NGOs call on Banks not to Fund Large Dam and Smelter Project in Iceland

Date: 
Thursday, March 13, 2003

International NGO media release, March 13, 2003:

An international coalition of 120 environmental organizations today called on private banks and international financial institutions not to provide any funds for the large Karahnjukar dam and aluminum smelter project in Iceland. Iceland's National Power Company and the Alcoa Corporation are expected to sign the project's power contract on March 15.

If built, the Karahnjukar project will consist of nine dams, three reservoirs, a series of tunnels and river diversions, and a 690 megawatt power plant. It is only the first in a series of large new dam projects in Iceland's highlands that are supposed to power new aluminum smelters. Karahnjukar will destroy unique environmental treasures on Iceland's Eastern Highlands - the second largest remaining wilderness area in Western Europe�, says Arni Finnsson of the Iceland Nature Conservation Association (INCA).

Alcoa is closing smelters in other parts of the world and is moving to Iceland as part of a cost-saving strategy. The company is interested in tapping Iceland's cheap electricity, and will not have to pay for the CO2 emissions of its new smelter because Iceland has an exception under the Kyoto protocol. �It is unacceptable to sacrifice a large, pristine wilderness area for producing cheaper aluminum�, says Peter Bosshard of International Rivers. "In its 2001 Vision Statement, Alcoa aspires to become 'the best company in the world.' Developing the Karahnjukar project would clearly be at odds with such a claim."

Iceland's National Power Company intends to raise funds for the Karahnjukar project from the European Investment Bank (EIB), the Nordic Investment Bank (NIB) and private banks. INCA, International Rivers, the CEE Bankwatch Network, Friends of the Earth International and WWF's International Arctic Programme have today called on the EIB, the NIB and all banks that have funded the National Power Company in the past not to provide any funds for the Karahnjukar project. The NGO appeal was endorsed by 120 organizations from 47 countries.

"Financial institutions such as the EIB that claim to be environmentally sensitive should not give a penny to this disastrous project," says Magda Stoczkiewicz of the CEE Bankwatch Network, who monitors the European Investment Bank with Friends of the Earth/International. "NGOs will continue to follow the K�rahnj�kar project, and will hold any financial institution that puts money into it accountable for irreparable environmental damage." Samantha Smith of WWF's InternationalArctic Programme, said: "We hope that the Karahnjukar proposal is the last timewe see suchan environmentally irresponsible power developmentplan see the light of day.What Iceland needs are plans to protect its environment - not destroy it."

Background on the Karahnjukar project:

If built, the Karahnjukar project will have massive environmental impacts on Iceland's fragile Eastern Highlands wilderness area. It will irreparably damage a rare oasis of highland vegetation, and will destroy or severely impact sensitive habitats for the pinkfooted goose and other rare birds, salmonids, seals, and reindeer. The project�s Environmental Impact Assessment was rejected by Iceland�s National Planning Agency, a decision that was later overruled by the Minister for Environment.

The economic benefits of the Karahnjukar project for Iceland are questionable. The National Power Company�s assumptions regarding cost and time overruns and aluminum price trends are optimistic. A thorough economic evaluation commissioned by INCA estimates that (under its slightly different previous parameters) Karahnjukar will entail annual losses for Iceland of $36 million.

The Karahnjukar project is a highly politicized undertaking, and a divisive issue within Iceland. Three Icelandic citizens and INCA sued the Minister for Environment for overturning the negative decision on the project�s Environmental Impact Assessment. Iceland's Courts of Law will consider this case in early April. In addition, INCA and an Icelandic citizen filed complaints with the EFTA Surveillance Authority regarding an infringement of the European Economic Area Agreement, asserting that the Icelandic Government unduly subsidizes electricity and aluminum production through a variety of measures.

The Karahnjukar dam and a 40 kilometers headrace tunnel from the reservoir to the powerhouse will be built by Impregilo of Italy. Six international consortia recently pre-qualified to submit bids for the electro-mechanical contracts of the project.

For further information:.

