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Silicon Folly: The Failure Of The Latest Industrial Trend

Silicon Folly: The Failure Of The Latest Industrial Trend

Published September 10, 2018

Tourism is not the only troubled industry In Iceland. The sharp increase in demand for solar panels has necessitated growth in silicon production. The country’s abundant, cheap and sustainable energy has made Iceland an attractive base. United Silicon was the first manufacturer to go into production and has been the source of a constant stream of bad news from the start. The latest scandal involves the company’s founder and former CEO Magnús Ólafur Garðsson’s second fraud case. United Silicon is suing him in Reykjanes District Court seeking reimbursement for 71 million Icelandic Króna (ISK).

They claim Magnús deposited this sum in a Danish bank account and then used it for his personal benefit. At the beginning of the year, Magnús was convicted for issuing around half a billion ISK in fraudulent bills to an Italian company. The giant consulting firm KPMG discovered the fraud as part of bankruptcy procedures. The latest fraud case was uncovered after the first trial concluded. Everyone else in the company claims to know nothing about the crimes.

Insurance not reassuring

United Silicon made an insurance claim for faulty equipment in 2017. The insurer said it was a valid claim but could not pay it because the policy had been issued to a holding company. Magnús was therefore the only person who could make the claim. United Silicon threatened to sue Magnús if he did not file the claim. He agreed to do so in court. However, the company is still considering legal action against him. The insurance payment was 112 million ISK.

“It remains to be seen if the financial and technical problems of the existing factories, and the scrutiny of the state and residents will prevent their construction.”

Shortly thereafter, the company filed for bankruptcy, around the same time they filed charges against Magnús. Investors and lenders had until the spring to file claims against the company. Claims totaling 23 billion ISK were made. Arion Banki, the only large private commercial bank in Iceland, was a major investor in the company. The bank also loaned United Silicon considerable amounts of money while it was operating, and made the largest claim at 9.5 billion ISK against the company, of which 9 billion was given priority status. Arion Banki was the only large claimant to be given priority and others are suing for damages as well. The bank has admitted it was wrong to lend the company so much while its problems were so large and frequent.

Troubled from the Start

It was a long, dirty road to bankruptcy for United Silicon. The plant was approved with the support of many political, business and labour leaders in the community. Reykjanesbær municipality had been hit by two crises within a few years. The U.S. military base closed in 2006 and then the financial system collapsed in 2008. The base had been the heart of the local economy since the 1950s, and it was hoped that the facility would bring down the highest unemployment rate in the country. United Silicon started operations in November 2016, and shortly thereafter residents began seeking medical attention for chemical burns in their respiratory systems. In addition to the immediate injuries, these chemicals are carcinogens and linked to other illnesses. The company acknowledged that mistakes had been made and stated it was fixing the issues. It was characterized as a beginners’ mistake. Only two months later, in January 2017, videos recorded by workers at the plant showed that the factory was continuing to release pollutants, and always under the cover of night.

In March of 2017, the municipal council called for the factory’s immediate closure after test results showed arsenic levels twenty times higher than the environment agency’s upper limit. United Silicon denied responsibility and suggested there was another unspecified cause. The environment agency rejected these claims and noted that tests had been taken before and after the plant started operating. The environment minister at the time, Björt Ólafsdóttir, ordered the factory shut down in April 2017, shortly after a small fire in the plant. Experts from abroad were brought in to investigate. The plant resumed operations several weeks later under strict state supervision. This same scenario, including a fire, was repeated in September 2017. This plant remains shut down to this day. Inspections revealed that while the design of the facility was satisfactory, its equipment was of very poor quality. It was estimated to cost 3 billion ISK to update the factory. The prolonged shut down and high costs of retrofits caused the board of United Silicon to file for bankruptcy in January of this year.

Northern Exposure

The Reykjanesbær plant is not the only Icelandic silicon facility to have a negative environmental impact. The only other plant so far, PCC BakkiSilicon, near Húsavík in northern Iceland, recently released unfiltered smoke due to a computer error. Emergency vents opened, bypassing the normal filtering process. The furnaces are meant to shut down when there is a problem but failed to do so. The vents were only open for fifteen minutes and local monitoring stations showed that air quality remained within the standard range. This is not the first time this has happened at the plant. In a worrying admission, management expects it will not be the last either.

PCC Bakki opened in the spring of this year and, other than a few other similar instances, has been producing silicon without complaint from the local community. The small, rural municipality, like Reykjanesbær, wanted to attract new jobs and increase tax revenue. The centralization of the fishing industry has hit Húsavík hard,as it has many communities outside the capital region. If the plant continues to operate relatively smoothly, locals appear content.

Metal Mentality

Heavy industry was a long-time dream of Icelandic businessmen and politicians (and they were all men for too long). Author and 2016 presidential candidate, Andri Snær Magnason’s book, “Dreamland,” reshaped the debate. The book, in part, documented the pollution of Iceland’s aluminum smelters and the flooding of valleys to build hydroelectric dams to power them. The residents of Hafnarfjörður rejected an expansion of their local smelter in a referendum after the book’s publication. During her brief tenure as environment minister, Björt Ólafsdóttir declared that heavy industry would no longer have carte blanche and Iceland needs to move on. Her successor, Guðmundur Ingi Guðbrandsson, a well-known environmentalist and nominee of the Left-Green Movement is likely to continue the tight scrutiny of industry.

Two more silicon plants have been proposed. One next to United Silicon and another in Grundartangi, not far west of Reykjavík. It remains to be seen if the financial and technical problems of the existing factories, and the scrutiny of the state and residents will prevent their construction.


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