Saving Iceland

After many years of preparations the Greenlandic government say the final decision on Alcoa’s proposed smelter will be taken at the spring 2012 of the parliament. It is more likely, as the global history of the industry and the evidence in Greenland tells us, that the decision has in fact already been made undemocratically behind closed doors, despite the decreasing support of the Greenlandic people. In fact Alcoa and the Greenland government are so keen on passing the project that they have just hired an eighth employee at their national company Greenland Development- formed to enable the industry to go ahead. Juaaka Lyberth’s explicit remit is to influence public opinion on the smelter through the media. Greenland Development paints a rosy picture of an aluminium future for Greenland, but will their promises of prosperity come true? A comparison to Alcoa’s Fjardaal project in East Iceland suggests that many will not.

Local employment?

“The aluminum project is a major project that will offer a large number of stable and lasting jobs.” says Minister for Industry and Mineral Resources, Ove Karl Berthelsen.[1]

Despite this claim Alcoa recently asked the Greenlandic government’s permission to use Chinese contractors to build the two hydro dams and smelter. Chinese workers would be paid half the salary of members of the Greenland Workers Union. They claim this will be necessary to make the project competitive and that the Greenlandic labour force will not be sufficient[2].

Greenland Development responded immediately to this unpopular news by sending out a press release explaining why competitiveness was so important. The release explained that since the financial crisis China has increasingly dominated the market for aluminium smelting due to their low cost of construction and production. Building a smelter in China costs $3000/ton of production capacity compared to $4500 – £5000/ton in Iceland or Saudi Arabia. Greenland is in direct competition with these prices and will have to provide very good terms for the company if they want the project to go forwards[3]. ‘Good terms’ means cheap labour and foreign workers over Greenlandic contracts.

The labour question has dominated debate on the smelter in Greenland recently. Bjarne Lyberth, Head of the organisation Against Aluminium Smelter in Greenland is concerned that other important issues are being sidelined:

“In my view the issue on cheap foreign labour is just one of many problems. There is a risk that this becomes perceived as the main hurdle to the project and other serious cultural, social, health, environmental and, economic impacts just become “minor issues” to deal with later.”

However, the promise of jobs is usually cited as the biggest rationale for building such huge industrial constructions, and it is a very tempting one in economically deprived rural areas where smelters are often built. When the decision on the Fjardaal aluminium smelter and associated Karahnjukar dams was pending, the Iceland government made similar claims. They promised the Confederation of Icelandic Labour that the ratio of Icelanders to foreign workers at the dam construction site would be about 8:20, amounting to 3000-5000 jobs for Icelanders[4]. In reality the construction company Impregilo only employed around 100 Icelandic workers out of 1100 employees at the site. Many of these workers were Chinese, Portuguese and other non EU nationalities. Impregilo claimed that Icelanders didn’t want the work as it was not as highly paid as they had hoped, and there was a high turnover. In contrast the Chinese workers were very stable despite tough conditions[5]. Increasing company profit by using temporary low paid foreign labour is known as ‘social dumping’.

The construction of the dams was plagued with controversy as it was revealed that foreign workers were being paid less than Icelanders and made to work in unsafe conditions without proper equipment[6]. 1700 work related injuries were reported during the dam’s construction, 120 resulting in long term or permanent inability to work. Four workers are known to have died from injuries on the site[7] [8]. There is evidence that when the Icelandic coalition of unions became vocal about the treatment of workers in the press they were silenced by bribes from Impregilo who promised to pay into the union’s pension funds. A few years later it was revealed that the payments had not been made and the union (ASI) raised rights of foreign labourers again. Shortly after the funds were finally paid and ASI’s complaints ceased.

Greenland Development‘s recent news release explains;

‘The project economy of each individual project is decisive. The competition is as such between countries that it among other issues hinges on the terms a host country will provide for a new project. Countries in Asia, the Middle East and Latin America are all trying to develop smelter projects. Only projects that are competitive on a global scale will have a chance to become real projects and be implemented[9].’

In reality, being ‘competitive on a global scale’ with countries such as China means selling energy and labour as cheaply as possible and providing tax breaks that make the project attractive to the company – minimising benefit to the host country. National unions of workers the Greenland Employers? Association and the Organisation of Greenlandic Employers have warned that the only income from the project in its first few years will be tax paid by its employees, and with much workforce coming from abroad on low wages this is likely to be very little[10]. The government has also said that company tax should not be counted on for the first fifteen years, suggesting that large tax breaks have been given[11].

