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Government nearly implodes over Magma affair

Well, there has certainly been a bit of a stir about the whole Magma – HS Orka deal while I was away.

The government threatened to implode over the issue, as three MPs from the Left-Greens said they would withdraw their support for the majority coalition if the government did not do something to annul the sale of the Icelandic energy company to the Canadian concern.

Subsequently the government decided to appoint yet another committee to go over the legitimacy of the deal [as you may recall, Magma of Canada set up a shelf company in Sweden to circumvent* Icelandic laws] before it is 100% approved. Even though the previous committee [which was, note bene, made up of people with NO legal training … the chairwoman is an art teacher, with all due respect … ] had already sent Magma a letter saying that it had concluded that the sale was legitimate [to be fair, the committee was divided on the matter].

That committee shall deliver its report in mid-August. If the committee finds that the sale was legit, the government is looking at other ways to revoke the deal.

Predictably, there are lots of people in Iceland wery wery unhappy about this state of affairs, and support for the government has dropped precipitously. The Independence Party [a.k.a. the Meltdown Party] is once again the biggest party in Iceland, according to opinion polls.

Seriously, I sometimes think Icelanders are beyond hope.

Meanwhile, the Grapevine has an excellent interview with old Björk Guðmundsdóttir on the matter. No less interesting is reading Björk’s letter to Ross Beaty, Magma’s CEO, in which she details Magma’s misdemeanors in other countries and exposes the company’s subversive activities to gain control of STILL MORE Icelandic resources. Shocking, and both are recommended reading for anyone interested in Iceland and Icelandic affairs.

And the best thing? Ross Beaty yesterday told the Financial Times that he was considering pulling out of the deal because of all the opposition. [Because he’s so hurt and misunderstood — after all, he’s only trying to help us.] I suspect he’s bluffing — but I hope he’s not!

* See? I know what circumvent means — really!



Comments on this entry are closed.

  • Lissa August 2, 2010, 3:09 pm

    You know, I’m getting really sick and tired of ultra-rich businessmen complaining that their feelings are hurt.

  • alda August 2, 2010, 3:18 pm

    Yes, and in this case it’s so blatantly manipulative that it’s nauseating.

  • Lissa August 2, 2010, 3:34 pm

    Magna has been pulling the same kind of thing here in Maryland. If they don’t get major tax breaks and aren’t allowed to start running legalized gambling, they’ll be forced to close Pimlico Park, where the Preakness horse race is run. And that’ll kill the horse breeding and training businesses! Just think of the ponies!

  • sylvia hikins August 2, 2010, 5:37 pm

    Magma wouldn’t behave in Iceland the way they did in Peru? You bet they would. I am not sure if Icelanders recognise how economically weak they are. A recent analysis in the Guardian of European economies included Iceland and put it at the very bottom of the league, below Greece. The vultures always circle above any situation that will give rich pickings regardless of whether an economy is first, second or third world. The difference is usually the level of remuneration at the bottom of the pile. It’s good to hear that the Left-Greens are flexing their muscles. Keep hold of your natural resources- in the long run, it’s all you have. Three cheers for the lovely Bjork in showing leadership and a clear grasp of the situation.
    sylvia from viking wirral

  • Easy August 2, 2010, 6:00 pm

    “Seriously, I sometimes think Icelanders are beyond hope”.
    I acctually belive that.
    On the other hand “I sometimes think Icelanders have hope”, like with this issue of magama, I just hope that people and bloggers keep on pressing and pressing, specially this next 10 or so days, lets not allow “them” to distract us with anthing from this matter. Or what is worse, distract ourselves.

  • Kris August 2, 2010, 7:24 pm

    Starve the people, feed the bankers!
    The only muscles the Left-Greens will be flexing are those that will allow them to fake concern while stabbing the people in the back.
    How about arresting the people who made the deal for corruption and racketeering. That will kill the deal. A la, “sorry these gangsters sold you something they didn’t own. Better luck next time.”
    The corporations are taking over everywhere. Democracy as we know it is biting the dust. That is the trend I’m seeing. If the deal fell through, I bet the IMF would chime in. They wouldn’t want the dominoes to start falling in the other direction.

  • Michael Schulz August 2, 2010, 7:56 pm

    No, Icelanders are not aware of how weak they are economically. There is nobody to tell them in honesty. No societal rehabilitation thus far. No sector. Not politics, banking, economy, media, academia, etc., etc. . Nil, zero, zilch. Amazing.

