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Magma of Canada takes full control of HS Orka

Some readers may remember a series of posts last year about the proposed — and later finalized — sale of the energy company HS Orka to a Canadian outfit named Magma Energy. This story is one of most blatantly corrupt tales to come out of this country in the last few years, and that, as everyone knows, IS SAYING A LOT.

The story of how Magma Energy managed to gain control of the geothermal energy fields of the Reykjanes peninsula for 65 years, with an option to extend for another 65 years — so for 130 years if they want it– is like something out of a horror movie with an unhappy ending. It is fraught with backroom deals, corrupt politicians, and greedy individuals who will stop at nothing to get hold of some of Iceland’s most valuable assets and then peddle them off to the highest bidder, just when this country needs them the most. [And even so, the price was not high enough.]

I wrote about it here, and also here, and here.

The deal involved an unholy alliance between a company named Geysir Green Energy, headed by such luminous masterminds as Jón Ásgeir Jóhannesson, Hannes Smárason and Bjarni Ármannsson [all formerly associated with Glitnir | FL Group and who probably don’t need much introduction to the Icelandophiles in the crowd], and the Independence Party in Reykjanesbær, the town near the Keflavík Airport [and an IP stronghold]. Geysir Green gained control of HS Orka, which is the utility company that supplies energy to the Reykjanes peninsula [the one you drive along on your way to Reykjavík from the airport] and which thereby became the first privatized utility company in Iceland. It happens to produce nine percent of Iceland’s geothermal energy.

Icelandic law bans foreign ownership of Icelandic resources. That is because a country’s resources are inextricably tied to its sovereignty. A country’s resources should benefit the people of that country, and they should have control of them. That just makes fundamental sense. However, as Iceland is part of the EEA, that legislation was expanded to include EEA countries, as well. That’s the cost of belonging to a union of that nature, for better or for worse.

Enter Magma Energy, a Canadian energy company that had its eye on HS Orka. Being a Canadian enterprise, Magma Energy was not permitted to invest in Icelandic resources. However – every problem has a solution – right? Magma Energy simply set up a shell company in Sweden and presto! they were fit to play on the Icelandic market.

[The fact that no one has thought to set up laws to ban such a simple yet underhanded maneuver completely boggles the mind.]

Magma also came along at a time when the Icelandic economy was incredibly vulnerable. It was just after the meltdown, the share in HS Orka had to be sold on technical grounds, and supposedly there was no other bidder. Or – wait! Yes there was. Only, the identity of that bidder was not disclosed to us, the Icelandic public.

At the time all this was happening last year, Magma Energy was bidding to become a major investor in HS Orka, with a 48 percent share. Geysir Green Energy would hold the remaining shares, and still be a controlling investor. However, at the time many of us speculated that Geysir Green would simply bide their time and eventually sell the entire company to the Canadians. You know, in good time. When most of the furor had died down, and people had forgotten about this and/or were busy with other scandals things.

That happened today.

Today the sale of all shares in HS Orka was sold to Magma Energy of Canada. Or – excuse me, of Sweden.

If this had happened when the IP and Progressive Party were in power, I would not have been surprised. But this happens when the Left-freaking-Greens and Social Democrats are in power! Even the Minister for the Environment is from the Left Greens! And what was her response? “Oh this is such a sad day for Iceland.” BOO-fucking-HOO!! Why didn’t they go ahead and change legislation to prevent this sort of thing? Introduce a bill in parliament? DO something, instead of whining about it?

Anyway. As you can tell, I’m pretty upset about this. Corruption, stupidity and whining politicians always make me want to break things. Either that, or eat ice cream. And now, if you’ll excuse me, I must do a survey of the contents of my freezer. Or the tableware cupboard.

PS – Ross Beaty, CEO of Magma, appeared on Kastljós this evening and played the victim, looking and sounding all “hurt” that the Icelandic discourse was so negative towards him and his saintly company that was merely wanting to “help”. Much like the halo he wore on Kastljós last year, when he was like the second coming of Christ. GAG.

