Published August 6, 2004


by Valur Gunnarsson

In the 1930s, dust storms swept the southern plains of the United States. The “Black Blizzards,” as they were called, had come about because of overfarming, which had caused the topsoil to wear thin and become dust. Crops failed, and as the banks that held the mortgages realised they would not be getting returns on their interest, farmers were run off of their land. Their plight is immortalised in the songs of Woody Guthrie and John Steinbeck’s book “The Grapes of Wrath”, which went on to become a Hollywood film starring Henry Fonda as Steinbeck´s protagonist Tom Joad.

Tom Joad´s shadow has been cast long and wide. How many of the ca. 14 million people so far who´ve read the book have thought to themselves that if they were there, they would have done something, rather than stand idly by as people were evicted from their homes?
This summer has been a warm one on the east coast of Iceland. But the sun has often been obscured by the dust clouds coming down from the construction of the power plant being built at Kárahnjúkar. To make matters worse, the company building the dam, Landsvirkjun, want to build a power line through neighbouring farmer´s lands and are not taking no for an answer. Might they end up as latter day Tom Joad´s? And does anyone give a damn?

A lone farmer speaks up

Guðmundur Ármannsson has lived all his life on his plot of land at Vaði near Egilsstaðir. He´s never been abroad or even to Reykjavík. The farthest he´s ever travelled is to Akureyri, the capital of northern Iceland. He inherited the land from his father, the same family having lived on the land since 1830. Guðmundur took over as farmer 25 years ago and lives there with his wife Gréta Ósk Sigurðardóttir. He´ll be reaching 60, “that awful number,” as he calls it, next year. But now, his peaceful existence has been disturbed. And he´s not happy about it.

“I am unhappy about the powersale agreement. They get the power at a very low price, pay very little taxes and no pollution tax. The land being sacrificed is not being valued at all. They´re also bringing in low cost labour, which will probably bring down wages here in the long run, although, of course, we´re using low cost labour when we buy things manufactured at low pay abroad. And that´s just the economic side of things.”

The Jökulsá River has a very strong current and carries a lot of mud with it that now winds up in the sea. It´s being diverted into the Lagarfljót River, a popular outdoor area here. The colour of Lagarfljót is already changing. The water then winds up in the dam reservoir, along with all the mud it brings. In the summer, when the water level drops, this will lead to the mud being blown as dust all over the countryside. And what happens when eventually the reservoir gets filled up with mud? That will be a problem for future generations. It seems that no one has thought this through. The only explanation they give is that it´s a challenge to engineering.

“This is not negotiation…”

Unlike many, farmer Guðmundur can´t just close his eyes and ignore the construction.

“They´re building a power line through here. The line won´t cross through my land, but they need to build a road to reach it that will. I´m not the one that will be hardest hit by this. Farmer Sigurður Arnarsson over at Eyrarteigar will have the line built right next to his house, and he and I and other people agree that it doesn´t seem like anyone can live in that house anymore after the line is built. He´s being pushed off the land, and for this he is offered 1.200.000 million krónur (roughly 15,000 Euro).”

So what did the company, Landsvirkjun, say to the farmers?

“There was no negotiation. They offer a fixed amount of money, and if you don´t take it they expropriate it. They´ve been getting away with this method. This is not negotiation, this is an ultimatum.”

“Everyone´s drunk on aluminium plants”

And your response?

“I´m not open for negotiation. They came here last November and I said no to them. Then I didn´t hear from them for six months and I thought I was rid of them. Then, about two months ago, they come back. I´ve retained a lawyer, and this is going before the courts. There are at least six other farmers who haven´t signed the contract Landsvirkjun put in front of them either.”

So how do you see the future for this?

I have a bad feeling that in the future people on the East Coast will be blamed for this. Of course it´s the government that made the decision. But people here are ignoring the consequences. It sometimes seems as if everyone´s drunk on aluminium plants. I have a feeling the hangover will be terrible.”

So why has it come to this?

“I think that Icelanders have lost something they used to have, which is love of their country. It´s been sacrificed on behalf of greed. I´m afraid that we won´t be cured of that disease until we have a disaster on our hands. And the longer it takes, the worse it´s going to be.”


by Robert Jackson
It is now two years since the government gave the approvals that made way for the creation of a huge hydroelectric scheme in the Central Highlands at Kárahnjúkar. This paved the way for a subsequent deal with Alcoa for the building of an aluminium smelter in the coastal town of Reyðarfjörður.

The Kárahnjúkar project will consist of nine dams, three reservoirs, seven channels and sixteen tunnels. It will divert two large rivers, the Jökulsá á brú and Jökulsá í Fljótsdal, and several smaller rivers to the north of the Vatnajökull glacier, the largest glacier in Europe. The main dam will be highest rockfill dam in Europe, 190 metres high, 800 metres long and 600 metres wide at its base. This main dam will create a huge reservoir, to be called Hálslón, which will flood a wilderness area of 57 sq. km. 70 km of tunnels will carry water to an underground powerhouse, which will have a 690 megawatts capacity.