    I know of only very few individuals who recognize the extreme degree of vulnerabilities the nation, the state, the society are exposed to.

    My only hope is that the Prime Minister, currently attending some obscure Icelandic diaspora festivals in Canada and the US, will return enlightened and magically-mysteriously demonstrate leadership. She might have something to say on myriads of issues and could start with the clash between IMMI and Wikileaks, and … or … and … or … and … !?

    In the meantime – undoing Magma retro-actively – other potential investors might abandon ship (not that I have any sympathies for Magma at all but the process as handled from the Icelandic side was as unprofessional as it can get).

    In the meantime the Independence Party, banksters, corruption, megalomania, et al prepare for another performance. They are the old/new hopefuls. Yes, there is hope.

  • Virgile August 2, 2010, 8:50 pm

    Should we send Beaty chocolate?

    I think the left greens in the gouvernment are playing with fire. Even if i think the Magma deal is very 2007ish…. i think that the methodologies used by VG are just ridiculous. Their whole political drama made the public forget that this shity has been prepared long before their started to be in charge, and that the same philosophy used to privatized the bank has been applied to other sectors.

    What do they think will happen if the gouvernment falls… They are in power they should try to do stuff instead of all time threatening fellow politicians. This is getting very exhausting.

    Can someone get them to work for real and stop complaining?

    As a foreigner in Iceland, i am also starting to be really concerned with the whole…we don´t want foreigner owning some of our stuff…Maybe you should look a bit into this…because i think that Iceland is right now changing its relationship to the outside world…..and there is unfortunately some outlanders living in Iceland…

  • Michael Schulz August 2, 2010, 10:53 pm

    Your f… right. Iceland wants to be received like royalty abroad but not receive abroad as royalty back home (except in the circle of family and/or friends).
    Ps: Some MPs now want a referendum on NATO. Not that I’m for NATO but … !? And it goes on and on … !

  • alda August 2, 2010, 11:14 pm

    Virgile, Michael Schulz — now, come on. Trying to turn this into some kind of xenophobia issue is ridiculous. This is not about Icelanders not wanting foreign investment in Iceland — it is about keeping Icelandic resources under Icelandic control. It’s about Icelandic RESOURCES. I couldn’t care less if a foreign concern came here and set up a pharmaceutical company, or a clothes factory, or restaurant chain. But when they go all over the country subversively trying to gain control of Iceland’s resources, which is the only thing we really own, that’s when I object. We need those resources, to get us out of the kreppa and to ensure our freedom in the future. Allowing foreign concerns to gain control of them is just a new form of colonization.

    Björk puts it very well here : “I feel this talk of xenophobia is an attempt to sidetrack the discourse. The real question is whether it is a good idea to privatise and sell off our energy resources at this point. We as a nation are badly burnt after the collapse, and we are not in a good position to negotiate. We have to make a clear strategy that we agree on, to prioritise, so we are in a better position to negotiate with the outside world.”

  • Pétur August 3, 2010, 1:04 am

    Oh God, this Magma thing is such an unbelievable mess! I’ve changed my mind more times than I can count. How come those Left-Green MPs always seem to object to things long after the deal is done??? I now favor the Norwegian way: All companies producing energy for the consumer market should be majority owned by the state or other public entities. Private companies will do more harm than good on this market because there will never be any significant competition.
    What I really want to know now is what genius wrote the current energy legislation and how come Magma was able to get a 65 year renewable lease on those energy resources!!! That is WAY too much. It should never be more than 30 years and should absolutely not be automatically renewed as seems to be the case here.

  • idunn August 3, 2010, 5:17 am

    One does perhaps wonder. If all is not right, then put back in power the Independence Party, who would surely fall over themselves in rushing to sell off Iceland’s natural resources and future?

    I did read Björk’s letter. If the majority of her fellow citizens had as much heart, there shouldn’t be much problem. If perhaps a bit optimistic with Mr. Obama and his intentions, she is surely correct of what might befall Iceland as an ‘energy colony.’

    BTW, what does ‘Kennitala’ mean? Presumably ’email,’ although I couldn’t enter anything in that field on the petition. Perhaps only for citizens of Iceland?