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  • Johanna May 18, 2010, 12:05 am

    This makes literally makes me sick. I used to think fondly of this Hitaveita Suðurnesja. I come from that area. I wanted them to be successful. It was a good thing. Now, I´m wondering if I can buy energy from someone else.

    And then this Beaty guy showing up on Kastljós saying “I´m not a politician, I’m a geologist”. Sounded more like a gold digger than anything else to me.

    This company no longer belongs to us. I couldn´t care less if it isn´t successful. I hope they never get permission to harness more energy from Reykjanes than they already are allowed. That energy belongs to us.

    Johanna

  • Rik Hardy May 18, 2010, 12:45 am

    “The fact that no one has thought to set up laws to ban such a simple yet underhanded maneuver completely boggles the mind.”

    I am so TIRED of having my mind boggled by an apparently non-existent justice system – non existent, that is, except for the fact that I always get fined if I park my car in the wrong place and don’t have any loose change for the meter…

    Nice to hear Ögmundur demand that the government stand on its feet and put a stop to this, but why wait until the day AFTER the deal goes through?
    As you say, Alda, this matter is not new.

  • Easy May 18, 2010, 1:19 am

    I said it long time ago that this was going to happen, and It will happen with all our resourses.

  • Gwrhyr May 18, 2010, 1:47 am

    It really does boggle the mind, you’d think in a democracy the sentiment of the people that this type of deal should not go through would be able to win the day – considering the people supposedly have this little apparently inconsequential thing called the law on their side.
    Close the loopholes, make the laws enforcable. Is that too much to ask?

  • Michael Lewis May 18, 2010, 9:02 am

    Ultimately any state has te option of nationalisation. Probably under the pretext of fraud or other criminal activity. Kazakhstan has more or less done this recently, if I recall correctly. This 65 year option appears a fraud in all but name, we’re in a secular bull market for commodities and energy resources. It has a fix, but requires political will.

  • rod May 18, 2010, 9:20 am

    This is not good news and should not have been allowed to happen. You refer at one point to the EEA and rules. But these rules seem remarkably elastic. For example, a French company (EDF) can buy an energy company in the UK and has done so. But a UK company cannot buy an energy company in France. Why? because, despite the rules, France does not allow it. The French have decided that if a company is of strategic importance it cannot be bought by a foreign company. They actually went so far as to prevent Danone being bought. Yes, yogurt is of strategic importance. S o if France can do it, so could Island have done.

  • sylvia hikins May 18, 2010, 10:17 am

    Been there, got the T shirt. Remember a certain M. Thatcher (the one whose free market ideas your banksters adopted and look where that got you). She sold off all of the UK’s resources- water, electricity, North Sea Oil, transport, tele-communications, etc and even got a well known advertising agency to create the myth that the people could become the common shareholders. Last weeks Guardian published a little map showing who owns Britain’s resources, and guess what? The ‘little man’ didn’t figure at all. The majority shares were in the hands of German, French, American, Quatari, Saudi, etc etc mega conglomerates. It’s turf cottages versus skyscrapers. And you know what – most people just shrug their shoulders and can’t be arsed to protest. Oh my God, I think I’ll gob down a chocolate bar and survey the contents of my freezer too!
    sylvia from viking wirral.

  • kevin oconnor,waterford ireland May 18, 2010, 10:43 am

    Yes I saw that interview last year with Mr Reasonable “Icelanders have got me all wrong etc”, Even if you are staunch capitalist type it pays to keep your capitalists local on the hope that they would spend some of their ill gotten gains in Iceland as opposed to real estate investments in Toronto etc. Need to get your new so called revolutionary gov to do something about it, will they or are they just caretakers for your beloved IP, which is in hibernation mode at the moment waiting for the airline stewardess to get old retire etc and then when they get in again they can……. wait for it…wait for it…..PRIVATISE THE BANKS yes oh yes yes ha ha

  • kevin oconnor,waterford ireland May 18, 2010, 11:32 am

    @sylvia yes comrade citizen I too Lived under the reign of Queen Margaret Torture till I went to ozzie in 87, fond memories job centres painted in lovely orange rather than todays hideous green and that line
    ” Ave yer worked since you last signed” oh happy days I am 1 in 10 a statistical nobody in world that doesn’t care.

