Iceland Magma Energy’s largest investment to date is now at risk of being blocked by the Icelandic government. Just a few days prior to the finalization of the purchase of geothermal power producer HS Orka, the Icelandic Minister of Economic Affairs sent Magma Energy a letter informing the company of a planned investigation into the legality of the investment by Magma’s Sweden-based subsidiary.
The letter also states that the government intends to reverse the privatization that has already occurred in the Icelandic energy sector. This could mean the nationalization of private assets within a developed economy; a global rarity over the last 50 years.
Magma has been increasing its stake in the firm for several months now and the government has known of Magma’s plans to own the company in full for the last nine months. The decision to intervene in the transaction was only made when pop singer Bjo?rk held a press conference declaring her disapproval and then organized a petition demanding that the government prevent the purchase. Public debate was ignited and the Left-Green Party members of the governing coalition threatened to disband the ruling government if the investment was not stopped. The centrists agreed and the investigation was organized.
The opponents of the sale argue that Iceland’s resources should not be under the control of private companies and that Magma’s ultimate intent is to own all of Iceland’s energy resources. Magma’s chief executive in Iceland, A?sgeir Margeirsson, formerly of Geysir Green Energy, firmly denies such plans. He points out that Magma merely leases the geothermal resource from the municipalities for a 65-year time period.
The 260 million dollar deal also happens to represent the largest single foreign investment in the Icelandic economy since the economic collapse in the fall of 2008. Magma’s chief executive Ross Beaty told the Financial Times that he thought the investment would be welcome at a time of economic strife. HS Orka needs financing to complete expansions for the planned sale of electricity to a nearby Century Aluminum smelter.
A Mitsubishi steam turbine sits unused in their turbine hall waiting for the required six additional production wells to be drilled. Magma is also preferred by HS Orka’s creditors to the previous owner, Geysir Green Energy, which was largely owned by bankrupt bank Glitnir.
The legal argument for the prevention of this particular transaction is that EU legislation stipulates that energy firms in Europe must be owned by European companies. Magma, a Canadian company, set up the Magma Energy Sweden subsidiary in Sweden to hold the HS Orka shares. Magma representatives state they followed the advice of the Ministry of Industry on how the holding should be structured.
Margeirsson told Fre?ttabladid, a local newspaper, that the company had not yet answered the letter but had expressed its intent to cooperate with the investigation. He said he found it difficult to imagine how the authorities planned on preventing the transaction and that Magma‘s directors are already considering their legal options, should the government somehow prevent Magma‘s investment in HS Orka.
Regardless of the merits of a publicly-held electricity system, forcing foreign investors out of an economy after having made considerable investments in good faith is the equivalent of a large “keep out” sign to international investors. The Icelandic government knew of Magma’s plans for nine months and did nothing. The largest single foreign investment in Iceland’s economy after its collapse has been thrown into uncertainty. As an Icelandic citizen, economist and energy professional, I hear echoes of the same attitudes that largely caused our economy to collapse in the first place; an unprofessional bureaucracy, unclear execution of policy, and an inability to make decisions.
This article was originally published in the Geothermal Energy Association’s weekly newsletter.