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Of corruption, stupidity and the value of green energy

Lest you think the entire HS Orka debacle started with the entrance of Magma Energy stage left, think again.

The sale of Iceland’s resources actually began in 2007, when the Icelandic government – headed by the Independence Party – decided to sell its share in the geothermal power company HS Orka. Curiously, one of the conditions of that sale was that only private parties could purchase the share. As you will know if you’ve been paying attention, the IP is all about privatization – and preferably to their own personal friends.

The buyer of that share was a company named Geysir Green Energy, which had been set up expressly to invest in power companies and was headed by a handful of ultra-slick Icelandic investors [the names Bjarni Ármansson, Jón Ásgeir Jóhannesson and Hannes Smárason may ring a bell for some of you]. They knew, of course, that energy companies – and particularly green energy companies – were [and are] the investments of the future.

Earlier this year a big scandal arose when it was revealed that a company named FL Group, which owns Geysir Green Energy, paid a bribe grant of ISK 30 million to the Independence Party at the end of December 2006. Two days later, on 1 January 2007, laws took effect that prohibited grants of that size to political parties. In other words, FL Group  [which incidentally is renowned for the greatest financial mismanagement of any Icelandic company in history] snuggled up to the IP just in time.*

Two months later, the coalition government of the IP and the Progressive Party sold its 32% share in HS Orka to Geysir Green Energy, right in the middle of an election campaign, i.e. while most people were busy looking the other way.

Fast-forward to this summer when the town of Reykjanesbær – right near the Keflavík airport – decides to sell its share in HS Orka to Geysir Green Energy. The town’s intention to sell was not announced publicly nor was the share advertised – i.e. Geysir Green was hand-picked as a buyer. I probably don’t have to tell you that Reykjanesbær is an IP stronghold and its mayor, Árni Sigfússon, is the model of a good IP-er. The terms of that sale are pretty much impenetrable for a regular person like our YT – it is that complicated. Suffice it to say that it was sold at a price ISK 1.2 billion lower than the actual value of the share, as it was assessed in December 2008. Reykjanesbær received ISK 2.5 billion in its pocket as a down payment, the rest is – what else? – a bullet loan, payable seven years hence.

One of the components of the deal is that Reykjanesbær sold valuable land [energy fields] to HS Orka – land that the nearby town of Grindavík holds the planning rights to. Grindavík protested and tried to buy the land – but couldn’t even get close to the table.

And now Reykjavík Energy has been ordered to sell its share in HS Orka, and the IP in Reykjavík City Council has approved the sale to Magma Energy, as I blogged about here and here. People have argued that it is essential for the sale to go through immediately because RE is in a horribly tight spot [this is true] and there are not exactly buyers waiting in the wings.


When Magma Energy made its offer, apparently there was another bidder for the share. However, due to a lack of transparency, it has not been revealed who that bidder is – or was.

Also, just before the weekend, there was an interesting report in the news. It concerned a group of Japanese investors who apparently approached the  Icelandic Ministry of Finance last December, expressing an interest in buying Glitnir bank and possibly making a few other choice investments. The Japanese investors had between ISK 100-200 billion to invest with. And what happened? THEIR BUSINESS PROPOSAL GOT LOST AT THE MINISTRY. It was never followed up. Squandered. Just found last week, when reporters started snooping around.

How f*cking incompetent can people be??! ARGH!!!

Oh, need I mention that the Minister of Finance at the time was one Árni Mathiesen of the Independence Party, he who had that edifying conversation with British Chancellor of the Exchequer Alistair Darling last year?

So clearly the “we have to rush into a sale right this moment because there are no other potential buyers anywhere” just doesn’t compute. After all, there are few things certain in these uncertain times – but one thing that IS certain is that green energy will only get more valuable in the future. And that corruption and ineptitude and plain stupidity will probably prevail.

There is a storm warning for the central highlands today [everyone in Landmannalaugar – bolt down your tents!] and it’s pretty windy here in the capital, too. We’re in for showers today but with mild temps. Currently 12°C [54F]. The sun came up at 6.46 and will set at 7.58.

* It was also revealed that Landsbanki paid a large grant to the IP at exactly the same time – and it is speculated that this was the reason the Icesave accounts were not regulated properly. But that’s another story.



Comments on this entry are closed.

  • Baldvin Jónsson September 14, 2009, 12:21 pm

    The city council will meet tomorrow and plan to finalize their decision to support the contract with Magma Energy.

    If enough people show up to demonstrate we have a slim change to affect their decision.
    Are the readers here located in Iceland willing to do some footwork?

