Nov 02 2008

Alcoa Smelter in Bakki Delayed as Test Drilling is Postponed

Preperation for a new aluminium smelter in Bakki by Húsavík, has been delayed and the test drilling for geothermal power plants around lake Mývatn have been laid off. A memorandum of understanding between Landsvirkjun (Iceland’s national energy company) and Alcoa was not renewed now in the beginning of November as Alcoa is not ready to put more finance in to more drilling.
The Bakki smelter was supposed to be powered by geothermal plants in Þingeyjasýsla, near lake Mývatn. Four billion Krona’s worth of test drillings were scheduled for next year, both in Krafla and Þeistareykir. Alcoa was supposed to pay half of the cost. The decision on the future of the drilling will now be delayed for at least one year, according to a joint announcement by Landsvirkjun, Alcoa and Þeistareykir efh.

Þorsteinn Hilmarssson, Landsvirkjun’s spokesperson, states that Alcoa is minimizing its costs in various place around the world and did not think the company could bring money in to the test drilling. The Icelandic participants, Landsvirkjun and Þeistareykir, also face uncertainty about financement and what price it would be.

Alcoa Fjarðaál has not commented anything on the issue but after a meeting with Landsvirkjun earlier this week. Tómas Már Sigurðsson, Alcoa’s director, stated that the energy in the North would for sure be used and that despite the world economic crisis ,,people would just continue with their plans. Alcoa really wants to buy the energy” said Sigurðsson.

Even though heavy industry and dams are one of the driving forces behind the current economic crisis in Iceland, the government has been talking about further heavy industry projects as some kind of a solution.  The government has already applied for a big loan from The International Monetary Fund to pay the three major banks’ debts. If IMF accepts to grant the loan, privatisation of the energy sector and the destruction of Iceland’s natural resources is likely to be on of the fund’s main demands.

But like the big Kárahnjúkar and Fjarðaál project in the East, further large power plant and heavy industry construction with borrowed money will only be a short term boost for the economy, while at the same time worsening the crisis in the long run.