More information on the Karahnjukar project is available at www.inca.is. The project�s independent economic assessment is available at http://www.inca.is/newspageiv.php?id=25. Photographs of the project area can be viewed at www.inca.is/show. Please contact J�hann �sberg for the copyright, phone +354 554-5553, mobile +354 893-8909.

annex 1: potential funders

Karahnjukar finance strategy and list of banks that have funded the National Power Company in the past:

Iceland's National Power Company (Landsvirkjun) plans to raise the funds for the Karahnjukar project from two sources: long term funding from the European and Nordic Investment Banks (EIB, NIB) "in the early stages of the project," and medium and long-term funding from private banks, e.g. through issuing notes under a so-called Euro Medium Term Note programme (EMTN) and through a revolving loan facility. In the recent past, Landsvirkjun has not taken up any loans, but has relied on bonds and similar instruments. Since 1998, the utility has issued eight bonds for a total amount of $243 million. It has also issued 23 notes for a total amount of $672 million under a large $1 billion EMTN programme which it arranged in May 1998.

Since 1998, the following banks have raised capital for Iceland's National Power Company through the EMTN programme and bond issues:

ABN AMRO (Holland), a dealer of the 1998 EMTN programme, $360 million
Banque AIG (USA), $140 million
Commerzbank (Germany), $70 million
Merrill Lynch (USA), arranger of the 1998 EMTN programme, $69 million
DePfa Bank (Ireland), $50 million
JP Morgan, Chase Manhattan (USA), a dealer of the 1998 EMTN programme, $40 million
IBJ International (Japan), $30 million
Salomon Brothers, Salomon Smith Barney (USA), $30 million
Credit Suisse Group (Switzerland), $25 million
UBS Warburg (Switzerland), a dealer of the 1998 EMTN programme, $20 million
Skandinaviska Enskilda Banken (Sweden), $20 million

Source: International Rivers

Note: In one case, a large EMTN note of a banking consortium was attributed in equal parts to the different banks of the consortium. Notes and bonds in other currencies than dollars were calculated in dollars at current value.

annex 2: ngo appeal to financial institutions

International NGO Appeal to Public and Private Financial Institutions regarding the Karahnjukar Hydropower Project in Iceland, March 13, 2003

We wish to express our serious concerns regarding the Karahnjukar Hydropower Project in Iceland. This project will be developed and operated by Iceland's National Power Company Landsvirkjun, and will power a future aluminum smelter operated by the Alcoa Corporation. If built, the project will consist of nine dams, three reservoirs, a series of tunnels and river diversions, and a 690 megawatt power plant.

The National Power Company has indicated that it intends to fund the Karahnjukar Hydropower Project through loans, bonds and similar instruments from public and private financial institutions. This NGO Appeal is directed at the international financial institutions that Landsvirkjun has identified as potential funders of the project, including the European and Nordic Investment Banks, and the banks that have provided funds to Landsvirkjun in the past.

The impacts of the K�rahnj�kar Hydropower Project

If built, the Karahnjukar Hydropower Project will have massive environmental impacts on Iceland�s fragile Eastern Highlands wilderness area. It will irreparably damage a rare oasis of highland vegetation, and will destroy or severely impact sensitive habitats for the pinkfooted goose, other rare and endemic birds, seals, salmonids, and reindeer. The project's Environmental Impact Assessment was rejected by Iceland's National Planning Agency, a decision that was later overruled by the Minister for Environment.

Alcoa will close smelters in other parts of the world in order to develop the new Iceland plant as part of a cost-saving strategy. Landsvirkjun has longer-term plans for large dams and smelters in Iceland that would increase the production of aluminum in the country six-fold. If these projects go ahead, they will seriously threaten Iceland�s unique natural heritage.

The economic benefits of the K�rahnj�kar Hydropower Project for Iceland are questionable. The project will indirectly be subsidized by the state. Landsvirkjun's assumptions regarding cost and time overruns and aluminum price trends are optimistic. A thorough economic evaluation commissioned by the Iceland Nature Conservation Association estimates that (under its slightly different previous parameters) K�rahnj�kar will entail annual losses for Landsvirkjun of $36 million.

