Reykjavík Grapevine - 06.08.2004, Page 16

It is now two years since the government gave the approvals that made
way for the creation of a huge hydroelectric scheme in the Central
Highlands at Kárahnjúkar. This paved the way for a subsequent deal with
Alcoa for the building of an aluminium smelter in the coastal town of
Reyðarfjörður.
So writes the poet and protester Elísabet Jökulsdóttir, and sitting in the board room of Landsvirk-
jun at a table long enough to hold a state banquet, it is hard to disagree with who is responsible
for Kárahnjúkar. The walls of the ‘president’s floor’ have portraits of the men who in former times
have managed the national power company.
Guðmundur Pétursson is a man of considerable experience. Having worked on a range of overseas
projects, including in Venezuela, he is relaxed and congenial. Surprisingly so, for a man who is in
charge of the billion dollar project and responsible for seeing that it is built on time and to budget.
He has recently returned from a visit to China to the Yangtse River project, a scheme which
dwarfs the Kárahnjúkar one.
“We are not displacing any people...”
“Our job at Landsvirkjun is to harness the country’s water power to generate electricity as eco-
nomically as possible and then sell it overseas. And that is what we are doing at Kárahnjúkar. We
are an island, we can’t export the electricity by cable so we have to work with foreign interests who
are prepared to build in this country. Aluminium smelting needs a vast amount of electricity and
we are able to supply it.”
When asked about the commercial viability of the project Guðmundur is in no doubt. “This proj-
ect will have a long and successful future ahead of it and in comparison to other projects around
the world, it has very small environmental impact. We are not displacing any people, we are flood-
ing a wilderness area. When I take visitors to see the site most can’t see what the objections are
about. The east needs projects like this and the benefits are being felt already. There are now four
flights a day to Egilsstaðir, the hotel is building more rooms, the roads have improved, there are
more shops and for the first time in years, property prices are increasing. The economy is taking
off and there is optimism in the air. The project will make money despite what our critics say, we
have done our sums and got them right.”
He is keen to focus on the engineering achievement and the sheer scale of what is being achieved,
and he is proud of what he and his fellow countrymen are achieving.
Minister of Finance becomes manager of power company
The same upbeat message came from Tómas Sigurðsson who has been recently appointed by
Alcoa. He dismisses out of hand the suggestion that Alcoa in someway benefitted from a soft deal
with Landsvirkjun.
“This is the third power deal I have negotiated and I assure you it was not an easy task. We are
paying a fair price for our electricity in a deal that works for both parties. We ourselves are invest-
ing hundreds of millions of dollars in building the smelter, which in turn will provide jobs and
revenues for the country.”
For both these men Kárahnjúkar is a fait accompli. The government of the day voted with a sig-
nificant majority to approve the project, the President in not using his veto gave his approval and
subsequent polls done by Gallup show that over 65% of the country supports the project. Rivers
are being diverted, mountains moved and tunnels dug.
But two years down the road, there is still deep resentment and bitterness as to how t he proj-
ect came to be approved and concerns for its future viability. Criticism has been levelled at the
government that the decision to proceed with the project was purely political in a tactic to secure
seats in the east, and that once that decision had been made it was going to proceed, whatever the
oppostion. If this was the case, then certainly its job was made a good deal easier by the appoint-
ment of the former Minister of Finance, Fridrik Sophusson, to the role of Landvirkjun’s Manag-
ing Director.
Do economic gains outweigh environmental concerns?
The same determination was apparent when the environmental issues were raised. There exists a
Master Plan for Hydro and Geo Thermal Energy Resources and Kárahnjúkar did not originally
receive a high ranking. Moreover, an environmental impact study carried out by the Icelandic
Planning Agency in 2001 stated that “it has not been demonstrated that the gains resulting from
the proposed development would be such to compensate for the substantial irreversable negative
impact that the project would forseeably have.”
Siv Friðleifsdóttir, the Minister of the Environment, despite agreeing with the Planning Agencies
conclusions, overruled the recommendations on the basis that “negative impact on the envi-
ronmnet should not be weighed against economic benefit.” The weighing of the economic benefit
was to be left to Landsvirkjun in the capable hands of a former cabinet minster reporting to the
Minister of Industry and commerce Valgerður Sverrisdóttir. The fate of the most expensive, po-
tentially prestigous and significant projects was effectively in the hands of two women, ministers
Siv and Valgerður. A London newspaper, The Guardian, wrote six months ago:
“These two women’s CV’s were not reassuring. Valgerður´s only paper qualification seems to be
an English as a foreign language certificate, awarded in 1972, and Siv is a qualified physiothera-
pist. Neither minister cites any parliametary or other experience related to their portfolios.”
