I’ve worked as a geophysics researcher and as corporate finance professional focusing on geothermal power, dating back to 2001.)
Venezuela, North Korea and Iceland
 “Iceland is not for sale” – No one wants it. It’s been a couple of years since the implosion of the economy and how many investors have tried to come here and actually do business? One. And you idiots are trying to kick him out. Foreign investment is welcomed everywhere in the world with the exception of Venezuela (go Chavez! ) North Korea, Iran and some other places. It makes economic sense to get some new blood in here.
IBM decides not to come, not that you care, since it’s not Apple
How many have left or decided not to come? A lot. Just recently IBM said they weren’t going into one of the data centres because of the Government’s slow policy making on Value Added Tax. See what left wing pseudo communists/ socialists don’t realise is that capitalism means you have to be competitive to succeed. When taxes are higher here than in Europe, Iceland isn’t as competitive. It’s like attaching little weights on a sprinter then wondering why he doesn’t make the Olympics. The more involved government gets in industries that are supposed to be run on a competitive basis the higher our taxes get, because they suck at it and need our money to finance their failures.
Energy production is supposed to be competitive and it’s not when the government runs the entire industry
Until 2006, the Icelandic government, which is funded by the tax payers, owned 100% of the energy market. In 2006, they finally commenced implementation of EU directives that originated as early as 1996. So everyone that’s wearing a woolen sweater, with your hipster “Iceland is Not for Sale” button, please take off your earphones (you can listen to Sigurrós later) and take notice. Directive 2003/54/EC which is based on 96/92/EC, says governments need to split up energy companies into 1) the natural monopoly part (transmission, distribution) which owns the RESOURCES and 2) the competitive part of electricity generation. This split up was implemented after c.a. 10 years of prep work. You know how Icelanders have to send everything to a committee, argue ENDLESSLY about it, run around like “sheep with their heads cut off” and in the end, do nothing. Here we are at least 14 years later and some idiots are about to ruin it all with their emotional irrational opinions. Some quick facts: Governments suck at everything they do (besides collecting your hard earned money). Until 06 they ran 100% of the energy market. And the geniuses they are, decided to finance (that means pay for) their operations mostly through debt (that means borrowing) and not equity (that means cash). Private energy companies will find an optimal balance between debt and equity. See the thing with debt is that you have to pay interest on the debt. And when you finance yourself 100% with debt (especially foreign) you are paying a lot of interest. What’s really cool about debt is that if the company (the debtor) misses so much as a single interest payment, the creditor (the guy lending you the money) takes ownership of the company. Now, all three government owned energy companies took on a lot of foreign debt, when Orkuveita Reykjavikur and HS Orka/Veitur couldn’t make their interest payments they are, for all intents and purposes, OWNED BY THE FOREIGN BANKS. Since the governmental geniuses used debt financing to such an extreme, that means a shit load of the money they get from their biggest customer, the Aluminium industry, goes right out of the country in the form of interest payments, which means it’s the foreign bank making most of the money. I won’t go into detail about the various practices the Aluminium industry uses to transfer its profits out of the country. In short the picture is this: the money the Energy Company gets goes to the foreign bank that lent it the money. Profit the Aluminium company gets goes out of the country and their products are sold elsewhere. So in the end, we are vicariously exporting energy via aluminium (like 1/3 of the aluminium cost is electricity) and the profits go out with it. Great system we have, let’s do everything to keep it! No one is buying or stealing or raping (as some of your more ill-informed tasteless readers have put it) the land or resource. They simply are acting in accordance with previous EU directives whose goal is to increase competition in the generation of electricity and to separate the competition part from the resource part. After this deal, Magma & HS Orka’s share of the electricity market will be 8.7% and the Governments will be 91.3%. Do we not have bigger problems to solve, focus on, then a nice Canadian running a small energy company when the government still rocks over 90% of the market? Really? IceSave? No free flow of capital, early 1960’s anyone? High unemployment? Research and development down at all the Universities? Frozen real estate market? Lots of people with negative equity value (bankrupt)? And you guys focus on the 8.7% market share that is being sold to the second private owner of an energy company. It’s like looking at a patient haemorrhaging blood from his jugular and the doctors are trying to pick out the right colour band aid to cover the paper cut on his thumb.