The Karahnjukar Hydropower Project is a highly politicized undertaking, and a divisive issue within Iceland. Highest officials in Government and Landsvirkjun have personally disparaged project opponents for supposedly "sabotaging" the national interest. Many people are afraid of expressing their opinion on the project in public.

The Iceland Nature Conservation Association (INCA) and three Icelandic citizens sued the Minister for Environment for overturning the negative decision on the project's Environmental Impact Assessment. Iceland's Courts of Law are presently considering this case. In addition, INCA and an Icelandic citizen filed complaints with the EFTA Surveillance Authority regarding an infringement of the European Economic Area Agreement, asserting that the Icelandic Government unduly subsidizes Landsvirkjun and aluminum production through a variety of measures.

An appeal to financial institutions

The consumption of aluminum in today's world is highly wasteful. Producing cheaper aluminum does not justify sacrificing large wilderness areas. The Karahnjukar Hydropower Project and the longer-term plans of Landsvirkjun constitute serious threats to some of Europe's largest remaining wilderness areas. We believe that the Karahnjukar Hydropower Project should not go ahead, and that alternative options for Iceland's economic development that do not threaten the country�s natural heritage should be promoted. We call on the European Investment Bank, the Nordic Investment Bank, and other public and private financial institutions not to fund the Karahnjukar Hydropower Project, either directly or through Landsvirkjun.


This Appeal is being sent to the European Investment Bank, the Nordic Investment Bank, ABN AMRO (Holland), Banque AIG (USA), Commerzbank (Germany), Merrill Lynch (USA), DePfa Bank (Ireland), JP Morgan and Chase Manhattan (USA), IBJ International (Japan), Salomon Brothers and Salomon Smith Barney (USA), the Credit Suisse Group (Switzerland), UBS (Switzerland), Skandinaviska Enskilda Banken (Sweden), Daiwa Securities SMBC (Japan), Soci�t� G�n�rale (France), Bank of Tokyo-Mitsubishi (Japan), Den Danske Bank (Danmark), Dresdner Bank (Germany), and Fuji Bank (Japan).

Copies of this appeal are being sent to the Government of Iceland, Landsvirkjun, and Alcoa.

This appeal has been endorsed by the following non-governmental organizations:

Magda Stoczkiewicz, CEE Bankwatch Network
Kees Kodde, Friends of the Earth/Europe
Ricardo Navarro, Friends of the Earth/International
Peter Bosshard, International Rivers
Filka Sekulova, A SEED Europe
Stefan Norris, WWF International Arctic Program

Roque Pedace, Amigos de la Tierra (Friends of the Earth/Argentina), Argentina

Kate Walsh, Aid/Watch, Australia
Geoff Evans, Mineral Policy Institute, Sydney, Australia

Thomas Lackner, GLOBAL 2000 (Friends of the Earth/Austria), Austria

Marluze Pastor Santos, Forum Carajas, Brazil
Marco Antonio Trierveiler, Movimento dos Atingidos por Barragens (Movement of Dam-Affected People, MAB), Brazil
Lucia Schild Ortiz, N�cleo Amigos da Terra/Brasil, Brazil

Petko Kovachev, Centre for Environmental Information & Education, Bulgaria
Galina Georgieva, NM Ecoglasnost (Friends of the Earth/Bulgaria), Bulgaria
Anelia Stefanova, Za Zemiata (For the Earth), Bulgaria

David B. Brooks, Friends of the Earth/Canada, Canada

Jenia Jofre Canobra, Comit� Nacional pro Defensa de la Fauna y Flora (CODEFF, Amigos de la Tierra /Chile), Chile

Cesar Padilla, Corporacion Observatorio Latinoamericano de Conflictos Ambientales, Chile

