Reykjavík Grapevine - 09.10.2009, Blaðsíða 45

calculated using the mid rate for the USD/ISK
exchange rate as posted on the Central Bank of
Iceland’s website at 11:00 2 (two) business days
prior to the Closing Date.”
To put it in terms that have become alarmingly
familiar: Magma Energy will pay ISK 3.6 billion to
Reykjavík Energy upfront, with a remaining ISK
8.4 billion provided to Magma as a bullet loan
from Reykjavík Energy, with the sole collateral
being a bond in HS Orka reissued to Reykjavík
Energy by Magma. Also, according to Magma’s
financial statements “the bond is repayable in
a single instalment in seven years and bears
interest at an effective rate of 1.52% per annum.”
Magma will repay Reykjavík Energy in US
dollars using the Central Bank’s exchange rate
according to the strength of the króna at the time
of the deal being signed now, in 2009.
Magma’s financial statements further state
the “purchase of the Company's interest in HS
Orka will be financed by cash on hand and the
credit facility available to it, or from other sources
of capital available to the Company” and that, as
of June 30, 2009, cash and equivalents totalled
$4.5 million, working capital was $2.7 million
and Magma’s undrawn credit was $20 million.
This would imply that Magma Energy is some
$5 million short of paying even their initial down
payment to Reykjavík Energy, contradicting the
purchase agreement guaranteeing sufficient
liquid assets to complete the transaction and,
one would assume, making Magma a poor
candidate for a loan for the remaining ISK 8.4
billion.
“I’m very sceptical. It reminds me of what has
been going on in Iceland before and to see this
happen and stuff like them buying a company
with a bullet loan and just using shares in HS
Orka as collateral,” worries Jón Bjarki. “How the
fuck do they do that? It stinks. The whole thing
stinks. I just don’t trust these people anymore.
I don’t think anything has changed here. John
Perkins came to Iceland and he said that what is
going to happen is that we are going to start to
sell our natural resources away, you won’t realise
what’s happening but that’s what happens after
crises like this in Iceland. This may be a small
step but it’s a very scary step.”
Wave the red flags
More possible cause for contention, the term of
usage rights Magma Energy is purchasing allows
for an initial 65 years with the option of renewal for
another 65 years. “This poor deal becomes even
clearer when we compare it to other contracts
that Magma Energy has made,” explains Social
Democratic MP Ólína Þorvarðardóttir, referring
to Magma’s 10-year term in Nevada with the
possibility of extending for another ten.
From a purely business perspective Mr. Beaty
argues that such a long-term is proof positive
that Magma is invested in building as strong and
successful a company as possible. He says: “If
you’re building a house and you want to have
a really nice house and you have a leasehold
agreement that gives you ownership rights
for your house—if you have a short leasehold
agreement you’re going to build a really crummy
house because you know that, after a while,
you’re not going to own anything. If you have a
decent term you’re going to build a nice house
and it’s going to run well and be nice to live in.”
However some critics of the agreement have
their doubts about Magma Energy’s dedication
to HS Orka and Iceland. “To my knowledge
Magma has plans for maybe five to seven years
in Iceland and then they want to exit with good
profits,” projected Dagur B. Eggertsson. “So they
will probably just sell their 130 year contract
for their own profit but not for the profit of the
people.”
Who is MagMa energy sWeden aB?
Magma Energy Corp. and Magma Energy
Sweden AB are, essentially, one and the same.
The “Sweden AB” suffix was added when it
came to light that Magma Energy Corp. was
not permitted to purchase shares in Icelandic
natural resources because corporations outside
the EEA would not guarantee EEA regulation
of resources. Thus a Swedish shelf company
was established to skirt Icelandic laws. The
listed president of said Gothenburg-based shelf
company is Lyle E. Braaten, a long-practicing
Vancouver based lawyer and secretary and
general counsel of Magma Energy Corp.
Said Mr. Beaty of this: “It’s legal nonsense
that comes out of particular Icelandic laws that
say the only companies that can be involved in
the Icelandic energy business are European
community companies. So Canadians, or
anywhere else in the world for that matter, can
only get involved by incorporating a subsidiary in
the EU.”
Due to an agreement between the Canadian
and Swedish governments regarding taxation,
Sweden was ideal for Magma’s EU P.O. box for
the Canadian firm to avoid double taxation.
As for Magma Energy’s operation in Iceland
being regulated in accordance with the EEA and
Icelandic law, Mr. Beaty doesn’t “know that it
really matters. Magma is going to be following
the best practices that I’ve followed all my career.
All kinds of things that are demonstrably at world
standards. We’re not interested in raping and
pillaging, we’re interested in doing long-term
sustainable development and if you can do that
in any industry you can do it in geothermal.”
