I got the permission of the author to translate this remarkable article from Smugan into English.

If you need proof why Iceland is in a no less perilious situation today as it was before 2008, then read what AK72 has compiled on the curious privatization of the South Peninsula’s energy resources into the hands of a Canadian energy company, with uncanny ties to Glitnir and its former employees.

Of special interest is the emphasis which the Independence Party has on granting special favours in turn for donations and the ineptitude of the current government regarding the redistribution of Iceland’s wealth which is ongoing right now.

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Agnar Kr. Thorsteinsson examines the story behind Magma Energy, the large donations of related companies to politicians who participated in the privatization and finds out that none of the sellers of HS Energy, the Reykjanesbaer City Council, Reykjavik and those who held Islandsbanki’s share in Geyser Green Energy seems to have had any interest in protecting the interests of their clients but only to ensure that Magma would gain control of HS Energy and thereby the control of all energy use in the South Peninsula of Iceland. In the meeting notes of Reykjanesbaer City Council it is apparent that the decision was made to ignore the warnings of Deloitte’s consultants who deemed it necessary to estimate the company’s value over again.

“We want to point out that to be able to estimate whether the offer based on the ideas of GGE is acceptable to Reykjanesbaer, we think that it is necessary to reestimate the value of both HS Energy and HS Veita according to changed circumstances”, said the consultants whose words fell on deaf ears. It also appears in meeting notes that HS Veitur (Distribution) which were split from HS Energy and are still public, are responsible for the debts of the latter.

Let us first go back to the experiments in privatization before the economic collapse. At the end of 2006, a letter from Glitnir found its way onto the table of the privatization committe where it asked to be able to buy the state’s share in HS. The share was sold to Geysir Green Energy on April 30, 2007. GGE was founded by Glitnir, FL Group and Atorka. The two latter companies made donations to the primary elections of Illugi Gunnarsson who had a place on the privatization committee and would later become a chairman at Glitnir Funds. They also made donations to the primaries of Gudlaugur Th. Thordarson who was the chairman of Reykjavik Energy at the time. Gudlaugur was the man behind the 30 million ISK donation of FL Group to the Independence Party in late 2006, around the time when the privatization committee discussed how the privatization should be managed. Asgeir Margeirsson, the CEO of Reykjavik Energy introduced to Gudlaugur the ideas about GGE but Asgeir was then hired as GGE’s CEO.

In the summer of 2007, the minority in Reykjanesbaer City Council drove through the sale of its share to GGE in the middle of the summer. The relationships between local councils were up in the air about the sale because of questions of ownership, as GGE intended to buy more and in the autumn the famous REI-issue came about where HS was also involved. That case ended the former attempt to privatize HS and further proceedings remained quit until the Magma story begins in 2009, after HS had been split into HS Energy and HS Veitur.

On April 30 (exactly two years after the sale of the state’s share to HS), representatives from Magma and GGE attended a meeting in the ministry of industry to find out how Magma can go about purchasing HS Energy. Afterwards a shelf-company is formed in Sweden which is intended to bypass laws and enter the European Economic Area through the backdoor. In June, GGE makes an offer for the share of Reykjanesbaer City Council which the majority was more than willing to sell to its good friends. News started leaking that Magma was in fact behind the GGE offer. GGE had huge financial problems at the time and lacked the financial clout necessary to complete such a purchase, let alone its owners Islandsbanki(formerly Glitnir) which was in the midst of refinancing and Atorka which was undergoing moratorium.

Finally the sale is accepted at a council meeting in Reykjanesbaer where the meeting notes start ringing some alarm bells. The meeting is held in the summer like two years before when most people are away on summer holiday. The majority used a two year old price estimate and decided to ignor the memo from its consultants Deloitte which said amongst other things:

“All aspects have not been reviewed thoroughly. No responsibility is taken for what is done on the basis of this memo”.

“We want to point out that to be able to estimate whether the offer based on the ideas of GGE is acceptable to Reykjanesbaer, we think that it is necessary to reestimate the value of both HS Energy and HS Veita according to changed circumstances”

“On the other hand it is clear that the real value of payments according to the offer are considerably lower than the offer amount indicates”.