Tatiana Roa, Censat Agua Viva (Friends of the Earth/Colombia), Colombia

Gabriel Rivas-Ducca, COECOCEIBA (Friends of the Earth/Costa Rica), Costa Rica

Yvette Raveneau, Amigu di Tera (Friends of the Earth/Cura�ao), Curacao

Friends of the Earth/Cyprus, Cyprus

Ales Kutak, Centrum pro Dopravu a Energetiku, Czech Republic
Pavel Pribyl, Friends of the Earth/Czech Republic, Czech Republic

Peep Mardiste, Estonian Green Movement (Friends of the Earth/Estonia), Estonia

Mika-Petri Lauronen, Friends of the Earth/Finland, Finland

Roberto Epple, ERN European Rivers Network, France
Sebastien Godinot, Les Amis de la Terre (Friends of the Earth/France), France

Daniel Owusu-Koranteng, WACAM, Ghana

Nino Gujaraidze, Association "Green Alternative", Georgia
Rusudan Simonidze, Greens Movement of Georgia (Friends of the Earth/Georgia), Georgia

Jan Kowalzig, Bund f�r Umwelt und Naturschutz Deutschland (BUND, Friends of the Earth/Germany), Germany
Ernst Paul D�rfler, BUND-Elbeprojekt, Germany
Bernhard Henselmann, EarthLink - The People & Nature Network, Germany
Hubert Weinzierl, Deutscher Naturschutzring, Germany
Birgit Zimmerle, German Carajas Forum, Germany
Heinz Peter Vetten, Mandacaru, Germany
Reinhard Behrend, Rettet den Regenwald e.V., Germany
Heffa Schuecking, Urgewald, Germany
Heike Drillisch, WEED, Germany

Spyros Psaroudas, ARCTUROS, Greece
Maria Kadoglou, Hellenic Mining Watch, Greece

Calixte Aldrin, COHPEDA (Friends of the Earth/Haiti), Haiti

Eniko Hajosi, Environmental Protection Club of Eotvos Lorand University (ETK), Hungary

Arni Finnsson, Iceland Nature Conservation Association, Iceland
Olafur Einarsson, Icelandic Society for the Protection of Birds, Iceland
Hallgrimur Magnusson, Nature Conservation Society of East Iceland, Iceland
Ing�lfur �sgeir Johannesson, Nature Conservation Association for Northern Iceland (SUNN), Iceland
Hildur Th�rsd�ttir, The Rangers Association of Iceland (Landvar�af�lag �slands), Iceland
Gu�mundur �rmannsson, Society for the Conservation of the Highlands of East Iceland (F�lag um verndun h�lendis Austurlands), Iceland
Anna Gudrun Thorhallsdottir, SOL-Nature Conservation Society, Iceland
Bjorn Thorsteinsson, West Iceland Nature Conservation Society (NSV), Iceland

Shripad Dharmadhikary, Manthan Adhyayan Kendra, India
Ravi Rebbapragada, mines,minerals & PEOPLE, India
Shantanu Dixit, Prayas Energy Group, India
Himanshu Thakkar, South Asia Network on Dams, Rivers and People, India

Nur Hidayati, WALHI (Indonesian Forum for Environment, Friends of the Earth/Indonesia); Indonesia

Laura Radiconcini, Amici della Terra (Friends of the Earth/Italy), Italy
Antonio Tricarico, Campagna per la Riforma della Banca Mondiale, Italy
Domitilla Senni, Greenpeace/Italy, Italy

Ikuko Matsumoto, Friends of the Earth/Japan, Japan

Kim Choony, Korean Federation for Environmental Movement(Friends of the Earth/Korea), Korea

Alda Ozola, VAK-Friends of the Earth/Latvia, Latvia

Linas Vainius, Lithuanian Green Movement (Friends of the Earth/Lithuania), Lithuania

Meenakshi Raman, Sahabat Alam Malaysia (Friends of the Earth/Malaysia), Malaysia
Consumers Association of Penang, Malaysia

Anabela Lemos, LIVANINGO, Mozambique

South Asian Solidarity for Rivers and Peoples (SARP), Nepal
Gopal Siwakoti, Water and Energy Users' Federation-Nepal (WAFED), Nepal