If, as the government proposes, the Kárahnjúkar project will be an economic success with negli-
gable environmental impact, then Siv and Valgerður deserve the praise for steering a controversial
project through parliament, whatever their qualifications and experience. If it is a failure, then
Valgerður and Siv should be held accountable in same measure and questions should be asked in
the future about the qualifications required to hold such demanding offices.
“I think a few won´t hurt”
It will take a number of years before it is known whether the scheme has been a success. In the
meantime Valgerður is making noises of the desirability of another hydro and smelter project in
the north and in an interview last April with Paul Fontaine-Nikolov, Siv made clear her un-
changed views on the environmental impact of dams and smelters: “I don’t think the Kárahnjúkur
dam should be a major environmental concern. It’s being built where nothing lives; it won’t
endanger any species of wildlife. Aluminium plants can be good for the environment, at least here
in Iceland, because most aluminium plants use oil or coal to power them. Such plants produce
a tremendous amount of greenhouse gases. In Iceland, we can use hydroelectric or geothermal
power. The plants also have to follow strict government guidelines regarding how much pollution
they can produce. This makes the plants environmentally friendly. Of course, we don’t want to
build aluminium plants all over the country, but I think a few won’t hurt.”
Already, other aluminium companies are queuing up to get the same lucrative deal Alcoa has.
There is huge competition for the country’s slender resources, hospital wards are being closed and
some public spending programmes are under review. The country has never borrowed so much
money before and to launch headlong into another scheme without knowing the success of the
current project would be to launch into the unknown. As with any addiction, a little can lead to a
lot.
WHAT DOES THE
SCHEME INVOLVE?
The Kárahnjúkar project will consist of nine dams, three
reservoirs, seven channels and sixteen tunnels. It will divert two
large rivers, the Jökulsá á brú and Jökulsá í Fljótsdal, and several
smaller rivers to the north of the Vatnajökull glacier, the largest
glacier in Europe. The main dam will be highest rockfill dam in
Europe, 190 metres high, 800 metres long and 600 metres wide
at its base. This main dam will create a huge reservoir, to be
called Hálslón, which will flood a wilderness area of 57 sq. km.
70 km of tunnels will carry water to an underground power-
house, which will have a 690 megawatts capacity.
HOW MUCH WILL IT
COST AND
WHO’S PAYING FOR IT?
Current estimates are that the dam and the hydroelectric
scheme will cost over US$1.1 billion to build. The project is be-
ing commissioned by Iceland’s national power company, Lands-
virkjun. This company has three shareholders, the government,
the City of Reykjavik and the City of Akureyri. Landsvirkjun
is raising funds from international financial institutions, and
the nature of the company´s shareholders means that the loans
are effectively state guaranteed and therefore attract beneficial
interest rates and terms. Landsvirkjun and the government have
signed a deal with the second largest aluminium business in the
world for supply of power to a smelter which Alcoa will build at
Reyðarfjörður. Under the agreement, Alcoa will buy electricity
from Landsvirkjun for the next 40 years. The price paid will be
adjusted to allow for fluctuations in the global aluminium price.

WHAT ARE THE
PROPOSED BENEFITS?
The East of the country has been the victim of economic
decline for several decades. The two key commercial activities
of farming and fishing have both been in decline. Many people
have left for larger towns and the remoteness of its location
has meant that tourism has been slow to replace income. It is
proposed that the scheme will see a wholesale regeneration of
the area with 400 new jobs created directly and a further 500
in ancillary industries. The country’s economy has relied on
the fish industry as its main export and, while the fisheries are
well managed, environmental issues make revenue growth from
this source seem unlikely. Tourism is growing year by year and
provides a secondary source of foreign revenues. The creation
of a major capital project, which uses natural resources with a
guaranteed revenue stream for the next 40 years, is a prudent
measure to replace any future decline in fish exports and tourism
and strengthens the economy. The building of the project will
create roads into the wilderness area and help bring in tourists
to the highlands.
K ÁRA NJ ÚKAR
‘A HANDFUL OF MEN IMPOSING
THEIR DESTRUCTIVE DREAM
ON A NATION WHICH SEEMS HALF-ASLEEP’
by Robert Jackson