The majority ignores other things, for example that there were other price estimates indicating that Reykjanesbaer could have profited by 5 billion ISK more, no small change for an almost bankrupt city council. It also appears that only the mayor and two of his party colleguaes sat in meetings with GGE behind closed doors and there was no official bidding process. Deloitte makes serious reservations about the collateral for the purchase which involves shares in HS Energy being used as collateral for a bond issued by the city, that it is not sufficient and it only covers the capital. Deloitte urged the council to negotiate on larger and better collateral. It did not make things better that HS Veitur which stayed under public ownership was also made responsible for the debts of HS Energy. The council’s meeting ended with the majority driving the issue through and ignored all comments by saying that the price from 2007 was so lucrative. A few days later GGE sold an 11% share to Magma and you could reasonably say that it had fronted Magma in the deal.

But what was that deal for Reykjanesbaer? It turned out to be 1.3 billion in cash after payment for the land where the resources sat, resources put into the hands of GGE (Magma’s front) for 65 years at least. Reykjanesbaer then lended GGE the money to complete the purchase with a seven year bullet loan, with 3.5% interests tied to the price of aluminum and also bought the share of GGE in HS Energy which are supposed to remain under public ownership anyways.

The next thing Magma greedily eyes is Reykjavik Energy’s share in HS Energy. Magma made an offer and the majority in Reykjavik can not contain itself at the prospect of selling without any consideration for price or public interest. Things get moving. Magma’s consultants are Capacent Glacier(Capacent did the price estimates for Reykjanesbaer), which is manned by former Glitnir employes and Glacier Partners which is the former New York office of Glitnir that ended up in the hands of its previous employees. The offer is similar to the deal Reykjanesbaer got: a bullet loan with collateral in shares for 7 years for 70% of the purchase price, something paid in advance and to top it all, Reykjavik Energy is going to lose 9 billion on this whole deal thank you very much (according to the calculations of Birgir Gudmundsson which can be found on the internet and have not been shown to be wrong). The sale was pushed through in spite of protests from citizens, the minority in the city council and the government which asked for a delay to be able to assess the whole thing. A citizen was arrested at the City Hall for throwing a toilet roll in protest at city councilmen who had “pooped their pants”.

At this moment in time, the government made a deal with Magma to halt all further purchases until a vision and a plan had been formed for the future. A long winter of debates on the Bjorgolfur father and son’s IceSave debt proceeded and the latter was granted permission for his data center in the South Peninsula by Althingi. In the shadow of all this, GGE and Magma underwent changes in staff. Asgeir Margeirsson moved to Magma and was replaced at GGE by Alexander K. Gudmundsson, formerly from Glitnir and the company’s governance was mostly in the hands of Islandsbanki which owed its position to its own share and as a creditor of Atorka. News also came in that Magma had purchased offshore kronas for its business, something which works against the interest of Iceland as currency does not come into the country nor does it raise its value.

While people were looking away, for example at the Special Investigation Committee’s report, demands that MP’s (who haven’t) should resign, the local council elections etc. it was unavoidable that Magma was forgotten. Suddenly news came through that GGE had decided to sell its share to Magma and thereby Magma was a majority owner in HS energy. The agreement was a price of 16 billion ISK which came out with Magma taking over the bond from Reykjanesbaer which Deloitte had raised questions about, a cash payment of 6 billion with offshore kronas and the rest to be paid later with the possibility of paying with shares in Magma which has the curious clause that GGE can not sell for the next seven years according to my sources.

After Magma had knowingly betrayed its agreement with the government, some ministers declared their dislike and a process has begun which has not yet ended. Much more has come to light since, like the fact that other investors were ignored, Islandsbanki had suddenly changed the sale process from an open one to a closed one where competitors’ offers were leaked to Magma and the highest bid was not accepted. In short, the creditors of Islandsbanki and the owners of GGE get less for their share. It also seems like there was a special willingness from the beginning within a committee on foreign investment that the sale would be approved on the basis of strict literal legal interpretation, a practice condemned in the Special Report.

Many questions arise in this story which needs to be investigated as much as the economic collapse. But there is one thing which must be pointed out. None of the sellers: Reykjanesbaer, Reykjavik and those who held the control on behalf of Islandsbanki in GGE seemed to have any interest in the interests of those they were working on behalf. The only thing which seems to have mattered was to ensure the control of HS Energy falling to Magma, thereby handing it the control of all energy use in the South Peninsula.

That alone is enough to declare that there is something rotten in this whole affair, and not just the suspicious Magma.

Related posts:

1. Organized Crime Takes Root In Iceland
2. Merciless Transparency To Build A Better Nation And Avoid Magma Suspicion
3. Reykjavik Energy Believes ISK Will Weaken More In Seven Years
4. The story of Bjorn Ingi Hrafnsson
5. Grapevine: Blame Canada? – Geothermal Energy, Swedish Shelf Companies and the Privatisation of Iceland