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More on that ludicrous Magma HS Orka deal

It’s been a busy couple of days here at the Weather Report and I realize I’ve been totally remiss in keeping you posted on the big cliffhanger under discussion in the last post [apologies for that]. Meanwhile I bet you’re all just hanging on the edges of your seats waiting to know

DID THOSE FOOLISH NICELANDERS DECIDE TO KISS OFF THEIR PRECIOUS GEOTHERMAL RESOURCES ON THE BARREN PENINSULA OF REYKJANES FOR THE NEXT 130 YEARS OR DID THEY NOT?

Well, the decision is still pending. Last Thursday, the day the offer was to expire, the Minister of Finance – Steingrímur J. Sigfússon, leader of the Left-Green party – asked for an extension until the end of this month and it was granted. Apparently old Steingrímur is doing everything he can to find ways to have the state buy the outstanding share in HS Orka, to save it from becoming fully privatized. [Go Left-Greens!]

Since that time, a few more things have come to light about the proposed acquisition by Magma Energy of a majority in geothermal power company HS Orka. For instance, according to a report on eyjan.is, they would like to finance the acquisition with a bullet loan of ISK 9 billion, paid in dollars [USD or CAD is not clear] calculated at the current exchange rate. That’s, like, 70% of the total price. The lender? Reykjavík Energy – who also happens to be the seller. The collateral? Stakes in HS Orka itself.

Seriously, you can’t make this stuff up.

Meanwhile, one of the stories we’re being fed by those all gung-ho on selling is that Magma Energy has already swung similar deals elsewhere in the world, so we’re just being incredibly childish and petulant over here. Ah, but Fréttablaðið reports that Magma got far worse deals in Oregon and Nevada, for instance, than the ludicrous deal they’re hoping to swing here in Iceland. The proposed offer here stipulates that they’ll get exclusive access to our geothermal resources in Reykjanes for the next 65 years, which may be extended for another 65 after that. Conversely, in the two abovementioned deals Magma Energy got access to resources for a measly ten years, with a possibility of extending for another ten.

Twenty years instead of 130. Not really all that similar, is it?

Sadly [and alarmingly], there is an incredible amount of apathy around here over this issue. The vast majority of the population either doesn’t seem to realize what’s at stake or they’re just not paying attention. [I suspect the latter.] However, there is a scary number of people who actually seem think this privatization is a great idea – people I would not have expected that from, people who actually appear to have all their brain cells intact when they voice their opinions on other grave matters. I just don’t get it.

Be that as it may, I must say I’m delighted with the input in the comments section to the last post. It’s so enlightening and important for us to get the input from people who have actual experience of the sort of scenario we’ll almost certainly be faced with here in the next few years if this crazy deal goes through. So a big thanks to all of you who shared.

CURRENTLY RAINING
It’s been fairly mild today, but with a pesky wind. The same thing yesterday, which was Reykjavík Culture Night, a.k.a. any excuse for a party. Still – despite the relatively mild temps, it’s pretty clear that these are the dregs of summer. Fall and winter just around the corner. Currently 12°C [54F]. Sun came up at 5.42 am, set at 9.16 pm.

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  • Dean August 24, 2009, 2:04 am

    Why the fk will anyone support selling off such a valuable resource for a measly $9 billion for the next 130 years?

    Are the surveys attached with 500 Euro notes or something?

  • Carl Mosconi August 24, 2009, 8:41 am

    If Reykjavík Energy is involved in the negotiations you can bet that Iceland won´t come out on top. There are more incompetents presiding in that palace located at Bæjarháls 1 than you can shake a stick at.

  • Ljósmynd DE August 24, 2009, 10:43 am

    When is the maturity of this bullet loan? In 65 years? Apart from new investments, Magma Energy might just siphon off the profits of HS Orka and try to strip them off their assets without any risk and decide to go out of business in due time. Under those stellar conditions you might consider it reasonable to found a company yourself and make a bid for HS Orka 😉 .

    Browsing through different websites of the companies being party to this deal and other news sites reveals, that some of the involved persons somehow seem to appear on both sides of the deal. Magma Energy, for instance, claims to be advised by a company named Glacier Partners which has as CEO one Magnus Bjarnason. Glacier Partners is operating under a strategic alliance with Capacent Glacier on the Icelandic side, which apparently employs the same Magnus Bjarnason. And on the website of HS Orka you find the same Magnus Bjarnason on their board. Aren’t there any conflicts of objectives? I would presume, yes.

  • eiríkur August 24, 2009, 12:14 pm

    I´m pretty sure there is a typo in your post. Surely the bullet loan amounts to 9 millon USD instead of 9 billon USD. If I´m wrong then I don´t seem much wrong with Magmas offer.

  • tom joseph aka tj3 August 24, 2009, 12:17 pm

    …you really cannot make this this stuff up!

    Mark Twain once said “truth is stranger than fiction. Fiction has to make sense”.

  • alda August 24, 2009, 12:30 pm

    eiríkur – yes, you are absolutely right! Thanks for pointing that out.

    It wasn’t actually a typo, but the fact that I misunderstood the info in the Eyjan news item. I’ve changed it in the post and linked to the item.

    tj – I love that quote!

