Reykjavík Grapevine - 15.07.2011, Blaðsíða 26

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26
The Reykjavík Grapevine
Issue 10 — 2011
of the bubble in Iceland,” Minister for
the Environment Svandís Svavarsdóttir
said.
“The Left Greens always put a ques-
tion mark next to heavy industry, but it
was really the mainstream view. When
we suggested that it was possible to do
something else, people said, well ‘do
you want to knit socks and pick moun-
tain herbs?’ The Left Greens were
considered a very foolish party for not
wanting to proceed with heavy indus-
try.”
Following the city’s bailout, though,
it has been increasingly debated
whether a municipally owned com-
pany should take the risks associated
with making these kinds of heavy in-
dustry deals given that the city and its
taxpayers are accountable. Not only is
Reykjavík Energy financially incapable
of continuing with phase six of the
Hellishei!i plant for the time being, but
they have also for the first time turned
their back on the company’s heavy in-
dustry policy.
“We think that Reykjavík Energy
should fulfil its role as a service com-
pany that provides people with electric-
ity, hot and cold water, and sewage dis-
posal,” Jón Gnarr explained. “We don’t
think it should participate in heavy in-
dustry or other risky investments.”
BLOWING THE LID OFF 2007
Though it was undoubtedly unfor-
tunate that Reykjavík Energy was in
the middle of raising capital for the
Hellishei!i plant when the crash hit,
the company nonetheless made some
very questionable decisions in 2007 at
the peak of Iceland’s financial boom.
For instance, the Board decided to buy
shares in Hitaveita Su!urnesja for 13.4
billion ISK despite the fact that the
company didn’t have any spare funds.
The shares were paid for in entirety
with a five year loan, which is due to
come back to bite the company in 2013.
Perhaps, though, the spirit of the
times is best captured in Reykjavík
Energy’s decision to boost its geother-
mal operations overseas through a
subsidiary company called Reykjavík
Energy Invest (REI). At the same time
as the banks had reached nearly ten
times the nation’s GDP by expanding
offshore, Reykjavík Energy also aspired
to a world domination that made Ólafur
Ragnar Grímsson proud. “I allege that
if we continue like this,” he told a TV2
reporter in October 2007, “the Icelan-
dic energy ‘outvasion’ can be an even
bigger operation than the banks.”
The event that the President was
praising is now commonly referred to
as the REI scandal, in which Reykjavík
Energy brief ly merged its subsidiary
company Reykjavík Energy Invest with
Geysir Green Energy, a private com-
pany owned by, amongst others, FL
Group and Glitnir bank, which were
highly implicated in Iceland’s banking
collapse.
According to an article that ap-
peared in Fréttabla!i! on October 4,
2007, REI’s project list included the
building and buying of about 700 MW
of energy in the United States, Philip-
pines, Greece, Indonesia, Germany and
Ethiopia. Their goal was to produce
three to four thousand megawatts be-
fore year-end 2009, at which time they
planned to go public. “These are very
ambitious goals that will lead to the big-
gest geothermal energy company in the
world,” FL Group Chairman Hannes
Smárason told Fréttabla!i!.
Though Reykjavík Energy Chair-
man of the Board at the time Haukur
Leósson sincerely believed that the
merger was in the best interest of the
company, noting that they had negoti-
ated 10 billion ISK for the use of Reyk-
javík Energy’s brand name alone, it
is widely believed that there was foul
play involved. When the former CEO
of Glitnir and Chairman of REI Bjarni
Ármannsson admitted in 2009 that
the merger between REI and GGE had
been a mistake, Independence Party
politician Gísli Marteinn Baldursson
wrote on his blog, “Hopefully he now
realises that there were other things
than our deliberation that have done
more damage to Iceland and one would
wish that more had shown care.”
Ultimately, the grand plans never
materialised. After the company intro-
duced the idea to the Board, news of the
meeting went to the media and people
were especially outraged to hear that
key staff at Reykjavík Energy were be-
ing given special stock options. “There
was so much anger,” Svandís Svavars-
dóttir recalled. “I did a lot of interviews
in the span of two to three days. I’ve
never felt anything like it. It was like ev-
erything was burning in society. There
was a lot of heat.”
The controversy led the Indepen-
dence Party and Progressive Party
majority municipal government to fall
apart, and a new majority between the
Social Democrats, Progressives, Left
Greens and Liberal Party formed with
Dagur B. Eggertsson becoming Mayor
of Reykjavík.
