Reykjavík Grapevine - 09.10.2009, Blaðsíða 12

12
The Reykjavík Grapevine
Issue 16 — 2009
One by one men in suits of varying shades of grey
approached the podium in the pit of the Reykjavík
City Hall. One by one they pleaded their cases
while Reykjavík’s esteemed mayor—the fourth
in two years—Ms. Hanna Birna Kristjánsdóttir
looked on appearing disinterested in what
appeared to be solely a formality. As the council
members continued selling the idea of selling
Iceland’s resources, a crowd of 100-strong grew
more agitated and increasingly vocal from their
perch in the viewing gallery of the hall, separated
from having a say in their own natural resources
by an aesthetically pleasing glass barrier.
“People were screaming, saying that the
politicians were traitors,” explained Jón Bjarki
Magnússon, a student who arrived at City Hall
just in time for the vote. “It was a weird feeling to
see it happen, to see these people down on the
floor raise their hands and the decision is made
and to see all these angry people above them not
able to do anything.”
The September 15th city council meeting
stretched on for over three hours, during which
time onlookers shouted and boo-ed as city
council progressed toward approving the 32.32%
sale of Iceland’s HS Orka to the Canadian-cum-
Swedish firm Magma Energy Corp.
Reykjavík Energy had agreed to purchase
shares in HS Orka from Hafnarfjörður but the
Competition Authority prohibits the energy firm
from owning shares in competitors, explained
the Progressive Party’s Óskar Bergsson. “It is my
opinion that the sale was necessary to comply
with the law, solve a dispute with a neighbouring
municipality and strengthen the financial status
of [Reykjavík Energy].”
They had no choice, they said. It was a
done deal, they said. It is a wise move for the
Icelandic economy, they said. And so the sale
was approved; three protestors, including Jón
Bjarki, were arrested; and the mayor, along with
her councilmen and women celebrated the sale
with a champagne toast behind closed doors.
A BRIEF BuT COMPLICATED hISTORY OF
hITAvEITA SuðuRNESjA
“Before this all started, in 2007, the state
owned 50.9% of [Hitaveita Suðurnesja], the
municipalities owned the rest,” recounts Júlíus
Jónsson, CEO of HS Orka. “Then the state [run
by the Independence Party] decided to sell their
shares to Geysir Green Energy [owned by the FL
Group, an Independence Party supporter].”
By July 2007, Geysir and Independence Party
stronghold Reykjanesbær each owned roughly
a third of the company, Reykjavík Energy and
Hafnarfjörður each claimed a sixth and four
other municipalities owned just over 1% between
them.
In June 2008, Alþingi passed new energy
laws that mandated the separation of private
energy production from competitive operations
thus Hitaveita Suðurnesja was divided into HS
Veitur, managing distribution of electricity, water
and heat, and HS Orka, taking care of energy
productions and sales.
Júlíus continued: “Then in July, 2009
Reykjanesbær sold all their shares in HS Orka to
Geysir Green Energy and bought all Geysir Green
Energy’s shares in HS Veitur. At that time Geysir
Green Energy sold 10.78% to Magma Energy.”
According to press releases heralding this
initial transaction between Magma and Geysir,
throughout the sale “Magma was advised by
Glacier Partners… and its affiliate Capacent
Glacier… and Mannvit Engineering provided a
third-party evaluation of HS Orka's operations.”
Interestingly, Geysir’s Director of Business
Development, Davíð Stefánsson, is also a Partner
at Capacent Consulting, focusing on corporate
strategy in the energy sector, and Mannvit
Engineering is a shareholder in Geysir Green
Energy. It’s curious, therefore, how Capacent
and Mannvit were deemed suitably objective to
advise Magma Energy through their purchase of
shares from Geysir Green Energy.
“Then Reykjavík Energy made their contract
with Magma and, along with Hafnarfjörður, sold
them 32.32%,” Júlíus further explained. So today
Geysir Green Energy and Magma are proud
owners of 55.2% and 43%, respectively, and four
municipalities hold on to just under 2% of HS
Orka.
wAS IT INEvITABLE?
This sale to Magma Energy has been in the works
for sometime it would seem, with the wheels set
in motion with the Independence Party selling
the state’s share in Hitaveita Suðurnesja to their
cronies—infamous banksters Hannes Smárason,
Bjarni Ármansson and Jón Ásgeir Jóhannesson—
at Geysir Green Energy to ensure transfer of what
is now HS Orka to private hands.
“In the beginning of 2007, the government
of the Progressive and Independence parties
decided to put the state's share in Hitaveita
Suðurnesja up for sale and barred public entities
from bidding,” said Þorleifur Gunnlaugsson,
a Left-Green city councilman and Reykjavík
Energy board member. “Representatives of those
same parties have now sealed the deal in the
municipal government.