  • Ljósmynd DE September 14, 2009, 12:37 pm

    Why did they “loose” the proposal of the Japanese investors but not the offer of Magma Energy? And why didn’t they try to get a better deal by having two potential buyers compete? Are there any disguised interests to favour Magma Energy – like some Tortola money in need of being reinvested or anything like this?

  • James September 14, 2009, 12:45 pm

    I wonder if the reporters discovered how the Japanese proposal was lost – perhaps the ministry’s admin staff were busy preparing for Christmas.

  • Mike Richards September 14, 2009, 4:47 pm

    I wish Icelandic politicians would get their act in order, at the moment they’re in serious danger of making Britain’s Gordon Brown look competent.

    ‘Lost at the ministry’ does sound a bit like ‘the dog ate my homework’ excuse that didn’t work with any of my teachers. Of course it might have helped if I had a dog at the time…


  • Alexander E. September 14, 2009, 4:59 pm

    This is not important but could you translate it to more simple English 🙂

    “Lest you think the entire HS Orka debacle started with the entrance of Magma Energy stage left, think again.”

    And a second thought. It’s nice to be able to discuss the mess in the blogs, twitting it around the globe etc. But could we do something about the mess? And if we could – how?

  • Alexander E. September 14, 2009, 6:20 pm

    Baldvin Jónsson 09.14.09 at 12:21 pm

    The city council will meet tomorrow and plan to finalize their decision to support the contract with Magma Energy.

    If enough people show up to demonstrate we have a slim change to affect their decision.

    How many would be “enough” by your opinion? 200, 300, 1000?
    I think City Council can afford to ignore even 10,000 as this is not a majority. They just would claim they are acting for the benefit of this majority not those few demonstrators. At least they showed their “respect” to minority in the Council already. Why do you think it will be different now?

    Are the readers here located in Iceland willing to do some footwork?

    What about brainwork? I think it’s much more effective. And we have a proof of it right here, in the blog.
    If “Vinnurs” had to write something here to support their case – this means just a thousand words on the screen can do more than a thousand foots.

  • Paul H September 14, 2009, 11:12 pm

    Live a good and righteous life and things will go well despite what the world does. I cannot think of anything more encouraging to say. Do your best, personally, speak up when necessary, but always act as best as you can. Be honourable. Be truthful. Be just. Have faith that what is good always triumphs in the end, no matter what. I look to Iceland, but I deal with living in America. A land of great ideals, but with many moral quandaries.

  • idunn September 15, 2009, 3:15 am

    Thank you for detailing some of these machinations.

    A time honored and well practiced aspect of marketing in a land that more or less invented it, the US of A, is in imposing time limits. ‘Buy it now, or the deal expires!’ The more savvy customer (or as they would have it – consumer) is naturally wary of such things. Me thinks anyone rushing through energy sales in Iceland would just as soon the public never know some key aspects of the ‘deal.’

    Concerning green energy, windmills are one good example. But not, as they sometimes are, many stories high and placed nearly in someone’s backyard. Then, they are not only an eyesore but a health hazard in excess noise, etc. The same applies to geothermal energy. What a wonderful, cost effective, and green resource this can be when wisely used. If rapaciously exploited for maximum profit with little care for either the environment or other citizens, then the scenario green in name only, and otherwise an affront to all of good will.

    Iceland is hardly unique in such things, sadly. Such practices are widespread throughout the world, where greed and fraud are presented as good business practices and necessity. But the result more usually near inevitable environmental destruction, and anything but the good welfare of all citizens. No matter the legalese involved, or how smoothly these schemes are conducted, by any other name commonsense will know them for what they are: Theft. The citizens of any country, and most particularly Iceland, should treat those responsible appropriately. And at last say, yes, we can . . . and, no you don’t.

  • Dean September 15, 2009, 6:08 am

    You expect this to happen in situations like when Russia and China opened up to capitalism for the first time and golden assets were given away to best friends.

    Certainly not in a country with the highest standard of living on earth.

  • Gary Volster September 15, 2009, 9:17 am

    You may have to end up calling it Viceland instead of Niceland!

  • Kerry Scott September 15, 2009, 1:08 pm

    In this country (USA) we would have the opportunity to enjoin these actions in the courts. Is that not an option in Iceland as well?

  • The Other Katherine Harris September 17, 2009, 4:21 pm

    It was a setup all along and this ripoff is just the beginning, unless you guys manage to evict the IMF/World Bank wrecking crew. Exactly the same crap is going on in Eastern Europe.

    We’re next, or close to next. Few Americans realize it yet, but the IMF has been auditing us for more than year. Shrub invited them in, on condition that no report would be made until he was long gone.

    The damned banksters own us all. National sovereignty — what’s that?

    With profound condolences on your recent loss,