European Tribune - Community, Politics & Progress.

Best Energy in Reykjavik

by ChrisCook
Fri Jun 18th, 2010 at 05:34:18 PM EST

Reykjavik's new council, with the 'joke' Best Party's comedian Jon Gnarr at the helm as new mayor, has just started in a coalition agreement with the Democratic Alliance.

No mention in the programme yet about the promised free towels at all swimming pools, or the expected arrival date of the promised polar bear at the zoo, but it's an interesting start.....

Iceland Review Online: Daily News from Iceland, Current Affairs, Business, Politics, Sports, Culture

Jón Gnarr has been sworn into office as the Mayor of Reykjavík, ruv.is reports. Outgoing mayor, Hanna Birna Kristjánsdóttir of the Independence Party, was unanimously elected city council chairman.
Sóley Tómasdóttir, leader of the Left-Greens, was elected deputy council chairman and Björk Vilhelmsdóttir, a councilor for the Democratic Alliance, was elected second deputy council chairman.

The Best Party and the Democratic Alliance had come to a coalition agreement, thereby forming a majority. Councillors of the Independence Party and the Left-Greens are involved neither in the majority nor the coalition agreement. However, cooperation between parties will be increased, enabling each councillor to put their skills and strengths to good use.
Among the first undertakings of the new majority is to carry out an audit of Reykjavík Energy. The coalition agreement also includes plans to stop the expansion of the city, limit car traffic in certain areas of the city center and increase financial support to the city's inhabitants with the lowest income. The building of a railway between central Reykjavík's Vatnsmýri and Keflavík is also being considered. Citizens' joint ownership of the city's resources will be guaranteed and a specific time frame will be made around efforts to reduce greenhouse gas emissions.

Reykjavik Energy - which is some sort of partnership entity owned 93% by Reykjavik, with the balance being held by two other councils, has some very interesting stuff in its

Interim Accounts Q1 2010

Firstly, a considerable part of its energy income is linked to dollar aluminium prices, and hedged on the London Metal Exchange (at vast cost, no doubt).

Secondly, the good news is that 90% of its sizable borrowings are at low rates of interest - but the bad news is that 20% is in Swiss francs; 10% in Yen; 37% in Euro and 23% in dollars.

I'm wondering what the audit is all about. It can't be flogging off the company because they've ruled that out....

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Best Energy in Reykjavik | 21 comments (21 topical, 0 editorial, 0 hidden)

Re: Best Energy in Reykjavik (4.00 / 2)

or the expected arrival date of the promised polar bear at the zoo

They could simply stop shooting polar bears that come on their own accord.

by gk (g k quattro due due sette "at" gmail.com) on Fri Jun 18th, 2010 at 05:39:51 PM EST

Aluminum (4.00 / 4)

There is a HUGE aluminum smelter on the coast between Reykjavik and the airport in Keflavik. The smelter uses lot's of nice clean geothermal electricity, and they may be in several layers of partnership with the Energy company.

by US Blues on Fri Jun 18th, 2010 at 06:41:53 PM EST

Re: Best Energy in Reykjavik (4.00 / 2)

Firstly, a considerable part of its energy income is linked to dollar aluminium prices, and hedged on the London Metal Exchange (at vast cost, no doubt).
Secondly, the good news is that 90% of its sizable borrowings are at low rates of interest - but the bad news is that 20% is in Swiss francs; 10% in Yen; 37% in Euro and 23% in dollars.

I'm wondering what the audit is all about. It can't be flogging off the company because they've ruled that out....

Repudiating the foreign debt?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat Jun 19th, 2010 at 02:25:51 AM EST

Re: Best Energy in Reykjavik (none / 1)

Repudiating the foreign debt?

Can the city council do that? Or is it just to provide evidence to pressure
the government to do that?

by gk (g k quattro due due sette "at" gmail.com) on Sat Jun 19th, 2010 at 03:40:47 AM EST
[ Parent ]

Re: Best Energy in Reykjavik (none / 1)

re: repudiating foreign debt

This is the wrong question. The contentious issue of (repudiation) affirmation of "foreign debt" concerns obligations of corporate banks assumed by the federal government. Whether or not the federal government, or legislature, decides to default indirectly effects Reykjavik Energy capital strategy as an ongoing concern, particularly cost of capital in open market issues.

Note that (hedged) losses attributable to currency value fluctuation over the period were relatively insignificant as compared to charges taken on --it seems to me-- accelerated depreciation and amortization... which is troubling, considering...