  • Easy August 24, 2009, 7:03 pm

    And wile we are looking the other way…”Fjárlaganefnd hefur í dag unnið að því að skerpa betur á fyrirvörum við ríkisábyrgð vegna Icesave-reikninganna.” frettir@ruv.is. Could it be that they are acctually backing up. (with the “emandments”)

  • Silvia Planchett August 24, 2009, 8:13 pm

    I can tell you this much OR is considered the most laughable excuse for a public utility in the developed world. Business associates who have visited these folks come away amused at the pretense of the folks running this organization. It begins at the algae infested waterfalls at the entrance and continues with the 2 little old ladies at the reception desk who have absolutely nothing to do but chat with each other. Take the elevator to the various floors and be greeted with a video monitor screen detailing the various departments! Only when you arrive at the office of the person you are scheduled to meet does the real bullshit begin. Carl is absolutely spot-on when he uses the the adjective incompetents.

  • Davros August 24, 2009, 8:21 pm

    Depends how you look at it, if it’s privatisation of an electricity utility it’s usually a bum deal for the consumer as the provision of electricity (like railways and water) is a natural monopoly. Its very inefficient to go round laying competing pipes/rails/powerlines. If you look at it in the same way as oil exploration it’s not so bad, in return for building the often very costly infrastructure the private sector gets to exploit it for X years splitting the profts Y/Z. Also they’re getting it at a steal given current ISK/USD rate.

  • Alexander E. August 24, 2009, 8:41 pm

    Apparently old Steingrímur is doing everything he can…

    I’m not that sure. Not at all. All he should do – just let it happenes then start criminal investigation to get back assets (and get crooks locked). As Ljósmynd DE and you, Alda, pointing out to “odd things” in this deal – there shouldn’t be a problem to crack this fraud.
    But I doubt old Steingrímur would dare to do that 🙁

  • Easy August 24, 2009, 11:14 pm

    I ment While.
    And wile we are looking the other way…”Fjárlaganefnd hefur í dag unnið að því að skerpa betur á fyrirvörum við ríkisábyrgð vegna Icesave-reikninganna.” frettir@ruv.is. Could it be that they are acctually backing up. (with the “emandments”)

  • Peter Reeves August 25, 2009, 1:13 am

    These matters will eventually get leaked, but unfortunately only after the ink is dry. The driver behind the deal is a raft of backhanders or bribes to certain mayors. Iceland has nowbecome known as the Nigeria of Europe, so there will be more to come. Everyone wants a slice!

  • The Other Katherine Harris August 26, 2009, 9:00 pm

    If you haven’t already seen it, Magma’s investment pitch at http://www.magmaenergycorp.com/s/Presentations.asp is a must-read. This is quite a new operation, little more than a year old, led by a guy who’s formed and sold assorted metal mining ventures. Clearly it’s designed to be a fast money machine for the financial community, rather than a utility company serving customers.

    Same is true of one of its major backers, the AltaGas Income Trust (which you can read about at http://www.kciinvesting.com/articles/8544/1/High-Yield-Of-The-Month-AltaGas-Income-Trust/Page1.html). For them, any involvement in natural gas is strictly a means to a much larger end.

    Among other major backers are the Saudis.

    Right now Magma has a wad of IPO cash for an hurried acquisition spree. Investment is mainly institutional; it’s a place for that sort of huge money to balloon, while there isn’t much else to do with it profitably — and the firm will probably be sold in a few years to a giant capable of harvesting your power and selling it anywhere in the world.

    Some of the honchos have high-level ties to US government; one ran the US Navy Geothermal Program for 20 years and another ran the US National Geothermal Program of the Department of Interior. Others have ties to the oil industry.

    Alda, this whole thing reeks to heaven. If you guys get into it, Niceland is gonna be SO screwed. The IMF/World Bank wrecking crew always usher in predators like this to grab public utilities and it’s never a pretty piccy. As you know, I strongly suspect that your country was brought down specifically for the purpose of seizing your geothermal energy.

    I’d have joined your gang in looking into the Magma matter sooner, but last week was given over to a houseguest. The material Ljósmynd DE turned up on the hydra-headed ‘advisor” is fascinating! You’ve really got to find a way to wake your compatriots up to what all of this means and draw a firm line around resources that MUST be protected by remaining under local control.

    Wishing you best luck from New Mexico,
    Erin

  • alda August 26, 2009, 10:09 pm

    Thanks for that, Erin. I wasn’t aware of this very pertinent information.

  • Smax September 22, 2009, 4:54 pm

    I think MXY would do wonders for HS Orka. Have a major name as a stake holder to sell the power externaly. It would be lower profits selling the power on Iceland.

    Magma is on track to consolidate the geothermal industry through aqusitions and buy outs. This deal isn’t even good for controlling stake. Eventually I can see Magma taking 51% in HS Orca, but not in the 2 year near future.

    The CEO, Beaty, has done wonders for the copper and silver drilling industries. His vision being passed to this newer sector shows alot of potential, and he’s in early enough to take a large market share.

    HS would be in a great position getting in with MXY early off, while both situations are young. Rather than being bought out for a worse deal down the road.

    This deal would be a boost on both sides of the table.