This raises concern about the ease with which
foreign firms can incorporate themselves within
the EEA and the purpose of laws prohibiting non-
EEA ownership if they are so easily manoeuvred
around.
transparency, please
Throngs of unanswered questions and intense
circulation of rumours surround the Magma
Energy deal. Halldór J. Kristjánsson and Finnur
Ingólfsson (there’s a name that should ring a
bell for those familiar with Icelandic corruption
and shady deals) are thought to be involved,
and some even suspect Ross Beaty of just being
the face of a company being run by Icelandic
banksters-cum-green energy enthusiasts, all of
which feed the fears of the general public that
could be calmed through widespread corporate
transparency.
Daði Rafnsson, author of the popular
Economic Disaster Area blog, while adamant
that transparency is the means by which Iceland
can rebuild itself as a nation and avoid suspicion,
said, “I think it’s going to be really hard. For
business here we’re always going to run into
situations of knowing somebody on the other
side of the table, but too often the same people
are on both sides of the table, that seems to be a
reoccurring theme. It’s hard to not be connected
in some way but people should know about it.
That will go a long way in educating people on
who to vote for, who to not vote for, who to trust.”
iceland’s privatised future
In her frighteningly poignant tome Shock
Doctrine, Naomi Klein writes “When communities
get hit by great shock large corporations and
other power blocks use the opportunity to push
a pointed policy where public property is given to
private parties on a silver platter, for a disgraceful
price.”
The partial sale of HS Orka to Magma
Energy is, undoubtedly, a landmark in Iceland’s
political economy, but that is not to say that it is
destined to be a precedent. For the time being
it appears to have opened a floodgate, as a
Chinese aluminium company has shown great
interest in the possible acquisition of 32% of the
Þeistareykir geothermal plant in Húsavík—their
representatives have already met with Húsavík
officials to discuss the possible deal. The future
of Iceland at this pivotal point in its history is
largely dependent on ongoing critical thought
by policy makers on the long-term well-being of
Iceland’s resources.
As Noam Chomsky warns: “Privatisation
does not mean you take a public institution and
give it to some nice person. It means you take a
public institution and give it to an unaccountable
tyranny.”
For the time being it is likely best that Iceland
stops to evaluate its current situation. Many
argued that the Magma Energy deal was passed
too swiftly, that not enough time was given to
contemplate the possible consequences of the
foreign privatisation, that the public didn’t know
enough or just didn’t care. But contemplation is
imperative, the public needs to know and the
public must care. Now is not the time to grow
complacent.
“It’s weird to see what they do and to feel
like you can’t really do anything,” bemoans Jón
Bjarki. “After the protests this winter, people who
were there feel like ‘what can we do? Nothing
seems to change no matter what.’ For a period
of time people were doing stuff, trying to let their
voices be heard, but nothing changes and it all
seems pointless. The thing is, there are so many
reasons to be against all this but people don’t
even know it is happening.”
feature | Energy
the reykjavík grapevine
Issue 16 — 2009
13
fl group, now Stoðir, is an Icelandic investment
company, placed under insolvency in September 2008
when its largest investment, Glitnir Bank, was partly
nationalised. Other notable investments include the
controversial Baugur Group and Geysir Green Energy.
FL Group, along with former exec Hannes Smárason,
has a complicated history of buying up worthless
investments, like Sterling Airlines, and reselling them
back and forth among friends to mysteriously turn a
profit.
geysir green energy is an investment
company in the field of geothermal energy established
by Icelandic investment company FL Group and
Glitnir Bank. It bought the state’s share in Hitaveita
Suðurnesja in 2007 when the Independence party
put it up for sale. FL Group, Geysir’s owner, had made
a hefty donation to the Independence party a few
months earlier. Big names in the failed economy, Bjarni
Ármansson, Jón Ásgeir Jóhannesson and Hannes
Smárason, headed up the company at one time, and it
is now run by Asgeir Margeirsson.
Magma energy is a new Canadian geothermal
company with a Swedish shelf company allowing it to
operate in Iceland. It owns 43% of Hs Orka hf. Ross
Beaty is the CEO of Magma Energy. He has a long
history in the mining industry in Canada and abroad
and currently serves as Chairman of Pan American
Silver Corp., a leading silver producer. He has extensive
experience as an entrepreneur, having started more
than fifty companies over the course of his career.
halldór J. Kristjánsson is the former co-CEO
of Landsbanki, which was taken over by the state in
October 2008 and has left the country to deal with
their failed Icesave account. In all the speculation
surrounding the Magma Energy deal, it is rumoured
that Halldór is somehow secretly involved behind the
scenes, as he is known to have moved with his family
to Canada for a job with an energy company.
arctica finance hf is the financial advisory firm
that negotiated the deal with Magma Energy on behalf
of Reykjavík Energy. All Arctica staff “have in recent
years been successful and proud contributors to many
of the largest transactions that have taken place in
Iceland”… they are also all former financial gurus
of Landsbanki. For example, Stefán Þór Bjarnason,
Arctica’s CEO, was Head of Corporate Finance at
Landsbanki until October 2008.
Cast of Characters
catharine fulton
hÖrÐur sveinsson

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