While it’s true that Reykjavík Energy’s partial
ownership of HS Orka contradicted Icelandic
competition laws, critics have been questioning
the speed at which the deal was passed, the
lack of options presented to keep HS Orka in
the hands of the public and the overall timing
of the deal. Municipalities are, indeed, strapped
for cash in these trying economic times, but the
value of green energy is such that it would seem
to be most sensible to hold on to it for dear life.
Or at least to consider doing so.
The guaranteed revenue of owning a stake in
a geothermal plant could very well have proved
to be a life vest for drowning municipalities—
times when the nation is in such a weakened
financial state are also those in which interested
parties are going to suss out the most lucrative
deal for themselves, possibly paying far less than
the resources are worth.
Júlíus noted that there were, at one time, as
many as thirteen parties interested in purchasing
the shares in HS Orka, but only two offers were
made and there was allegedly no comparison.
No information on the second bidder in this case
has been made public, but their offer must have
been laughable if not strong enough to rival
the appallingly low deal wrangled by Magma,
explained below.
Dagur B. Eggertsson, former Mayor of
Reykjavík and Vice Chair of the Social Democrats,
asserts that “now is probably the worst time in
history to sell shares,” and criticizes the majority
in the municipal government for failing to
investigate alternate solutions.
“It was not inevitable,” Dagur insisted.
“During this period we have seen examples of
big energy-related deals that have been turned
over by the city government but the thing is that
the two political parties in power in city hall now
are the same parties that gave away Icelandic
banks to their friends, so they have a reckless
record with privatisation. Not all privatisation is
bad but you can privatise in such a manner that
everybody is losing, and that is the sad case of a
lot of privatisation in Iceland.”
whO IS MAGMA ENERGY?
According to their website, Canadian Magma
Energy Corp. is a “geothermal pure play focused
on becoming THE pre-eminent geothermal
energy company in the world.” With its hands
in geothermal operations along the west coast
of the United States, throughout South America
and, most recently, in Iceland since its inception
in early 2008, it would appear that Magma
is indeed dedicated to achieving their lofty
corporate goal of industry domination.
“I’m an entrepreneur so I’ve started many,
many companies, that’s what I do. This time
around I wanted to build something green, so I
looked at geothermal and it was just perfect, it
just fit,” explained Ross Beaty, CEO of Magma
Energy, of his foray into green energy following
more than thirty years heading up precious
metal mining companies.
“I went to Iceland earlier this year and looked
at opportunities and it seemed that HS Orka could
benefit from capital infusion, reorganisation of its
shareholding to stronger positions and it looked
like there was an opportunity to do something
that would help us and help HS Orka and, in the
big picture, help the country of Iceland.”
STRIkE whILE ThE NATION IS POOR
However, since Magma’s appearance on
Iceland’s radar, their intentions have come under
fire, with the general public seeming to doubt
the Canadian firm’s interest in helping Iceland,
rather than simply helping itself at Iceland’s
expense. Earlier this year John Perkins, author of
Confessions of an Economic Hit Man, paid a visit
to Iceland expressly to warn the nation of what
was to come. “You may be the first developed
country to really be hit by the hit men,” he said.
“Like the people in Latin America [Iceland has]
incredible resources, the old fish industry and
cheap energy. Energy and water are scarce
resources on the planet today. Iceland must
protect its resources.”
When confronted with claims that Magma
Energy is an economic opportunist, praying on
a country that is already on its knees following
the economic collapse, Mr. Beaty responded
“that is ignorance and complete nonsense. It’s
just because Icelanders don’t know what we’re
all about and they don’t understand the world
that we live in. We’re in Iceland because it has
opportunities for the long-term benefit where
we can deploy capital and we can improve the
condition of an Icelandic company for the long
term.”
“We’re here because Iceland is a core
geothermal country that has great resources,
many of them untapped, and it’s simply a core
business for us to get involved with countries
like that, be it Iceland, Indonesia, the Philippines
or, for that matter, North America,” said Mr.
Beaty. “I particularly enjoy the hypocrisy of some
people who don’t want foreign companies to be
in Iceland but have no problem with Icelandic
companies going to other parts of the world to
do geothermal development, but that’s a whole
different subject. There’s a lot of hypocrisy and
a lot of finger pointing in situations like this, but
that’s the way of the world I suppose.”
OuT wITh ThE OLD AND…
BACk IN wITh ThE OLD
The general concern that seems to be brewing
around Magma Energy’s involvement in Iceland
is not unfounded, however, as the deal struck
with Reykjavík Energy reeks of the economic
wheelings and dealings that led to the collapse
precisely one year ago.
The Share Sale and Purchase Agreement
entered into by Reykjavík Energy and Magma
Energy Sweden AB reads: “Payment of the
Purchase Price shall be by: (i) wire transfer of ISK
3,616,988,813… and (ii) delivery to Arctica… of a
bond issued by the Buyer in favour of the Seller…
evidencing an aggregate indebtedness of an
amount in USD equivalent to ISK 8,439,640,562
Feature | Energy
Blame Canada?
Geothermal energy, Swedish shelf companies
and the privatisation of Iceland

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