    Ps I think I still have my UB40 card around somewhere collectors item these days ha ha.

  • Joerg May 18, 2010, 12:09 pm

    Everybody has the right to call this a “sad day for Iceland” except for the government, which is responsible for the legislation. Their whining sounds rather hypocritical. At least, I would expect a plausible explanation from them, why they couldn’t do anything about it.

    I think, the worst about this is not the fact, that Magma is a foreign investor but the conditions and terms attached to this deal, which don’t seem to favour the Icelandic public.

  • Easy May 18, 2010, 12:16 pm

    And pretty much the same will happen with the education system, and health system, banks, services, etc. All privatized to forigners. Give it 0ne or 2 years. Now the problem is not even that, the problem is that all these things won’t even be sold, they will be given away to cover debt, now this debts to forign investors, are through forign companies in which the Icelandic “elite” was allowed to have shares, so in a way in some prcentage this “elite” of criminals will own everything for free.

  • GS May 18, 2010, 1:47 pm

    Welcome to South America!
    I feel I´m leaving back there…

  • Alan May 18, 2010, 2:06 pm

    Where is Iceland politically with all this? It seems as though what is required is some kind of shiny new national plan that encompasses things like resources (including human resources) and asset ownership as well as public debt. Does such a thing already exist? Or are you still in firefighting/investigative mode?

  • snowball May 18, 2010, 4:13 pm

    just to bring things a little bit into perspective, hs orka is a relatively small utility which is actually generating losses. imho, magma is risking a lot with this purchase. everyone investing in iceland in these days has a long term perspective. cuz one shouldnt forget that right now iceland is a one way street for capital. this explains also the long harness periods…if someone puts more than 100 million CDN on the table he can ask for a nice carrot.

    however, if hs orka is such a fantabulous investment opportunity why were there no bids from edf, eon or rwe? the magma stock gives an answer. mr. market is not convinced that it was clever to purchase hs orka for this price.

  • Mark May 18, 2010, 4:55 pm

    @snowball

    That’s the whole point, most people and banks are just thinking about the next quarter, not the long term which is why everyone is in a mess.

  • Joerg May 18, 2010, 5:24 pm

    If I am not mistaken, for the first 48% Magma actually didn’t have to cough up “real” money – apart from a 30% down payment – but they paid by means of a bullet loan from Reykjavík Energy due in 7 years bearing 1,5% interest. It doesn’t look like risking too much for them.

    I wonder, if they get similar favourable conditions for the remaining 52%.

  • sylvia hikins May 19, 2010, 10:12 am

    message for Kevin-I still have a picture of Yozzer Hughes hanging on my wall.
    sylvia from viking wirral

  • vikingisson May 19, 2010, 2:56 pm

    @GS, exactly! The decades long struggle by many groups in S.A. all have their roots in the energy and resource sectors that is primarily owned by mega corps outside the country. Even water is being sold off to the highest bidder. And of course it is sold back to the locals who generally can’t afford it. You need the money but guess who never sees any of it and then down the road regrets the short term cash deals that grandad made?

    At least you have laws to prevent the nightmare that besets S.A., Nigeria, et al. Oh wait, we have clever politicians to fix that little problem.

    And then someday if it gets bad enough you’ll have your own Chavez who will take it all back and be the new enemy. deja vu.

    (to revive an old idea, let Canada annex Iceland. we’d love to have you and we used to be known as good people)

  • sylvia hikins May 20, 2010, 10:58 am

    Canada? What about the Athabasca Tar Sands in Alberta?
    sylvia from viking wirral

  • John May 22, 2010, 9:44 am

    The EEA regulations was the reason why the viking raiders could by a lot of companies in Europe. What did Iceland do then apart for being proud ? Why is it better for a few Icelandic families to own all the fishing licences and to control the media? To me what Iceland need is companies which know how to run a company to make a profit(and pay taxes) ? Maybe Iceland could benefit from a culture not based on family connections? And if Iceland treat foreign companies as a risk based on (what?) how should foreign countries treat Icelandic ?companies ? (for all the damage some of them has done in our countries ? ) Just tax the production of energy that is easy enough(they cant move it abroad . the tax on oil in Norway is 28%+50%=78%.28% is the tax on profit. The eksta 50% is on the oil industy)
    The banks on Iceland was all Icelandic owned.
    Before someone takes badly about EAA regulations this reason that a lot of Icelandic people can find themselves jobs in Norway. Norwegians is on Iceland to investigate on Iceland invitation and you need the foreigners (NATO since Iceland has no own military) to defend you .

