Reykjavík Energy Saved from Bankruptcy Skip to content

Reykjavík Energy Saved from Bankruptcy

Reykjavík Energy (OR) requires ISK 50 billion (USD 433 million, EUR 308 million) to avoid bankruptcy. Reykjavík City Council decided yesterday to lend the company ISK 12 billion (USD 104 million, EUR 74 million) over 15 years to bridge the gap. Further price increases, the sale of assets and extensive rationalization is impending.

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The headquarters of Reykjavík Energy. Photo by Páll Stefánsson.

“If nothing had been done, Reykjavík Energy would have already gone bankrupt in the spring and salaries couldn’t have been paid,” Bjarni Bjarnason, who was recently hired as CEO of OR, explained in a press conference yesterday where he presented a five-year strategy to save the company, according to Morgunbladid and Fréttabladid.

Bjarnason compared the situation to OR having ran ashore after 101 years of continuous sailing. “Today decisions have been made which are sufficient enough to tow it loose from the grounding location,” he said.

Bjarnason referenced the recent grounding of transport vessel Godafoss off Norway’s coast, saying everything was carried off the vessel to lighten it. The same applies to what OR’s owners are doing now.

In addition to Reykjavík City, OR’s other owners, the municipalities Akranes and Borgarbyggd, will contribute to the loan.

Other measures include selling assets worth ISK ten billion, cutting the operational cost by ISK five billion and increasing prices worth ISK five billion—as of May 1, 2011, the sewage tax in Reykjavík will increase by 45 percent and the price of heating by eight percent, which will increase the annual expenses of the average household by ISK 18,000 (USD 156, EUR 111). Until 2016, 90 OR employees will be laid off.

Chairman of Reykjavík City Council Dagur B. Eggertsson said the development of OR’s operations had taken a foolhardy turn in the past years. The City Council has called for a thorough investigation into OR’s past operations.

Mayor Jón Gnarr pointed out that Reykjavík City Council had agreed in December 2010 to have an independent committee of specialists look into the reasons for OR’s tight financial situation. Yesterday it was decided to speed up the investigation.

Kjartan Magnússon, Independence Party councilmember and board member of OR, stated the many comments that have been expressed on the company’s poor situation lately had harmed its image. He added the reaction of foreign banks is a disappointment.

Foreign borrowers have closed off OR’s refinancing and a rescue operation for the company has been planned in the past weeks and months.

At the end of January a black report by the HF Verdbréf brokerage was presented to the board of OR which showed that the company’s situation was worse than earlier believed.

Following price increases of 28.5 percent in August 2010, OR conducted mass layoffs two months later.

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