The pertinent question of an audit addresses Reykjavik Energy capital structure, particularly extraordinary claims recorded on the balance sheet about the "fair value" --not notional value-- of the corporation's derivatives exposure and especially "Embedded derivatives in electricity sales contracts," non-current (long-term) and current (< 12 mo). Reykjavik Energy is sitting on $23.6B worth of long-term sales contract "protection." See fn. 10, p 21. If the smelter's market fails, Reykjavik Energy is fornicated.

You might want to refer to the report. The format is extremely readable and notes are detailed.

Diversity is the key to economic and political evolution.

by Cat on Sat Jun 19th, 2010 at 08:29:05 AM EST
[ Parent ]

Context (none / 1)

Grapevine.is: Supreme Court Rules Loans Pinned to Foreign Currency Illegal (16.6.2010)

Two cases were connected to the ruling involving car loans taken from the companies Lýsingu hf. and SP-fjármögnun that were pinned to foreign currency. With the collapse of the Icelandic crown in 2008, many people who took out such loans - at a time when the crown was strong - saw their debts double almost overnight.
Consumer spokesperson Gísli Tryggvason told Vísir that he was "very pleased" with the ruling. He added that many people who had taken these loans had probably paid more than they even took out in their initial loans, so he expects these people to get money back.
Gísli believes the next step will be to examine real estate loans that were structured similarly. In the meantime, he says, "Consumers have been acquitted."

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat Jun 19th, 2010 at 08:47:26 AM EST
[ Parent ]

Re: Context (none / 1)

How is consumer credit market regulation relevant to Reykjavik Energy's actual debt load ("carrying amounts") or liquidity position ( "capitalized finance costs")?

See p17, forward currency swaps and foreign exchange difference

Diversity is the key to economic and political evolution.

by Cat on Sat Jun 19th, 2010 at 10:02:27 AM EST
[ Parent ]

Re: Context (none / 0)

How is consumer credit market regulation relevant to Reykjavik Energy's actual debt load...

Perhaps the idea is to give consumers relief and, by so doing, to drive home the idea that similar or related action with respect to Reykjavik Energy would be in the interest of all Icelanders.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Sat Jun 19th, 2010 at 12:17:36 PM EST
[ Parent ]

In a good world... (4.00 / 2)

...not a perfect world, one's government works to provide constituents essential services at the lowest cost simply because that's possible. Note, in the linked PR, one campaign promise that residents expect the coalition to fulfill is deeper discount of Reykjavik Energy services --power, water, sewer, ICT-- for low-income HHs.

Terms of interest-bearing loans and borrowings, 1.1 - 3.31, 2010 (p23)

Liabilities in foreign currencies (000s)	Maturity	Avg rate (%)	Carrying Amt
CHF	2036	0.68	41.374.276
EUR	2032	1.21	79.251.840
USD	2030	0.88	49.790.476
JPY	2036	0.60	21.577.367
GBP	2036	1.58	7.7839.928
SEK	2027	0.71	14.186.483
			213.964.370
Liabilities in ISK (000s)
Indexed	2037	4.97	22.071.506
Non-indexed	2010	11.45	1.271.303
			23.342.810

10% of Reykjavik Energy debt is denominated in ISK, of which 94% is FX-adjustable rate. I'd be guessing, that 22 super-size paid for island CRE craters, say, 2004-2008. Or vig, depending. In any event, it would be difficult even for the best comedian to squeeze a bathos from this pimple on corporate privileges which the city manager and shareholder-ratepayers (cf "guarantee fee to owners") have enjoyed. Depends. I'd want to know how much retail rates fluctuated 2008 to the present and what proportion was attributed to uh capital expenses.

Diversity is the key to economic and political evolution.

by Cat on Sun Jun 20th, 2010 at 01:33:47 AM EST
[ Parent ]

Re: Context (none / 1)

Making debts indexed to foreign currencies unenforceable against consumers is not a million miles away from making all debts indexed to foreign currencies unenforceable, for instance the city's forward currency swaps.

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Sat Jun 19th, 2010 at 01:33:54 PM EST
[ Parent ]

Re: Context (4.00 / 2)

This gambit is irrelevant to Reykjavik Energy capital strategy and core business, municipal-owned utility (MOU). Let's not forget, the court decision is largely intended to restructure certain consumer ISK borrowing resulting from ISK devaluation (2008) relative to the indexed currencies. In light of sauce-pan-rage, so go scheisters and the too clever, FX-adjustable rate loans they rode in on.

