Rio Tinto Iceland Aluminium Smelter Energy Price Negotiations Settled

Hörður Arnarson forstjóri Landsvirkjunar Rannveig Rist forstjóri Rio Tinto á Íslandi Tinna Traustadóttir framkvæmdastjóri Orkusölusviðs Landsvirkjun Sigurður Þór Ásgeirsson fjármálastjóri rio tinto

The National Power Company Landsvirkjun and Rio Tinto Iceland have reached an agreement on energy prices for the Straumsvík aluminium smelter, amending the power purchase agreement (PPA) between the two companies dating back to 2010. Rio Tinto Iceland General Manager Rannveig Rist states that the amended contract means the smelter’s closure has been avoided.

Rio Tinto Iceland filed a complaint to the Competition Authority in July last year, claiming Landsvirkjun was abusing its position in the energy market. They have now decided to withdraw it.  The company also heralded the closure of the Straumsvík Aluminium smelter, were Landsvirkjun not to comply, and for the past few months, the smelter has not been running at full capacity.

“It’s a huge step for us to have a deal that makes ÍSAL a competitive force, avoiding the risk of the factory’s closure,” stated Rannveig Rist, General Manager of Rio Tinto Iceland.

The energy prices are confidential but the nature of the agreement’s amendment has been disclosed. Instead of a fully fixed-price based agreement, the base power price has been adjusted and remains in USD and linked to the US Consumer Price Index (CPI). It will also be partially linked to global aluminium prices. Landsvirkjun Director Hörður Arnarson stated, “This will make it easier for the aluminium smelter to adjust to fluctuations in the aluminium market.” As before, the contract specifies the sale of 390 MW or 3.416 GWh a year and expires in 2036.

Rio Tinto is Landsvirkjun’s second-largest customer, purchasing around 20% of its energy output. Hörður told RÚV that it is likely that the company’s revenue from the Rio Tinto deal will remain the same. When asked if they were giving the company a covid-19 discount, Hörður replied that they weren’t, although they did last year, a special discount due to the situation in international markets. When asked why the energy prices were confidential, Hörður stated that the contract was an old one and included confidentiality clauses and that the companies needed to come to an agreement on when and how they are made public.

Aluminium Workers’ Contract Hinges on Price of Energy

ISAL aluminium smelter Straumsvík

Three hundred workers in Rio Tinto’s ISAL aluminium smelter could see their collective agreement nullified in June if the National Power Company and Rio Tinto do not reach an agreement about the cost of power supplied to the smelter, RÚV reports. The National Power Company’s CEO says it is “unreasonable” for the contract to hinge on that factor, but says the company will not let it impact their negotiations with Rio Tinto.

Rio Tinto says energy costs hamper competitiveness

The workers’ collective agreement, which was signed in March, is valid for two years. It contains a clause, however, that makes it invalid as of June 30 if an energy supply contract has not been renegotiated between Rio Tinto and the National Power Company. The ISAL smelter, located in Southwest Iceland, has been running at a loss for the past eight years, and its executives point to high energy costs as one of the reasons.

National Power Company CEO Hörður Arnarson says his company did not know about the contract clause until it was reported on yesterday by Morgunblaðið. “I find it a very unreasonable development, both in collective agreement negotiations and in negotiations of energy contracts, to connect two unrelated parties in this way,” Hörður stated. “The only reason I can see for doing this is that they believe it will put added pressure on the National Power Company, but it won’t have that effect.”

“These are difficult conditions. Markets are closing for them,” Hörður added. “We will look for ways to find a common solution but it’s completely unclear whether we will agree on one.”

Smelter may close for two years

Rio Tinto is considering suspending production at the ISAL plant for two years due to the downturn in the market caused by the coronavirus pandemic. The metal and mining company is also preparing a lawsuit against Iceland’s National Power Company intended to release Rio Tinto from a large part of the electricity purchase obligation to which it is subject.

The ISAL smelter is one of the largest employers in the town of Hafnarfjörður and according to its mayor, has a “synergistic effect on other companies in town.”

Landsvirkjun Announces Plan to Become Carbon Neutral by 2025

Today, Landsvirkjun – the National Power Company of Iceland – will introduce plans to become carbon neutral by 2025, RÚV reports. According to Hörður Árnarson, CEO of Landsvirkjun, the company has monitored greenhouse gas emissions closely over the past ten years. Landsvirkjun’s initiative forms a part of the government’s plans to become carbon neutral by 2040.

Emissions  Halved Since 2005

In an interview on Rás 2 this morning, Hörður Árnason stated that Landsvirkjun’s emissions have halved from 2005 when greenhouse gas emissions were approximately 45 thousand tonnes per year. According to Hörður, today Landsvirkjun emits approximately 22 thousand tonnes annually. Most of the emissions can be traced to geothermal power stations, especially Krafla. Landsvirkjun aims to reduce emissions from these sources, while also cleaning emissions.