  • PeterRRRRR August 3, 2010, 7:38 am

    With Iceland’s bond rating recently being downgraded to negative, discouraging foreign investment might not be the best strategy for economic recovery. Where else is capital going to come from but the private sector?

    Pétur – comparing Norway (with its exportable oil resources) to Iceland (cheap electricity that can only be used at its source) is a probably not the best choice.

  • Michael Lewis August 3, 2010, 8:36 am

    “which was, note bene, made up of people with NO legal training … ”

    Almost as bad as having a prime minster who was a ‘trolley dolly’ turned trade unionist 😉

    The deal is a poor one. Magma don’t actually pay anything – the government was, as far as I understand it, actually loaning them the money to make the purchase. So just receiving interest, that would progressively become far less than the energy being delivered.
    Just a personal opinion, but that strikes me as pathetic. It seems very odd that its got this far … very “odd”.

  • Michael Lewis August 3, 2010, 8:39 am

    “Allowing foreign concerns to gain control of them is just a new form of colonization. ”

    Of course: which is why EU membership would be bad for Iceland.

  • Pétur August 3, 2010, 10:44 am

    Idunn – Kennitala means Personal Identification Number. Everyone who lives in Iceland has one. It’s necessary for everything from renting a video to opening a bank account.

  • Michael Lewis August 3, 2010, 11:01 am

    “With Iceland’s bond rating recently being downgraded to negative, discouraging foreign investment might not be the best strategy for economic recovery. Where else is capital going to come from but the private sector?”

    True, but the Magma deal was incredibly poor one. Far better to open up lots of opportunities re: resources and pick the best offers. Hawking anything off one at a time will just encourage firms that think they can get away with robbery. It is what they’ve done in some African states for example. DR Congo et al. have fantastic reserves: which should mean that they and their people are as rich as Australians. They’re not. Bad deals.

  • sylvia hikins August 3, 2010, 11:15 am

    Michael- methinks the gentleman doth protest too much. Are you a UKIP supporter?!!!!!
    sylvia from vikng wirral

  • Michael Schulz August 3, 2010, 11:54 am

    Sorry I didn’t express myself clear enough: for me its not about xenophobia at all but about protectionism in various forms. One doesn’t have to look far or deep: its all over the place.

    Also: I was and am vehemently opposed to all forms of privatisation of natural resources be it fish, oil, gas, air, water you name it. (Incidently, I am also opposed to the privatisation of most public service sectors be it education or health or garbage collection etc..)

    Investing in Iceland in “pharmaceutical company, or a clothes factory, or restaurant chain” ? Would be nice but why would anybody? Wasn’t McDonald’s just shut down ? Is the local labour market competitive ? Haven’t we just been rated down to junk ? Would investors appreciate an artificial currency and currency restrictions ? Etc., etc..

    Besides, I would hope existing businesses would succeed in exporting more as that lifts us out of (financial/economic)Kreppa more than anything. (And we need to get rid of corrupted elites in politics,finance, economy, academia and media.)

    To progress we need, amongst others, politicians who lead a public discourse. They have to be competent, not (ethically, politically, etc.). corrupted. They can no longer afford to cover their incompetence and corruptibility by means of retroactive polictics. We don’t need hindsight but foresight. (Aren’t there those – as we speak – at work to undo our Nato membership ? )

    I don’t care much about Bjork. I appreciate she acts albeit at times with too much sentiment. But no VIP factor will change reality. Its still reality that will change perception.

    Finally, talking to folks on the ground, in Reykjanesbaer, I was taken aback by how defensive people were about the Magma deal. I felt somewhat lost and confused and wondered if perhaps I had mixed up reality and perception!?

    But we cannot continue to react retrospectively

  • Joerg August 3, 2010, 12:20 pm

    This whole affair is really infuriating, full of lies and manipulation. I’m still wondering, who is responsible for initiating this deal with Magma, which is so disadvantageous for Iceland? And who is profiting now?

    I wouldn’t feel any better, if it wasn’t a Canadian (oh well, Swedish) but an Icelandic company, gaining exclusive rights to exploit geothermal ressources for the next 130 years. Basic services like power and water supplies and others just don’t belong into private hands at least not a majority of shares. In Germany we are feeling this right now by unjustified exploding energy costs for consumers.

    There is a very biased and misinformed coverage of this affair in the German Spiegel Online, based on an article on the FT. The propaganda machine on Magma’s side seems to be working.