While the so-called ‘100 day ma-
jority’ reigned, a steering committee
headed by Svandís with representatives
from every political party was set up to
look into the events and to determine
whether any lessons could be learned.
The more they learned, the more it
became clear to them that the merger
should be stopped. They felt that Reyk-
javík Energy had developed too far from
its owners and on its own initiative.
“In many ways, the REI story is a
prototype of the financial crisis. Politi-
cians decided to allow private individu-
als into public entities and let them be-
have as if they owned what belonged to
the public,” Svandís told me.
“We saw that on a large and small
scale in society. We saw it in the pri-
vatisation of the phone company, the
banks, in the privatisation plan of the
right-leaning government, which ruled
for far too long, for eighteen years, but
in Reykjavík this was basically the same
thing that happened.”
At the same time as the REI deal
was being discussed, an attempt was
also made to privatise Reykjavík Ener-
gy. Part of such a proposal, which was
put forth by CEO Gu!mundur "órodds-
son and Vice President Hjörleifur B.
Kvaran on August 28, 2007 rational-
ised that “[i]t is time to unleash the en-
ergy of free enterprise so that Iceland’s
expertise and knowledge can be used
to the fullest extent in the geothermal
energy company outvasion.”
On September 3, 2007, the Board
actually approved sending the proposal
to the owners of the company for ap-
proval, e.g. the Mayor of Reykjavík,
“You got the impression that somewhere in
Reykjavík Energy there was someone with a
map, putting down f lags, you know with a
Napoleonic dream of taking over.”
THE REI SCANDAL
The course of events
January 25, 2007
Former Reykjavík Energy CEO
Gu!mundur "óroddsson proposed
to the Board that Reykjavík Energy
create a subsidiary company called
Reykjavík Energy Invest (REI),
which would oversee all of Reyk-
javík Energy’s stakes in ventures
abroad, including Enex, Enex-Kína,
Galantaterm and Iceland American
Energy. The Board approved.
March 7
The Board additionally agreed that
Reykjavík Energy would put two
billion ISK into REI towards future
projects. A report that was commis-
sioned at the January 25 Board meet-
ing and then delivered at the March
7 Board meeting noted: “There is
great interest amongst Icelandic in-
vestors in environmentally friendly
energy, for instance, Geysir Green
Energy hf, Atorka hf and Enex hf.
The first two named have already
requested a partnership with Reyk-
javík Energy in the outvasion.”
June 11
Reykjavík Energy Invest was formal-
ly founded. Appointed to the Board
were Björn Ársæll Pétursson, Hau-
kur Leósson, and Björn Ingi Hraf-
nsson. Reykjavík Energy CEO Gu!-
mundur "órodsson would replace
Björn Ársæll Pétursson as CEO in
September.
September 11
Former CEO of Glitnir Bjarni Ár-
mannsson was appointed Chair-
man of REI and bought stock worth
500 million ISK.
September 20
The Directors of REI met with bank-
sters Hannes Smárason from GGE
and Jón Ásgeir Jóhannesson from
FL Group to discuss merging the
companies.
September 22
Chairman of REI Bjarni Ármans-
son met with Chairman of GGE
Hannes Smárason to f lesh out the
details of the merger.
September 23
Chairman of REI Bjarni Ármans-
son and Chairman of Reykjavík
Energy Haukur Leósson met with
Mayor of Reykjavík Vilhjálmur ".
Vilhjálmsson at his home to brief
him on the merger. Vilhjálmur did
not inform his colleagues in the In-
dependence Party about the merger
until October 2, which greatly upset
them, and led to a rift in the Inde-
pendence Party.
October 3
Reykjavík Energy held a Board meet-
ing and an owners meeting to intro-
duce the merger. Invitations to the
meeting were sent out the previous
evening, which is extremely short
notice. Nonetheless, the Board ap-
proved the merger, save for Svandís
Svavarsdóttir from the Left Green
party, who did not vote.
News of the meeting and specifi-
cally news that key staff were being
given special stock options blew up
in the media. The majority govern-
ment between the Independence
and Progressive parties collapsed.
A new majority, dubbed ‘The 100
Day Majority’ took over. A steering
committee headed by Svandís Sva-
varsdóttir began investigating the
events that led up to the merger and
proposed to City Council that the
merger be thwarted.