As I described in a previous post, Iceland has an abundance of green energy. And as we know, green energy is the energy of the future – and will only get more valuable with time. Consequently it is not surprising that Iceland’s green resources are already the target of a power struggle aimed at transferring control of those resources from the public domain into the hands of private individuals.

Last year, when Iceland’s economy melted down, a can of worms was opened up that showed the extent of the corruption and cronyism that has existed in this country for decades but which had been hidden or overlooked by most people.

Much of this corruption had been propagated by the political party that had been in power for decades – the Independence Party. Not only had the IP governed in parliament, but it had also installed its members in key positions in Icelandic society, including the judiciary, the government ministries and the banks. The Independence Party is the party responsible for implementing free-market capitalism in Iceland, a la Thatcher in the UK and Reagan in the USA. One of the hallmarks of their policy was large-scale privatization – which primarily meant selling off valuable public assets to friends or associates of the party.

Iceland’s economic collapse was largely caused by a handful of individuals who had amassed great amounts of wealth, frequently with help from the political sector. Driven by greed, poor judgment and a penchant for taking large-scale risks, these few individuals drove the Icelandic nation to the edge of bankruptcy.

But they could spot opportunity when they saw it. So a few years ago, a number of those investors turned their attention to Iceland’s geothermal energy sources, which at the time were owned collectively by the Icelandic nation.

In 2007, the Icelandic government – headed by the Independence Party – decided to sell its share in one of the country’s geothermal power companies, HS Orka [HS Energy]. The company provides energy for the Reykjanes peninsula in the southwest of Iceland, a stone’s throw from the capital Reykjavík. For anyone who has been to Iceland, it is the place on which the Keflavík international airport is located, and spans the stretch of road you drive through to get to the capital.

Curiously, one of the conditions that the IP set for the HS Orka sale was that only private parties could bid for it – other public energy companies, or companies in the public sector, were excluded. The share was sold to a company called Geysir Green Energy, which had been expressly set up for the purpose of investing in power companies and which was headed by a handful of ultra-slick investors.

Geysir Green Energy was a subsidiary of another company called FL Group, which holds the dubious honor of recording one of the most massive losses in Iceland’s history – and that was even before everything collapsed. What we, the Icelandic public, did not know, was that FL Group had paid a large bribe grant to the Independence Party at the end of December 2006. Two days later, on 1 January 2007, laws took effect that prohibited grants of that size to political parties. In other words, FL Group snuggled up to the IP just in time to secure its green-energy interests. Two months later, the coalition government of the IP and the Progressive Party sold its 32% share in HS Orka to Geysir Green Energy.

Fast-forward to this past summer when the town of Reykjanesbær – the local authority responsible for HS Orka – decided to sell its share in the company to Geysir Green Energy. Reykjanesbær is an Independence Party stronghold and the party holds a majority in the town council. Thus it should come as no surprise that the plans for the sale were neither announced publicly nor was the sale advertised – in other words, Geysir Green Energy was hand-picked as a buyer.

The terms of that sale are pretty much impenetrable for a normal person to understand – they are that complicated. However, it has the whiff of corruption all over it. The value of the share owned by Reykjanesbær was assessed in December 2008 at ISK 14.3 billion – however, approximately six months later the town decided to sell its share to Geysir Green for ISK 13.1 billion – ISK 1.2 billion lower than the value of the share.

One of the components of the deal was that Reykjanesbær sold valuable land, containing geothermal energy fields, to HS Orka – resources that, with the sale, effectively fell into the hands of private individuals. While Reykjanesbær owned the land, the nearby town of Grindavík owned the planning rights, and in an effort to stop the sale, Grindavík tried to make a bid for the land – but was purposely kept away from the table until the sale was completed. Meanwhile, the minority in the Reykjanesbær town council harshly criticized the IP-led majority for negotiating the entire Geysir Green deal behind closed doors.

The scary thing in all this, of course, is that when private individuals gain control of such basic fundamental services as public utilities, the interests of those the company is set up to serve – the general public – start to take a back seat to the interests of the shareholders. Maintenance of infrastructure generally declines while prices go up. There are innumerable stories of this happening worldwide, as can be gleaned from the comments beneath this post, which I wrote on my blog. And when such shady dealings are employed to get these public utilities into private hands, it’s pretty much a given that the ensuing developments will not be good.

In the end, 66.7 percent of HS Orka had fallen into the hands of the private individuals behind Geysir Green Energy. However, this was just the beginning. More on that in the next post.

[Image a screen shot of the GGE website, shamelessly filched from here.]