  • alda August 3, 2010, 1:20 pm

    @Michael — thanks for the elaboration. Just a small comment: McDonald’s wasn’t foreign investment and it wasn’t shut down by foreigners. It was the Icelandic owners of the franchise that decided to discontinue with it because it was too expensive to keep paying the fee to McD’s.

    @Joerg – I’m still wondering, who is responsible for initiating this deal with Magma, which is so disadvantageous for Iceland? — See here: https://icelandweatherreport.com/2009/09/of-corruption-stupidity-and-the-value-of-green-energy.html. As far as I can tell, it was Reykjanesbær, led by the IP, who cooked up the Magma deal.

  • Bromley86 August 3, 2010, 1:21 pm

    >Finally, talking to folks on the ground, in Reykjanesbaer, I was taken aback by how defensive people were about the Magma deal.

    Yep, they seem quite desperate to do the deal:

    Ignoring the real possibility of something nefarious, why is that? I don’t think I’ve seen all the key figures summarised, but perhaps it’s as simple as the current owners having no choice, for example if they have no chance of renewing/paying off the $187m debt.

    Certainly, it has been made quite clear that the Icelandic state cannot take on elective debt.

  • alda August 3, 2010, 1:33 pm

    @idunn — as Pétur explains, kennitala is your social insurance number, and yes, I think that petition can only be signed by those who have one. Which incidentally includes all foreigners who live in Iceland — for those of you posed to accuse Icelanders of xenophobia.

  • snowball August 3, 2010, 2:04 pm

    does bjoerk really understand that icelandic geothermal energy is currently only an asset because its so cheap and consumed on the spot by heavy industry?! nota bene, an industry bjoerk is heavily against. the key question for this country is not who owns the energy or exploitation rights. the energy is surely important but on the lowest level of the value chain. right now its used for producing alu sticks or base powders for various industries. this is more or less a very primitive way to use this energy. the challenge for iceland is how to get involved in development works or production chains based on these primitive alu sticks and powders. imho, a modern iceland is a place where you find small and medium enterprises in the aerospace industry, semiconductor industry, photovoltaic industry, automotive industry and you name it. such a vision or initiatives is actually the task of the government (ministry of industry and education) and the universities. why not come up with a free tax zone or subsidies for r&d companies around the alu plants? this money is better spent there than in the defunct banks. as far as i know, there is very little happening in this direction. the key question for iceland is: where are the thousands of Icelandic students in metallurgy, mechanical engineering and process engineering who are able to discover the additional value of the geothermal energy and shape the future of their country? without these people, iceland will become the third world energy colony which bjoerk mentioned in the financial times. however, bjoerks advice to keep the icelandic resources in icelandic hands reminds me a little bit on the arabic approach in the oil rich countries like the uae….let the energy work for us and we chill out lazy in the hot pot or drive a range rover with golden rims and a diamant cladded steering wheel. the lazy way is the stupid way. a sustainable path for iceland is very close to wladimir iljitsch lenins words: there is only one solution for russia 😉 education, education and more education.

  • Joerg August 3, 2010, 3:30 pm

    Ok, I understand that the IP, which is ruling Reykjanesbær, is apparently willing to squander away Iceland’s natural geothermal ressources on the cheap to some private company. At the same time they are in opposition to Iceland’s EU membership, because the evil EU is after Iceland’s natural ressources and the fish. Isn’t there an inconsistency in their attitude here?

  • Michael Lewis August 3, 2010, 4:56 pm

    Interesting ….

    “In Germany we are feeling this right now by unjustified exploding energy costs for consumers”

    Part and parcel of ‘exploding costs’ that many people will complain about (not just energy, but food) will be due in part to various reserve banks printing money (or quantiative easing as its called these days).

    Even the press gets it wrong, sure Wheat may go up because of the weather. The Gauardian et al. may blame “speculators” but price hikes are the inveitable result of money printing.

    Adam Fergusson’s ‘When Money Dies: The Nightmare of Weimar hyper-inflation’ is well worth a read.

    It makes the case for swapping energy for paper money over 130 years even more a ridiculous deal when you look at the terms of what Magma are offering.

  • Kris August 3, 2010, 6:39 pm

    Protectionist! The idea that the gov protected the people used to be a good thing. I’m glad the globalist were able to turn that around. Now it’s just evil bigotry standing in the way of progress!
    This is certainly the first (or second) act of the recolonization of Iceland. Maybe the first act was the destruction of the banking system by the ironically named Independence Party. But where to turn for leadership in Iceland? How is the Best Party doing?

