Saving Iceland

This article, written by Catharine Fulton was originally published on grapevine.is

Let’s cut to the chase. The opacity of Icelandic business and politics has done the country, as a whole, no favours. Much hand shaking and back scratching has gone on behind closed doors and such secluded business environments have proved themselves to be breeding grounds for lies, corruption, fraud, swindling, and downright thievery.

With Icelandic bankers being held in local prisons and wanted by Interpol and the once celebrated “outvasion Vikings” having their pants sued off by the Americans, now is a time to usher in a new, honest era of business in Iceland in an effort to get the country and its economy back on track and to restore the trust of the mass populace in the system.

Enter geothermal corporation Magma Energy of Canada

In the summer of 2009 Magma Energy developed an interest in Icelandic energy company HS Orka. As we explained at length in our October 2009 issue, HS Orka was largely owned by FL Group, the investment company of one Jón Ásgeir Jóhanneson (the previously mentioned legally entwined outvader), the municipality of Reykjanesbær (an Independence Party stronghold and loyal donator of funds to the party) and a couple of other municipalities on the Reykjanes peninsula on which Keflavík airport sits.

At that time Magma Energy had created a shelf company in Sweden to skirt Icelandic laws forbidding non-EEA companies from owning any stake in the country’s natural resources and snatched up 43% of HS Orka in two separate transactions in July and October. Geysir Green Energy maintained 55.2% of the company and a couple of surrounding municipalities held on to less than 2%.

Lies, lies, lies, lies, lies, lies, lies

On September 16, 2009, Magma’s founder and CEO Ross Beaty was asked by the Grapevine to respond to the suspicions of some that his company was in Iceland to take advantage of the country’s economic turmoil. He told us “I would suggest that is ignorance and complete nonsense. It’s just because they don’t know what we’re all about and they don’t understand the world that we live in. We’re not in Iceland for any such reason. We’re in Iceland because it has opportunities for long-term benefit where we can deploy capital and we can improve the condition of an Icelandic company for the long term. We would be interested in Iceland under any circumstances, absolutely, even two years ago [in 2007] it would have been unchanged.”

Eight months later, on May 5, 2010, Ross Beaty told online investment newsletter Hera Research Monthly “We would have been farther along had [the global economic crisis] not happened, although we may not have had opportunities that we took advantage of. For example, going into Iceland was strictly something that could only have happened because Iceland had a calamitous financial meltdown in 2008.”

On September 16, 2009, we asked Ross Beaty if Magma had its eye on a majority stake in HS Orka, to which he replied “no, we do not plan on getting a majority. I have no interest in fighting Icelanders, particularly the government, over what is proper energy policy in the country. The government said they would accept Magma going to a 50.0 % interest so long as Icelandic interests had the other 50 %. So that’s neither minority or majority, it’s a rather awkward business position but certainly something that we feel can be workable and we certainly will be striving to achieve, but not increase beyond that. That’s something that we think should be acceptable to the Icelandic government and, we hope, the people of Iceland.”

The Grapevine followed that up by asking if Magma planned on making any further acquisitions in Iceland, to which he replied “No we don’t. No we don’t.”

Lies, lies, lies, lies, lies, lies, lies lieslieslieslieslieslieslies

On May 17, 2010, Magma Energy issued a press release stating the company is “pleased to announce that it has signed an agreement with Geysir Green Energy ehf (“GGE”) to purchase all of GGE’s stake in Iceland geothermal company HS Orka hf (“HS Orka”) resulting in Magma’s stake increasing to 98.53%.”

On May 19, 2010, the Grapevine called up Ross Beaty to ask him a couple of questions about the recent goings on and he rushed off the phone saying “I’m just going through a tunnel and I’m just about to jump onto an airplane.”

Are there tunnels on route to Keflavík now?

Iceland is in serious need of honesty and transparency. These massive deals that put private control of the country’s natural resources in the hands of foreign firms and are only made public knowledge as the i’s are being dotted and the t’s crossed will do nothing for restoring the faith of the Icelandic people in their politicians and businessmen. Neither will politicians crying foul after the fact.

It would be nice if politicians acted in the best interest of the electorate and businessmen actually worked transparently in the long-term interest of the economy. How about we all get started with just a little honesty?