Southwest Iceland Municipality in Financial Trouble Skip to content

Southwest Iceland Municipality in Financial Trouble

The municipality Reykjanesbaer in southwest Iceland is in default with a foreign currency loan worth ISK 1.8 billion (USD 14.8 million, EUR 11.7 million) which fell on maturity date at the beginning of August.

Reykjanesbaer. Photo: Páll Stefánsson.

A supervision committee monitoring the finances of municipalities sent Reykjanesbaer a warning due to their poor financial situation but it didn’t know about the default, Fréttabladid reports.

“That was very surprising,” said Minister of Transport, Communications and Local Government Kristján L. Möller in an interview with Stöd 2 yesterday.

He said his ministry has no authority to interfere on its own initiative. “That is the case according to law and regulations. Municipalities have that much independence,” the minister explained.

The law on municipalities state that a district council is to report imminent default to the supervision committee.

“It hasn’t been considered to contact the supervision committee on this matter,” said Mayor of Reykjanesbaer Árni Sigfússon, explaining that they are hoping that the loan can be refinanced and that an agreement with the loan provider isn’t out of the question.

The municipality’s budget assumed ISK 700 million (USD 5.8 million, EUR 4.6 million) in revenue from the aluminum smelter which is now under construction in Helguvík.

The project is now in jeopardy. Sigfússon reasoned it was necessary to include the revenue in the budget to demonstrate faith in the project.

Fréttabladid recently revealed on August 25 that Ross Beaty, CEO of Magma Energy, which holds a majority in HS Orka, the energy company in Reykjanesbear, had written in an email to Minister of Industry Katrín Júlíusdóttir that he prefers the energy in the region to be used for more environmentally-friendly projects than aluminum production.

However, CEO of Magma in Iceland Ásgeir Margeirsson told the following day that HS Orka is not trying to get out of agreements with Nordurál – Century Aluminum to sell energy to the smelter in Helguvík, saying that the story in Fréttabladid was based on incomplete information.

Click here to read more about Magma and Helguvík.

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