  • alda May 22, 2010, 12:57 pm

    John – Icelanders do not have a problem with foreign companies operating in Iceland. We just don’t want them controlling our natural resources. BIG DIFFERENCE.

  • John May 24, 2010, 2:59 pm

    Thank u for taking time of your busy schedule to answer.

    Norway do not allow any private companies to own hydro-electrical power plants

    Different when it comes to oil fields.

    Both of national interest.

    How it is done in now(in accordance with EEA(EØS in Norwegian)
    http://www.regjeringen.no/nb/dep/oed/dok/regpubl/otprp/2008-2009/otprp-nr-66-2008-2009-/3.html?id=554097

    Easily summed up hear

    – Virksomheten i Sauda skal først overtas av Statkraft i 2030 avhengig av om anleggene beholdes av Elkem eller overføres til offentlige selskaper. Borregaards eide kraftverk i Sarpsborg er bygget før hjemfallslovene og kan beholdes til evig tid. Kraftverkene i Sauda og Borregaard vil derfor beholdes, sier Opedal.

    and

    Loven tillater kun offentlig eide kraftselskaper å kjøpe og bygge større vannkraftverk

    http://www.tu.no/industri/article225037.ece

    so if Iceland want to keep their energy production out of the hands of foreigner u can not sell to privates at all. (Rent u might do 🙂 )

    How make a market if u want private companies to have a role
    http://www.kluge.no/?did=9088446

    I am not certain if u are against the idea that private companies can own the energy companies or just foreigners(the later is discrimination of foreigners., and not allowed accord to EEA)

    There is no reason to believe that foreigners to have a lower ethical standard or moral then Icelanders, to upkeep the law and pay taxes.

    I actually think Iceland would befit from companies which has foreign owners as they might not be so eager to break the law since they don’t have family connects to keep out of jail.

    I base my observation on the banking privatization of the bank system and the fish licences.
    In my view is that Iceland need to govern their resources in a way that best for the people living on Iceland, not for a few families. The banking crisis would not have reach the level it reach if there had been a more open society. For this Ponzi scheme to evolve u need a closed system and to control the information.Which makes Iceland a good place to start since Iceland is small with a tight social control and with the idea that one is unique(.. and better) (The same goes tor Norway.that is why Iceland scare me.)
    And in my view Iceland is to blame for the problem it is in.(The warnings was there, and they where strong)
    So Iceland need to change (.. and as u point out-Iceland have not. The real story is not that a foreign buys a something to make profit(that is what companies do., but that Iceland is still keeping up with it old ways – corruption. Still after the meltdown.)

    PS I cant believe that the Icelandic dont know about how to arrange the law in the energy sector. It is vital to a county. And I believe, even on Iceland, that know that a country like Norway, is a big energy producer. Neither is it a big Eureka idea for Iceland to look at Norwegian energy laws.

  • Dale in Canada June 15, 2010, 3:00 pm

    In a global business world we all have to share our resources for the sake of investment. Without that investment there would be no local jobs…period. Magma is expanding the power output, and creating more jobs in Iceland. Jobs at the plants, and at the aluminum smelter. No one seemed to mention that stuff.??

  • alda June 15, 2010, 3:30 pm

    Jobs are not the issue here. An Icelandic company can also provide jobs. The issue is that Iceland is giving up control of its resources to a foreign concern very likely for 130 years. Those resources should be the property of the Icelandic people.

    Just consider if an American company had control of Canadian oil fields and could exploit them at will for 130 years. Would there not be protests in Canada? I think there would.

    Of course the larger issue is whether public utilities should be privatized at all. That is something that does not particularly concern Magma, but which is a very pressing issue — everywhere.

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