  • Joerg August 3, 2010, 7:07 pm

    @Michael: The reason for the price hikes of electrical power in Germany (compared to other countries, that is, so it doesn’t have much to do with printing money) is caused by a failed privatisation, which led to an oligopoly of some providers, who are now able to control the market. It shows the effects of poor regulation – something, which may happen to Iceland, too.

  • Bromley86 August 3, 2010, 7:44 pm

    >when you look at the terms of what Magma are offering

    Does anyone have a breakdown of what’s on the table? The FT said over $500m (inc. $187m of debt that Magma is taking on). But that doesn’t match up very well with Beaty’s breakdown over on Reyk Grape:

    ISK 6.9bn Cash paid
    ISK 1.7bn Cash probably paid/payable soon for capital spend
    ISK 10.6bn Cash/stock payable in July 2010 (likely delayed)
    ISK 8.8bn New 6-7yr bond to local govt.
    ISK 6.3bn Taken over existing bond to GGE
    ISK 66bn Proposed spend debt/equity to 2016 (pretty fluffy)

    So that’s basically ISK 100bn, or about $800m. If you strip out the fluffy stuff, it’s ISK 34bn/$272m.

    All very messy. Anyone got a clearer breakdown?

  • sylvia hikins August 3, 2010, 9:51 pm

    Michael L- aren’t some price hikes something to do with hedge funds/futures??? Buying up big quantities of oil, cocoa beans, et al, creating market pressures and profiting?
    sylvia from viking wirral

  • snowball August 3, 2010, 11:54 pm

    at joerg

    one reason for the higher electricity prices in germany is that much more people installed small solar power plants on their roofs than expected. a part of the nuclear power earnings and the higher prices you pay go directly to the solar farmers. below a rough overview about spot prices.

    – nuclear power 2-5 cent/kwh
    – hydro power 5-8 cent/kwh
    – wind power 8-10 cent/kwh
    – solar power 25-30 cent/kwh

  • hildigunnur August 4, 2010, 12:29 am

    What Björk and some others are saying now is that Magma Energy is working in collaboration with (or following) the IMF, systematically gaining control over resources in countries in trouble. I don’t know the truth in that, but they certainly have done something of the sort (silver mines spring to mind) and are definitely currently bidding for at least 5 different power companies in Iceland.

    Late, the LG people (some of them anyway) – yes but better late than never. We might possibly be too late to stop this deal but if it serves as a stopper for other similar things…

  • geo8rge August 4, 2010, 4:27 am

    Is geothermal energy a scarce resource in Iceland? My understanding is that geothermal energy is available along a fault line that runs across Iceland. The only thing that makes HS Orka special is it is fully developed and near a large energy consumer, Reykjavík. It seems to me they do not really control Iceland’s geothermal energy in the same way that the owner of a mine completely controls minerals. If someone had the financing it would seem they could build another geothermal project elsewhere along the fault line.

  • idunn August 4, 2010, 6:54 am

    Pétur and Alda, thank you for clarification of what a kennitala is. Sure I’ve read of it before, just forgotten.

    If they do happen to come up with a petition open to all, then I WILL sign it. Otherwise extend my wishes to all with best intent towards Iceland and her people.

  • Sebastian August 4, 2010, 2:50 pm

    Which countries are you comparing Germany to?

    Electricity prices for consumers increased by 10% from 1999 to 2009 in Germany. 18 countries in the EU have price data going back to 1999. Of these, 15 have experienced higher price increases compared to Germany, and only two (France and Portugal) have had lower price increases. In Malta, Hungary, Cyprus and Ireland the electricity prices have more than doubled.

    Electricity prices for household consumers (€/kWh), Eurostat

  • Michael Lewis August 4, 2010, 8:45 pm

    “Michael L- aren’t some price hikes something to do with hedge funds/futures??? Buying up big quantities of oil, cocoa beans, et al, creating market pressures and profiting?”

    NO!!! That is the press – blame “speculators” and index funds. Prices are going up because these things are typically priced in dollars (palm oil is sterling I think) and that idiot Ben Bernanke is printing money – the ‘value’ is perfectly stable – its just that currencies are being devalued and the wool pulled over the eyes of people.