“The steam is separated and mixed with fluid whereupon it is injected back into the site of its retrieval … it’s not a simple operation and it involves considerable innovation. We believe that such efforts, however, will lead to an accumulation of knowledge that Icelandic engineering firms and others can use to sell to foreign parties.”

A Comprehensive and Costly Initiative

Hörður stated that the operations will be comprehensive and costly. “It’s a big project that we divide into three parts. Prioritisation is key. First, it is important to prevent emissions, which Landsvirkjun has done by adopting an internal carbon price. We’re probably the first company in Iceland to have done so. For all of our projects, we equate greenhouse gas emissions with cost; for every tonne of greenhouse gas emissions we estimate that it costs us approximately $33,” Hörður stated, admitting that the carbon price was relatively low. The second most important aspect of Landsvirkjun’s project is reducing emissions, Hörður added, with carbon sequestration coming third.

Landsvrkjun aims to update all of its cars, machinery, and engines so that in ten years they will be powered by electricity, methane, or hydrogen.

Iceland’s Largest Producer of Electricity

Landsvirkjun’s presentation will be held at Nauthóll at 2.00pm today. The panel of speakers will include Halldór Þorgeirsson, Chair of Iceland’s Climate Council; Kristín Linda Árnadóttir, Deputy CEO of Landsvirkjun; and Eggert Benedikt Guðmundsson, Director of Grænvangur, among others.

Landsvirkjun is Iceland’s largest electricity generator and one of the ten largest producers of renewable energy in Europe. Landsvirkjun operates 17 power plants in Iceland concentrated on five main areas of operation. It is owned entirely by the Icelandic state.

Salaries of Government CEOs Under Scrutiny

Bjarni Benediktsson

Bjarni Benediktsson, Minister of Finance and Economic Affairs, echoes statements made by other officials concerning the excessive pay raises of Lilja Björk Einarsdóttir, CEO of Landsbankinn, Kjarninn reports. “As far as I can tell, instructions made in early 2017 have not been heeded,” a disappointed Bjarni says.

The instructions Bjarni refers to were made by then Minister of Finance and Economic Affairs, Benedikt Jóhannesson, after it was decided in early 2017 to exempt government officials from decisions made by parliament’s salary council. At the time Benedikt urged all CEOs of government entities to show modesty in pay raises in the future. Instead, many have run amok.

Salaries of CEOs became a hot topic in Iceland this week after it was revealed that Lilja Björk Einarsdóttir, CEO of government owned bank Landsbankinn had managed to raise her monthly salary to 3.800.000 ISK, meaning that her pay increased by 82% in two years.

Lilja, however, is not the only one to have received a hefty pay raise. After being freed from parliament’s control, salaries of the head of The Icelandic National Broadcasting Service were raised by 16% to 1.8 million ISK a month, the salary of Isavia’s CEO were raised by 20% to 2.1 million ISK and the salary of the National Power Company of Iceland’s CEO were raised by 32% to 2.7 million ISK.

Bjarni Benediktsson says he has now sent a letter to all government CEOs, asking them to explain just exactly how they have followed Benedikt Jóhannesson’s instructions. He has said he will give everyone a chance to explain themselves, but does not exclude the possibility of parliament intervention in the future.

Icelandic Government to Establish National Reserve Fund

Bjarni Benediktsson

A bill proposing the establishment of a national reserve fund will be put before the Icelandic parliament in the fall, RÚV reports. Dividends from energy companies will be diverted to the fund, which could reach ISK 250-300 billion ($2.1b/€1.8b) in only 15 to 20 years. A temporary provision will allocate some of the dividends to healthcare infrastructure and innovation in the business sector.

The establishment of such a fund has been on the agenda of the last several governments, though its proposed name and purpose has changed over time. In 2015, then Minister of Finance Bjarni Benediktsson said such a fund would serve as a kind of reserve to stabilise fluctuations in the Icelandic economy. He suggested it could be used to pay off debt and finance important infrastructure projects, as well as for unforeseen emergencies, such as natural disasters that could cause economic damage beyond the scope of the country’s existing emergency funds.

The Ministry of Finance’s recent statement on the fund, however, states that it would not be used to maintain economic stability, as previously proposed. The conclusion was made that such a fund is not necessary. Instead, a portion of the fund will be used to support start-up businesses and for building up nursing home infrastructure. Most of the dividends will come from the National Power Company of Iceland.

The government accepted the submission of comments on the proposed fund during a seven-day period. The Icelandic Association of Local Authorities criticised that more time was not given. Though the organisation stated they are not against the fund, they propose it also be used toward the implementation of EU legislation, as well as waste management and public transportation.

The SA Confederation of Icelandic Enterprise is against the establishment of the fund, stating the government should prioritise paying down the treasury’s pension obligations, which currently amount to one quarter of GDP, as well as repaying national debt.