At that time, the ICB modified currency custody controls but not FX controls. Something like 70% corporate borrowing was and remains issued and settled in foreign currency. Let us note here, the infrastructure Reykjavik Energy is constructing will supply an Alcoa plant. Trade will be denominated in USD not EUR. Some pertinent if dated consideration, apart from Reykjavik Energy's book: Rules on foreign exchange - Central Bank of Iceland - 15 Dec 2008

Article 4
Borrowing and lending between domestic and foreign parties for purposes other than cross-border transactions with goods and services shall meet the following requirements:

Each party's loan shall not exceed 10,000,000 kr., or the equivalent of that amount in foreign currency, per calendar year.

The loan period shall be at least one year.

Capital transfers for the loan shall be in accordance with the provisions of Article 9 of these Rules [Article 9. Obligation to submit foreign currency].

Loan agreements, including all appendices and accompanying documents, shall be sent to the financial undertaking that carries out the movement of capital within one week of signing.

The provisions of this Article do not apply to borrowing and lending between undertakings within a conglomerate [transfer pricing between units anywhere in the world]....
Article 6
It is prohibited to transact derivatives contracts involving the Icelandic króna against a foreign currency, whether these are contracts involving currencies, securities, or a combination of currencies and securities, or other comparable financial instruments. Derivatives transactions related solely to trade with goods and services do not fall under this provision.
Article 8
Interest, indexation, dividends, capital gains, and contractual instalment payments are not considered movement of capital in the sense of these Rules. Wages are not considered movement of capital in the sense of these Rules. Cross-border prepayment of financial instruments is prohibited, however.
Article 14
The provisions of these Rules do not apply to movement of capital or foreign exchange transactions undertaken by the Central Bank of Iceland. The Rules do not apply to:
1. The Treasury and companies in which the Treasury owns a majority holding, and which operate according to special legislation.
2. Municipalities and companies in which municipalities own a majority holding, and which operate according to special legislation.

Companies that are parties to investment agreements with the Government of Iceland, which agreements have been assigned legal validity or are concluded on the basis of special statutory authorisations.

Companies that have been granted permission by the Minister of Industry to search for oil according to Act no. 13/2001.

Resolution committees that have been appointed on the basis of Article 100a of the Act on Financial Undertakings.

Undertakings with over 80% of their revenues and expenses abroad may apply for an exemption from Articles 1, 4 - 6, and 9 of the Rules. Those undertakings that believe they meet the requirements set forth in the first sentence shall send an application to the Central Bank of Iceland and demonstrate that they fulfil the conditions. The application shall be accompanied by a confirmation from a chartered auditor. A list of parties that have been granted such exemptions will be published on the website of the Central Bank of Iceland.
Commercial banks, savings banks, and credit institutions are authorised to engage in spot, forward, and swap transactions with foreign currency. Furthermore, commercial banks, savings banks, and credit institutions are authorised to take foreigndenominated loans to finance their activities or to refinance previous debt. Commercial banks and savings banks are authorised to receive money market deposits in Icelandic krónur from foreign parties.

Sure was HOT today. phew.

Diversity is the key to economic and political evolution.

by Cat on Sat Jun 19th, 2010 at 09:46:50 PM EST
[ Parent ]

Re: Context (none / 1)

FYI: the putz stirs...

Diversity is the key to economic and political evolution.

by Cat on Thu Jul 1st, 2010 at 03:49:50 AM EST
[ Parent ]

correction (none / 1)

ISK 23.6B worth of long-term sales contract "protection"

Diversity is the key to economic and political evolution.

by Cat on Sun Jun 20th, 2010 at 01:46:18 AM EST
[ Parent ]

Context (none / 1)

Smelters will shut this quarter because about 70 percent are unprofitable after aluminum fell as much as 27 percent in two months, said Deripaska, chief executive officer of United Co. Rusal, the largest producer. Ghosn, CEO of Renault SA and Nissan Motor Corp., expects car production to gain about 11 percent this year. Transportation is the biggest use for aluminum.
The executives are more bullish than Wall Street, where the median in a Bloomberg survey of 19 analysts is for the metal to average $2,100 a metric ton in the fourth quarter, 8 percent more than now. Harbor Intelligence, the researcher which correctly predicted a 2009 closing price above $2,200, forecasts prices as high as $2,500 before the end of this year....
The U.S. will grow the most in six years in 2010 and China, the biggest aluminum consumer, will expand at three times that pace, according to as many as 67 economists surveyed by Bloomberg. Manufacturing is leading the rebound in the world's largest economy, rising for a 10th month in May, while construction spending in April added the most since 2000. One in every five tons of aluminum is used in building....
LME-monitored reserves are little changed from a year ago and about 80 percent is tied to transactions, making it behave as a "financial asset rather than an industrial feedstock," said Daniel Brebner, an analyst at Deutsche Bank AG in London. Projections for interest rates to remain near record lows in the next 12 months mean the metal may not return to the market any time soon, he said....
New smelters in Abu Dhabi and Qatar and Chinese plants will add capacity this year, Barclays said in a report this month. That will be partly offset by Europe, where about two-thirds of plants "are in danger of closure" before the end of 2013, the European Aluminium Association says.
Energy may stunt the growth of output in China, where the government is raising power surcharges by as much as 100 percent for some energy-intensive companies starting this month.
Supply could also be kept off the market by exchange-traded funds backed by the metal. Rusal said in April it was in talks to supply metal to banks for possible ETFs.
Read more...