Current estimates are that the dam and the hydroelectric scheme will cost over US$1.1 billion to build. The project is being commissioned by Iceland’s national power company, Landsvirkjun. This company has three shareholders, the government, the City of Reykjavik and the City of Akureyri. Landsvirkjun is raising funds from international financial institutions, and the nature of the company´s shareholders means that the loans are effectively state guaranteed and therefore attract beneficial interest rates and terms. Landsvirkjun and the government have signed a deal with the second largest aluminium business in the world for supply of power to a smelter which Alcoa will build at Reyðarfjörður. Under the agreement, Alcoa will buy electricity from Landsvirkjun for the next 40 years. The price paid will be adjusted to allow for fluctuations in the global aluminium price.

The East of the country has been the victim of economic decline for several decades. The two key commercial activities of farming and fishing have both been in decline. Many people have left for larger towns and the remoteness of its location has meant that tourism has been slow to replace income. It is proposed that the scheme will see a wholesale regeneration of the area with 400 new jobs created directly and a further 500 in ancillary industries. The country’s economy has relied on the fish industry as its main export and, while the fisheries are well managed, environmental issues make revenue growth from this source seem unlikely. Tourism is growing year by year and provides a secondary source of foreign revenues. The creation of a major capital project, which uses natural resources with a guaranteed revenue stream for the next 40 years, is a prudent measure to replace any future decline in fish exports and tourism and strengthens the economy. The building of the project will create roads into the wilderness area and help bring in tourists to the highlands.

The main environmental impacts are on soil, vegetation, wildlife and landscape. The Hálslón reservoir will submerge an area of 57sqkm and diverting the rivers will impact an area of a further 2,900 sq. km, 3% of Iceland’s land area. Dimmugljúfur, one of the country’s longest and most spectacular canyons, will be partially flooded. About 60 waterfalls and invaluable features will disappear in the reservoir or will be spoilt by river diversions. 35 rare moss and lichen species will be affected, two of which are globally threatened. The reservoir will flood an area of vegetation which is used by migratory pink footed geese and reindeer for grazing and breeding. It is feared that the change will mean a local extinction of the reindeer. Below the dam, the decrease in sand carried down to the sea will cause the erosion of the shoreline, where harbour seals and nesting grounds for migratory birds will be affected. These hydrological changes will also have an impact on salmon, trout and char.

The electricity generated by the scheme has no domestic use for the Icelandic taxpayer who, through the US$ 1.1 billion worth of loans secured by the government, will be ultimately underwriting the cost of the project. Landsvirkjun and the Minister of Industry and Commerce, Valgerður Sverrisdóttir, are confident that the project can enjoy long term profitability. Independent research, however, has shown that at best the project is capable of breaking even. If interest rates increase, the price of aluminium falls, and the króna remains strong (all of which are projected), then the project will lose over $30 million a year, a loss that will ultimately be met by the already overburdened Icelandic taxpayer. If this happens, then the country will be effectively subsidising Alcoa and will have incurred huge overseas debt for a loss making project.

Beyond the immediate environmental impact of building the dam and creating the reservoir, there are deep rooted concerns about the long term impacts of the project. The level of the reservoir will rise and fall by 20 metres or more meaning that on a large area mud and silt will be exposed on the banks during the low water periods. As the mud dries, the strong and frequent winds prevalent in the areas will pick up and scatter material, like talcum powder, over the surrounding countryside, damaging vegetation and habitats and causing further erosion, which could ultimately lead to a “Dust Bowl”.
The aluminium smelter will emit 3,900 tonnes of sulphur dioxide into the atmosphere per year. This equates to an emission of 12kg/ton, whereas the United States Environmental Protection Agency allows only 8kg/ton and the WHO guidelines for Europe define a limit of 5kg/ton. This is in addition to high levels of fluoride and other gasses.
The dam is built close to one of the most volcanically active and unstable areas of the earth’s surface. The Vatnajökull glacier is reducing in size due to climate change and as a result, the earth’s crust is uplifted by between 1 and 2 cm per year, which could cause fracturing beneath the dam in years to come with disastrous results.

by Robert Jackson

So writes the poet and protester Elísabet Jökulsdóttir, and sitting in the board room of Landsvirkjun at a table long enough to hold a state banquet, it is hard to disagree with who is responsible for Kárahnjúkar. The walls of the ‘president’s floor’ have portraits of the men who in former times have managed the national power company.
Guðmundur Pétursson is a man of considerable experience. Having worked on a range of overseas projects, including in Venezuela, he is relaxed and congenial. Surprisingly so, for a man who is in charge of the billion dollar project and responsible for seeing that it is built on time and to budget. He has recently returned from a visit to China to the Yangtse River project, a scheme which dwarfs the Kárahnjúkar one.

