Icelands government ruling out seizing of HS Orka

Reykjanes geothermal power plant of HS Orka, Iceland (source: flickr/ ThinkGeoEnergy, creative commons)

Alexander Richter 27 Jan 2011

Iceland’s Minister for Industry, responsible for Energy, Kartrin Juliusdottir, has said that the government of Iceland would not expropriate geothermal energy comany HS Orka hf, majority owned by the European subsidiary of Canadian Magma Energy Corp.

This follows weeks of speculation and hints by the government that it could consider the seizing of the company, followed by public discussions and efforts by groups around a referendum approach.

There seems to be some divided voices among the two parties of the government coalition, but legally a seizing of HS Orka would not only be nearly impossible, but also very costly for the country which is in a dire financial situation.

While this latest statement might bring some calm to the heated discussions, it needs to be made clear by the whole government, including the prime minister. All the remarks by her and her colleague from the left-green made previously are not making people comfortable enough.

The country is part of the European Common Market through its membership in the EEA agreement and therefore any expropriation of a European company, which the majority owner of HS Orka is, will be facing strong legal action on behalf of EU courts and authorities. While the value of the company is one thing, the damages involved with any action of this kind would be terrible for Iceland.

Icelandic geothermal development has been in a still stand since pretty much the financial collapse of Iceland’s banking market. Iceland’s geothermal engineering firms are all looking for work abroad, many are already booked out for a long period.  The country’s specialized geothermal drilling firm, which has drilled if not all than most of the geothermal wells in the country has just been taken over by a holding company of Icelandic Íslandsbanki. The company is also now moving all its efforts to work abroad.

This puts the country in a rather difficult position. Any geothermal work to be done in the country would have to compete with international development and growth markets such as the U.S., Chile and other countries and in effect make development in Iceland more expensive.

At the same time all the uncertainty with regards to the legal and political environment regarding the energy market are not helping. The National Energy Policy has been in work for a long time, and  is still not finished. It would be crucial to guide the industry and any industrial electricity consumers with regards to development plans through a new Energy Policy, but nothing happens. Foreign investors are needed to develop geothermal resources, one of the main resources the country has, there simply isn´t enough money in the public hand, which holds the majority in Iceland’s energy companies. At the same time with the delay in development of electricity generation capacity and the corresponding uncertainty, any investment by investors into electricity consuming projects and development is on hold.

There are even talks that the political insurance that investors are now looking for when investing in Iceland, puts the country on the same level as African states.

Iceland might loose its competitive edge and standing in the geothermal world, and clearly needs development in the country to keep companies and industry experts in the country.