In Iceland predictions that the smelters could be an economic drain and not a boost are increasingly being proven. Energy prices paid by the smelter operators were kept from the Icelandic public until very recently following a scandal when it was revealed that  Century Aluminium had been paying a fifth of domestic prices – the cheapest energy for aluminium production in Europe[12]. Prices for Alcoa’s Fjardaal smelter were accidentally revealed by then company Chairman Alain Belda when he claimed that Iceland was charging some of the lowest rates in the world, just $15 per MWh (megawatt hour)[13]. The deals they made link energy prices to the cost of aluminium so when the market drops the taxpayer can end up subsidising the companies rather than profiting from them.

In the run up to Iceland’s dramatic financial crash in 2008 the OECD concluded their country report by warning Iceland that ‘large scale public investments are inherently risky’ and strongly advised them not to approve further aluminium developments until it was clear whether they would get a long term profit from existing ones:

‘No major investments in energy-intensive projects, including those already in the planning phase, should proceed without prior evaluation within a transparent and comprehensive cost-benefit framework (including environmental impacts and inter-generational effects).[14]’

Two years earlier a report by Icelandic bank Glitnir warned that any benefit from large scale aluminium developments “is probably outweighed by the developments’ indirect impact on demand, inflation, interest rates and the ISK exchange rate”. Similarly economist Thorsteinn Siglaugsson claimed that “Kárahnjúkar will never make a profit, and the Icelandic taxpayer may well end up subsidising Alcoa”[15]. A 2009 report by Economist Indriði H. Þorláksson concluded that the industry would have negligible benefits on the Icelandic economy, possibly causing long term damage, and should not be considered a way out of the financial crisis[16].

Despite all of this evidence Greenland Development have dedicated another recent news article on their website to trying to disprove that Iceland’s crash had anything to do with the smelters. Though they admit that ‘high investment in construction also played a role which put pressure on the economy’, this was ‘hardly significant‘. Instead they claim that aluminium industry ‘has been crucial in earning foreign currency for Iceland during the crisis‘[17].

In another article Greenland Development’s website enthusiastically claims that the aluminium price is likely to rise in the coming years due to demand for ‘green’ cars and solar panels and economic growth in Asia[18]. Though this would somewhat increase Greenland’s chances of making a profit there is no guarantee of market stability, which has been very volatile in recent years. A critique of the concept of ‘green aluminium’ can be found here[19].

Already there seems to be some degree of caution in Greenland about taking too much of the burden of construction costs and loans which caused so many problems in Iceland. The Greenlandic government is considering bringing in a third party to ownership of the project instead of taking the whole of the 50% stake they were offered by Alcoa.

Despite Greenland Development’s expensive propaganda war, public support for the Alcoa smelter has been steadily decreasing. People’s organisations Avataq and the newly formed Against Aluminium Smelter in Greenland have worked hard to discover the truth about the environmental and social impacts of the smelter and the ethical track record of the company abroad. As a result Greenland Development reported that their own October/November 2010 survey of public opinion revealed rapidly changing attitudes:

‘there is a very low degree of knowledge, as well as a less positive attitude towards the project than in previous years. Of the citizens that have expressed either a positive or negative attitude towards the aluminium project, there is thus now only a small majority (54 percent) who are positive.[20]’

The main reason for the ‘increased scepticism‘ towards the project was ‘concern about the possible environmental consequences‘ with 20% of those interviewed believing that the project ‘can have a markedly negative impact on nature and the environment‘ compared to only 7% the previous year[21]. This was identified to be mainly due to critical media coverage and Greenland Development’s ‘information manager’ was hired shortly afterwards to address this. Environmental protection group, Avataq, says Greenland Development has deliberately tried to distort public opinion about the aluminum industry. Their head Mikkel Myrup explains:

“Greenland Development has assumed a role as an aluminium industry propagandist, and do that rather primitively. But this wouldn’t be possible without strong support from the civil servants in the central administration and the smelter municipality administration. The civil servant’s pro industry influence on the cabinet members and the parliament is a massive democratic problem, because they suppress and/or ignore information that would equip the politicians with a wider, and more realistic knowledge base from which to make enlightened decisions.”

With three operating smelters Icelanders have had a good opportunity to assess the benefits of the industry which has been promoted as their economic saviour. A recent online poll by news outlet Visir revealed that only 13% of participants thought heavy industry was the most important area to focus on. Despite high level promotion of the industry’s benefits by certain sectors of the national leadership evidence shows that tourism and fishing are still the most important and growing industries for the Icelandic people[22].