It has the makings of an unfinished Agatha Christie novel. After getting a foot in the door last year, Canadian company Magma Energy moved in to acquire 98.5% of HS Orka, the third largest energy company in Iceland. To skirt laws restricting non-EEA investments in Iceland’s energy resources, Magma Energy created a subsidiary in Sweden, but their “offices” really only have space for some letters and perhaps a few small packages. Nonetheless, an eager and cash-strapped HS Orka accepted the deal and Magma Energy was granted the rights to geothermal energy in the Reykjanes peninsula for the next sixty-five years (with a renewal option).
Due to concerns about the PO Box stunt, not to mention Iceland’s poor track record in privatisation, Prime Minister Jóhanna Sigurðardóttir charged a special committee with the task of looking into the legality of the sale and the privatisation of geothermal energy in general. The special committee concluded that the HS Orka sale to Magma Energy Sweden AB was legal in three of four interpretations of the law. So the sale went through and the case was closed. But, not so fast.
Enter a younger and hipper Miss Marple (Björk)
Perhaps the case was closed for most of Iceland’s government officials and the watchful mainstream media, but it certainly was not for musician Björk Guðmundsdóttir. She couldn’t believe the nation’s representatives wanted to allow this sale of the country’s third largest energy company while 80% of Icelanders are against Iceland’s energy resources being privatized.
With no legal background or detective training, Björk has an uncanny ability to find signs of wrongdoing. She teamed up with architect Jón Þórisson and writer Oddný Eir Ævarsdóttir, who together work on getting the government to stop this deal, which they believe will have harmful effects on the nation.
Finding: The Magma Report is misunderstood
After the special committee on Magma Energy released its findings, Björk invited committee members and experts to sit on a panel at a public seminar. It turned out the committee’s report had been misrepresented in the media.
“The committee said the laws regarding the sale of access to Iceland’s energy resources both say that it was forbidden to sell it to Canadians through Sweden and that it was allowed. So they recommended the case go to court,” Björk explained. “The media unfortunately delivered a lopsided interpretation with front-page headlines saying the sale to Magma is OK, suggesting this was the end of the case.”
Committee member and lawyer Aagot Óskarsdóttir said in another (not adequately portrayed) part of the report, that the committee also detailed several actions the government could take to nullify the sale and stop Magma Energy from owning 98.5% of HS Orka.
As detailed in the report, Aagot said the most feasible action is to exercise the right of eminent domain. In non-legalese, this means the government can justifiably take Magma Energy’s purchase from them if it is in the interest of the nation.
Finding: Geothermal energy is not exactly renewable
It’s true. Iceland is not selling any of its geothermal energy. It is leasing the rights to harness it for the next sixty-five years, with the option of an additional sixty-five years. However, panellist and geologist Stefán Arnórsson pointed out that this is one and the same if the geothermal energy source is used inefficiently.
In this case, Stefán explained the geothermal energy in question is essentially not renewable because it is being used up faster than it is being renewed. He said the size of the energy resource available has been estimated at 3.600 – 4.200 MW and if, for example, this were converted to electric power, the resource would be depleted in 50 years. Although nobody knows for certain how long it will take to renew, Stefán said it could be thousands of years. If this is the case, the deal is akin to borrowing Iceland’s geothermal energy indefinitely.
Enter a female Hercule Poirot (Eva Joly)
A few weeks after the seminar, experienced prosecutor Eva Joly, joined team Björk, Jón and Oddný to speak out against the sale. At a joint press conference, Eva said if she were a state prosecutor in Iceland, she would start a criminal investigation into this deal. “For a country in need of foreign currency, it should ensure a better deal and work with someone financially capable. I think this should be looked into.”
She also drew parallels to the deals made when Iceland’s infamous banks were privatized, where the buyer financed the seller. “It’s a kind of bullet loan,” she explained. “And I can tell you I have seen a lot of these bullet loans. It’s the way Glitnir [post-crash Íslandsbanki] did business.”
Finding: Iceland is selling its energy for pennies and bonds
Eva suggested that Iceland is giving away its resources for nothing and to a man who has not proven anything. She pointed out that Magma Energy had losses in 2008, and that its experience is limited to harnessing a small amount of geothermal energy in Nevada, which is nothing compared to the current operation in Iceland.
Furthermore, she said they are not very well capitalised. “They are not even able to pay for the acquisition,” she pointed out. “If the figures I read are right, they bought the whole Magma participation for 11.5 billion Icelandic krónur, but only 3.6 was paid in cash. And it was not paid in US dollars. It was paid in Icelandic krónur. And, 8.4 billion is to be paid in bonds – bonds from a company that has no existence yet.”
Finding: Ross Beaty’s facts don’t add up
At the press conference, Jón Þórisson brought attention to some numbers that don’t add up. He pointed out that Magma says they have access to some 400 MW in Iceland, which is nowhere near the correct figure. [Magma website: “Expansions are planned that will increase HS Orka’s geothermal power production to 405 MW by 2016”]. “With lenience, they could go for another 100 MW and that’s it.” Jón speculated that either Ross has no idea what he is talking about or he is deceiving his investors.
Checking up on these numbers, we requested copies of their current licenses from the Ministry of Industry, Energy and Tourism, which confirm that Magma Energy does not have access to anywhere near 405 MW. Thus, it’s likely that the planned geothermal power production they speak of includes areas that they do not have the rights to, unless they make those purchase agreements and acquire new licenses.
Finding: The government is non-responsive
Jón said the government has been largely non-responsive to their requests for information on the HS Orka sale to Magma Energy. In particular, the Ministry of Foreign Affairs and the Ministry of Finance have not replied to their letters, surpassing their legally allotted time to do so. Now he plans to send an appeal to the Information Committee, which will look into the matter.
Although he said he’s not against Canada or Ross Beaty or foreign direct investment per se, Jón wonders why Magma Energy got the bid, and why the public company Orkuveita Reykjavíkur sold its shares in HS Orka to Magma Energy at what looks like a 9 billion krónur loss. He also wonders whether the deal is not part of the IMF’s master plan for Iceland to move all its non-tradable assets to tradable form, adding that it’s no joke that the head of the IMF in Iceland is called, ‘The Governor’.
However, he likened foreign direct investment to the Icelandic saying, “að pissa í skóinn,” (to piss in one’s shoes). It works in the moment (makes you warm), but it’s not any good in the long-term (you quickly become cold). Then he showed us an IMF working paper, “Tax Concessions and Foreign Direct Investment in the Eastern Caribbean Currency Union,” which essentially says the same thing. Nonetheless, if foreign direct investment is the government’s policy, then he would just like them to come out and say it.
While waiting for the special committee’s next report, Björk urges people to sign her petition at orkuaudlindir.is, which calls for a national referendum on whether Iceland’s energy sources should be private or public property. Björk said: “We need 35.000 people to sign it,” adding that she heard rumours about a karaoke marathon until that number has been reached. “Volunteers are needed,” her e-mail ended.
So is the case closed? Not in Team Björk’s books.