Huub Scheele, BothEnds, Netherlands
Paul de Clerck, Milieudefensie (Friends of the Earth/Netherlands), Netherlands

G. Uyi Ojo, ERA (Friends of the Earth/Nigeria), Nigeria

Tonje Folkestad, FIVAS (Foreningen for Internasjonale Vann- og Skogstudier), Norway
Truls Gulowsen, Greenpeace/Norway, Norway
Erik Solheim and Jon Magnar Haugen, Norges Naturvernforbund (Friends of the Earth/Norway), Norway

Naeem Iqbal , SUNGI Development Foundation, Pakistan

Damien Ase, Center for Environmental Law and Community Rights Inc (Friends of the Earth/Papua New Guinea), Papua New Guinea

Carlos Abanto, Asociacion Civil Labor, Peru
Miguel Palac�n Quispe, CONACAMI PERU (National Co-ordinating Body of the
Communities in Peru Affected by the Mining Industry), Peru

Joan Carling, Cordillera Peoples� Association, Philippines

Association for Ecology "Eco-Unia", Poland
The Club Gaia, Poland
The Green Federation Gaja, Poland
The Polish Green Net, Poland
Society for Nature and Human Being, Poland

Luis Galrao, Euronatura, Portugal

Juraj Zamkovsky, Center for Environmental Public Advocacy (Friends of the Earth/Slovakia),
Slovak Republic

Mashile Phalane, Batlabine Development Trust, South Africa
Bernard Brown, Burning Spear Cultural Organisation, South Africa
Linden Booth, Contact Trust, South Africa
Liane Greeff, Environmental Monitoring Group, South Africa
Innocent Nojiyeza, Earthlife Africa Durban, South Africa
Bryan Ashe, Earthlife Africa eThekweni, South Africa
Vukile Manzana, GAVADWEN, South Africa
Sandile Ndawonde, Green Network, South Africa
Abednego Matu, RHREDI, South Africa
Raymond Leith, Social Movement, South Africa
George Dor, Victor Munnik and Ismail Petersen, South African Civil SocietyWater Caucus, South Africa
Julie Smith, Water Action Campaign, South Africa

Daniel S�nchez Guti�rrez, Amigos de la Tierra/Espa�a, Spain
Iolanda Fresnillo Sallan, Debtwatch, Spain

Andreas Missbach, Berne Declaration, Switzerland
Laurette von Mandach, Infoterra, Grupo Sui�o de Apoio aos Sem Terra, Switzerland
Miriam Behrens, Pro Natura (Friends of the Earth/Switzerland), Switzerland
Brigitte Anderegg, Solifonds, Switzerland

Yury Urbansky, National Ecological Centre of Ukraine, Ukraine
Sergiy Shaparenko, Pechenegi, Ukraine
Victor Melnycuk, Ukrainian Rivers Network, Ukraine
Natasha Vishnevskaya, The Voice of Nature, Ukraine
Serghiy Fedorynchyk, Zeleny Svit (Green World),Ukraine

Alex Wilks, The Bretton Woods Project, United Kingdom
Nicholas Hildard, Corner House, United Kingdom
Saskia Ozinga, FERN, United Kingdom
Tony Juniper, Friends of the Earth/England, Wales and Northern Ireland, United Kingdom
Richard Harkinson, Minewatch, United Kingdom

Karin Nansen, REDES (Friends of the Earth/Uruguay), Uruguay

Jennifer Gitlitz, Container Recycling Institute, USA
Doug Hellinger, The Development GAP, USA
Aaron Goldzimer, Environmental Defense, USA
Brent Blackwelder, Friends of the Earth/US, USA
Daphne Wysham, Institute for Policy Studies, USA
Payal Sampat, Mineral Policy Center, USA
Douglas Norlen, Pacific Environment, USA
David Hunter, Peregrine Environmental Consulting, USA
Leo Gerard, United Steelworkers of America, USA