Icelanders can go abroad and do energy projects + foreigner investors can’t come here = Hypocrisy
For years, Icelandic energy companies, investors and professionals have bought/ partaken/executed energy projects in China, USA, Hungary, Germany, El Salvador, which was totally fine. But when someone wants to come here and reduce the government’s 100% stake down to 91.3%, boo fucking hoo! “No Iceland is not for sale” Ahhh, everybody, assemble the leftist hippie woollen sweater army and attack! ”
Risk management of the governments investments
 “You can’t spell RISK without ISK – Risk management”. Risk management is about asking what could go wrong and acting accordingly and doing your best to not place all your eggs in the same basket. So 92% to 100% of the energy market is owned by the government and thus the tax payers. That’s a lot of eggs in one basket. What happens if there is a new kind of superior cheaper fuel invented? Well, these energy companies won’t be worth shit. But, they still will have to pay off their foreign loans (see this is where equity financing would have been a good idea, but no, you wanted the government to own it). But how will they do that when they no longer have any income because their biggest customer left for the cheaper better energy? That’s right. The tax payers. Can you say IceSave 2.0? Say instead of a new energy being invented a new superior alloy is and aluminium becomes worthless? Again, this would bankrupt the energy companies’ biggest customer, which would bankrupt every single Icelandic energy company. The only thing left would be the debt. Which, again, us the tax payers would have to pay. I’m sorry, but aren’t we kind of tired as people of paying for other peoples’ mistakes? I have trouble paying for my own mistakes, much less other peoples’. Every single venture these government owned energy companies venture into, loses money.
What do power companies, lobster farming and subocean fibre optic cables have in common? Besides losing taxpayer money: the government
And they do some crazy shit: Orkuveita Reykjavikur: lobster farming/fibre optic cables (-1bn ISK at least), Landsvirkjun: fibre optic cable “FARICE”(- 20 M Euros at least) … and now OR is raising their prices by 30% because the government run company decided to finance themselves in foreign currency. I mean, hey, what’s the incentive to improve as a business, if you know you won’t go bankrupt because the tax payers will finance all your mistakes themselves. It’s awesome! You need more money? No problem, just raise prices 30%! I’m trying to start my own tech company. It’s just a little difficult when my income tax has been raised over 40% to help pay for the government’s mistakes, taxes on various goods have been raised to a world record setting 25.5% and trying to attract venture capital from foreigners is impossible. So I lack the capital to finance my company because I have to pay such high taxes to the government because they are incapable of running their business of being a government.
Yes it does matter where Björk pays her taxes. If you have no stake/risk in it, you shouldn’t have a voice in it
I’m on board with the mayor of Reykjanesbær, Árni Sigfússon, regarding Björk and where she pays her taxes. Simple application of Decision Theory says that agents who don’t have a stake in the outcome shouldn’t have a share in the vote. For example, if you’re the one going into physical harm when you go to war, you’ll be less inclined to go. If Björk wants a say in this, she better pay her taxes here. Because when the government mismanages another power company, it won’t be her taxes going up, it will be mine/ours. I for one am tired of the government going into my pocket to finance their bullshit. With the public’s outcry over the whole HS Orka deal (when a foreigner wanted it, but it was fine when it was an Icelandic company. You racists) and the Minister of Agriculture’s various laws on banning import of numerous products and the number of stupid policies and endless taxes I feel like the country course is on a collision with communism and or the bleak Icelandic economy of the 1900-1990. Have fun with that.
 Sources: Energy Agency of Iceland for the various market shares, Wikipedia for the EU directives.

Total debt of Orkuveita Reykjavíkur 2002 – 2009 in ISK.

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