Diversity is the key to economic and political evolution.

by Cat on Mon Jun 21st, 2010 at 02:38:01 AM EST
[ Parent ]

PN (4.00 / 2)

Cat:

federal government

The icelandic government is not federal, as Iceland is not a federation. The national government, the government of the republic or simply the government all works to describe the highest level of icelandic politics.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Mon Jun 21st, 2010 at 06:07:44 AM EST
[ Parent ]

Re: PN (none / 1)

Thank you.

Diversity is the key to economic and political evolution.

by Cat on Mon Jun 21st, 2010 at 12:19:58 PM EST
[ Parent ]

Re: Best Energy in Reykjavik (4.00 / 4)

M. le Pooh,

I've slept on the question, which first surfaced in my consciousness as I closed my eyes: Reykjavik Energy is laundering a heck of a lot of dough for a muni operation serving about 200,969 residents and a couple hundred industrial-sized establishments; what's up with that?(prelude to an unscheduled audit?)

Reykjavik Energy enjoys certain financial services privileges that ICB stripped from certain financial services firms which had zealously scaled heights of the new national identity, financial capitol of the world. For a while, foreign currencies was hard to come by.

Reykjavik Energy has a continuous need for foreign currencies to service its obligations. And Reykjavik Energy is diversifying its industry capabilities and scale.

I suppose, the Best guvners --or the ICB agents-- would like to assure the shareholder-ratepayers what Reykjavik Energy stands to gain or lose from a certain, bespoke capital investment project in light of a recent development in the global capital market. 9 June 2010, following Reykjavik Energy Q1 quarterly statement:

Beijing on Wednesday signalled support for Iceland's economic recovery with a currency swap deal, worth more than $500m (€415m, £343m), that will increase the country's access to foreign currency and promote bilateral trade ties....
Mar Gudmundsson, governor of the Icelandic central bank, said the deal, which will allow Iceland to pay for Chinese imports in its own currency, the kronur, would promote economic ties. "It is another signal that the world is starting to look more favourably on us," he told the Financial Times.
Mr Gudmundsson said China had been in talks with Iceland about ways it could assist recovery since the Icelandic banking sector collapsed in 2008 - a fact likely to be contrasted by Icelanders with the perceived bullying by the UK and other European countries over Icelandic debts....
The three-year currency swap, worth 3.5bn renminbi or 66bn [ISK] is the latest in a series of similar deals struck by Beijing as it seeks to increase international exposure to its currency and potentially move towards convertability.
Read more...

I suppose, Reykjavik Energy management seeks favorable arrangements with the ICB with respect to short-term --overnight to 30 day-- credit.

Diversity is the key to economic and political evolution.

by Cat on Sun Jun 20th, 2010 at 10:03:49 AM EST

Re: Best Energy in Reykjavik (4.00 / 3)

After the fourth cup o' joe, I had a vision.

Wouldn't it be interesting if Reykjavik Energy pulled a NEW! GMAC, spinning its "investment activities" --which served the company well--into a commercial bank that the ICB would be pleased to recognise ;)

Asset-wise.

Diversity is the key to economic and political evolution.

by Cat on Sun Jun 20th, 2010 at 11:18:19 AM EST
[ Parent ]

Re: Best Energy in Reykjavik (4.00 / 2)

Headline: Chinese buy green aluminum in Iceland in Islandic Kronur--Iceland can now pay bills in renmenbi!

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Sun Jun 20th, 2010 at 01:56:21 PM EST
[ Parent ]

Re: Best Energy in Reykjavik (none / 1)

LOL. I swear, I can't keep up.

Diversity is the key to economic and political evolution.

by Cat on Wed Jul 7th, 2010 at 10:05:10 AM EST
[ Parent ]

Re: Best Energy in Reykjavik (none / 0)

Get your news one year early...

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Wed Jul 7th, 2010 at 10:09:03 AM EST
[ Parent ]

Best Energy in Reykjavik | 21 comments (21 topical, 0 editorial, 0 hidden)

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