“We are not displacing any people…”
“Our job at Landsvirkjun is to harness the country’s water power to generate electricity as economically as possible and then sell it overseas. And that is what we are doing at Kárahnjúkar. We are an island, we can’t export the electricity by cable so we have to work with foreign interests who are prepared to build in this country. Aluminium smelting needs a vast amount of electricity and we are able to supply it.”
When asked about the commercial viability of the project Guðmundur is in no doubt. “This project will have a long and successful future ahead of it and in comparison to other projects around the world, it has very small environmental impact. We are not displacing any people, we are flooding a wilderness area. When I take visitors to see the site most can’t see what the objections are about. The east needs projects like this and the benefits are being felt already. There are now four flights a day to Egilsstaðir, the hotel is building more rooms, the roads have improved, there are more shops and for the first time in years, property prices are increasing. The economy is taking off and there is optimism in the air. The project will make money despite what our critics say, we have done our sums and got them right.”
He is keen to focus on the engineering achievement and the sheer scale of what is being achieved, and he is proud of what he and his fellow countrymen are achieving.

Minister of Finance becomes manager of power company
The same upbeat message came from Tómas Sigurðsson who has been recently appointed by Alcoa. He dismisses out of hand the suggestion that Alcoa in someway benefitted from a soft deal with Landsvirkjun.
“This is the third power deal I have negotiated and I assure you it was not an easy task. We are paying a fair price for our electricity in a deal that works for both parties. We ourselves are investing hundreds of millions of dollars in building the smelter, which in turn will provide jobs and revenues for the country.”
For both these men Kárahnjúkar is a fait accompli. The government of the day voted with a significant majority to approve the project, the President in not using his veto gave his approval and subsequent polls done by Gallup show that over 65% of the country supports the project. Rivers are being diverted, mountains moved and tunnels dug.
But two years down the road, there is still deep resentment and bitterness as to how t he project came to be approved and concerns for its future viability. Criticism has been levelled at the government that the decision to proceed with the project was purely political in a tactic to secure seats in the east, and that once that decision had been made it was going to proceed, whatever the oppostion. If this was the case, then certainly its job was made a good deal easier by the appointment of the former Minister of Finance, Fridrik Sophusson, to the role of Landvirkjun’s Managing Director.

Do economic gains outweigh environmental concerns?
The same determination was apparent when the environmental issues were raised. There exists a Master Plan for Hydro and Geo Thermal Energy Resources and Kárahnjúkar did not originally receive a high ranking. Moreover, an environmental impact study carried out by the Icelandic Planning Agency in 2001 stated that “it has not been demonstrated that the gains resulting from the proposed development would be such to compensate for the substantial irreversable negative impact that the project would forseeably have.”
Siv Friðleifsdóttir, the Minister of the Environment, despite agreeing with the Planning Agencies conclusions, overruled the recommendations on the basis that “negative impact on the environmnet should not be weighed against economic benefit.” The weighing of the economic benefit was to be left to Landsvirkjun in the capable hands of a former cabinet minster reporting to the Minister of Industry and commerce Valgerður Sverrisdóttir. The fate of the most expensive, potentially prestigous and significant projects was effectively in the hands of two women, ministers Siv and Valgerður. A London newspaper, The Guardian, wrote six months ago:

“These two women’s CV’s were not reassuring. Valgerður´s only paper qualification seems to be an English as a foreign language certificate, awarded in 1972, and Siv is a qualified physiotherapist. Neither minister cites any parliametary or other experience related to their portfolios.”

If, as the government proposes, the Kárahnjúkar project will be an economic success with negligable environmental impact, then Siv and Valgerður deserve the praise for steering a controversial project through parliament, whatever their qualifications and experience. If it is a failure, then Valgerður and Siv should be held accountable in same measure and questions should be asked in the future about the qualifications required to hold such demanding offices.

“I think a few won´t hurt”
It will take a number of years before it is known whether the scheme has been a success. In the meantime Valgerður is making noises of the desirability of another hydro and smelter project in the north and in an interview last April with Paul Fontaine-Nikolov, Siv made clear her unchanged views on the environmental impact of dams and smelters: “I don’t think the Kárahnjúkur dam should be a major environmental concern. It’s being built where nothing lives; it won’t endanger any species of wildlife. Aluminium plants can be good for the environment, at least here in Iceland, because most aluminium plants use oil or coal to power them. Such plants produce a tremendous amount of greenhouse gases. In Iceland, we can use hydroelectric or geothermal power. The plants also have to follow strict government guidelines regarding how much pollution they can produce. This makes the plants environmentally friendly. Of course, we don’t want to build aluminium plants all over the country, but I think a few won’t hurt.”

Already, other aluminium companies are queuing up to get the same lucrative deal Alcoa has. There is huge competition for the country’s slender resources, hospital wards are being closed and some public spending programmes are under review. The country has never borrowed so much money before and to launch headlong into another scheme without knowing the success of the current project would be to launch into the unknown. As with any addiction, a little can lead to a lot.

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