VZCZCXYZ0011
RR RUEHWEB

DE RUEHRK #0125/01 1201727
ZNR UUUUU ZZH
R 301727Z APR 07
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC 3268
INFO RUCPDOC/USDOC WASHDC
RUEHSM/AMEMBASSY STOCKHOLM 0148

UNCLAS REYKJAVIK 000125 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STOCKHOLM FOR KEITH CURTIS 
COMMERCE FOR LEAH MARKOWITZ 
 
E.O. 12958: N/A 
TAGS: EIND EINV EMIN ENRG SENV IC
SUBJECT:  Iceland: Local vote to stop smelter expansion may have 
silver lining for U.S. firms 
 
Ref: Reykjavik 411 
 
¶1.  (U) Summary:  Iceland's oldest aluminum smelter, owned by 
Canadian aluminum conglomerate Alcan, was denied permission to 
expand in a tight local referendum on March 31.  The planned 
expansion was one of three aluminum projects in various planning 
stages, including two new smelters proposed by American firms Alcoa 
and Century Aluminum.  Although environmentalists may seize on the 
results as a boost for their anti-aluminum campaign, in reality the 
result of the vote is likely a positive sign for the U.S. projects. 
The economy could not sustain all three projects, but it needs some 
of them.  The U.S. projects enjoy local public support and are not 
located in areas with the same urban development issues.  End 
Summary. 
 
----------------------------------------- 
Enlargement would constrict town's growth 
----------------------------------------- 
 
¶2.  (U) The Alcan aluminum smelter was opened in the town of 
Hafnarfjordur, on the southern outskirts of Reykjavik, by Swiss 
Alusuisse in 1969 and sold to Canadian Alcan in 2001.  Originally 
begun as a 30,000 tons/year operation, the smelter has been expanded 
several times and currently produces 180,000 tons/year.  The planned 
expansion would have boosted the production capabilities to 460,000 
tons/year, making it the biggest smelter in Iceland.  During the 
last thirty years the population in Hafnafjordur expanded from 9,500 
to 23,200 residents.  Alcan employs some 500 workers, who live in 
Reykjavik and nearby municipalities. 
 
¶3.  (U) The main debate regarding the expansion revolved around how 
the expansion would not only cause the smelter to reach very close 
to existing residential areas in Hafnarfjordur, but would also block 
any further town expansion.  Dilution zones (the amount of area 
needed surrounding the plant to absorb emissions) were widely 
debated; Alcan maintained that due to new scrubbing technologies the 
dilution zone would be smaller after the expansion than before. 
Opponents said the air pollution and environmental damage caused by 
expansion would reduce significantly the standard of living, as well 
as real estate prices, in the area.  Pro-expansion arguments 
included the dramatic increase in the municipality's income from the 
smelter and the positive effects on employment and industry.  In 
addition, the CEO of the Alcan smelter, Rannveig Rist, told the 
media that if the vote went against the expansion Alcan would 
probably close down. 
 
---------------- 
Lost by 88 votes 
---------------- 
 
¶4.  (U) Due to perceived widespread opposition to the expansion 
within the municipality and a lack of unity within the town council 
itself, the council decided a few months ago to put the decision 
before a referendum.  All polls leading up to the March 31 eQction 
day indicated an extremely close vote, with both sides taking out 
full page newspaper ads and direct mail marketing of residents to 
persuade the vote.  Voter turnout was very high; of 16,647 eligible 
voters, 12,747 came to vote, or 76.6 percent.  The expansion lost by 
a mere 88 votes, with 6382 of the voters (50.35 percent) casting a 
"no" ballot versus 6294 votes (49.65 percent) on the other side. 
The result was a great disappointment for Alcan and CEO Rist told 
media that there was "no existing plan B" for the smelter and 
without the expansion there might not be grounds for continuing 
operations in the long run. 
 
------------------------------- 
Environmentalists claim victory 
------------------------------- 
 
¶5.  (U) Environmentalists celebrated the result of the vote as a 
victory for the environment and Steingrimur J. Sigfusson, Chairman 
of the Left Green Party, claimed that it reflected the rising 
environmental consciousness of Iceland.  Activists and the green 
political parties told the media the vote showed that the people of 
Iceland have had enough of heavy industry projects such as aluminum 
smelters and the power plants that are built to power them.  While 
this vote was a local referendum in Hafnarfjordur, and a very close 
call, Sigfusson claims that this is a far bigger victory for the 
environmentalists than the government is willing to admit. 
 
---------------------------------- 
U.S. companies likely not affected 
---------------------------------- 
 
¶6.  (U) Two other aluminum smelters in Iceland are owned by U.S. 
firms (reftel).  Century Aluminum in the southwest near the town of 
 
Akranes has a production capacity of 220,000 tons/yr and Alcoa in 
the northeast, which begins production in June, will have a capacity 
of 346,000 tons/yr.  Both Century and Alcoa have expressed their 
intent to build new smelters in Iceland; Century plans a new smelter 
near the old U.S. military base in Reykjanesbaer, and Alcoa wants 
one near Husavik in the north.  Both projects have the support of 
the respective local residents, but face opposition from 
environmental groups and green minded political parties who strongly 
oppose further big-scale industrial projects in Iceland.  According 
to Gunnar Haraldsson, the Director of the University of Iceland's 
Institute of Economic Studies, the economy could not sustain two new 
smelters and the Alcan expansion, but it needs one or two of the 
projects to sustain the growing economy. 
 
¶7.  (SBU) Of the two U.S. projects, the Century project is further 
along.  Century has submitted an Environmental Impact Assessment 
which is open to review by the municipalities involved, the National 
Planning Agency, the Environment Agency, and the general public. 
Proposed changes to the local development and zoning plan have been 
submitted by the town council of Reykjanesbaer, which supports the 
project, and the plans are now open for public comment.  Century has 
signed an energy contract with the Sudurnes Energy Company for the 
first stage of the smelter, due to be operational in 2010, and is 
currently in negotiations with Reykjavik Energy for the purchase of 
energy for the second stage.  (Note: The Century project is on the 
same part of the electrical grid as the Alcan smelter.  With Alcan's 
expansion plans off the table, Century has stated to the media that 
it is willing to purchase all the energy that was to be sold to 
Alcan for the expansion.  End Note.) 
 
¶8.  (U) The Alcoa project is not as far along in preparation.  That 
project seems to face far more opposition on environmental terms, 
because it is to be built in a more pristine area and the firm is 
already unpopular due to negative publicity surrounding their 
current aluminum smelter and the Karahnjukar hydropower project that 
was built for it.  The Alcoa project entered the third phase of its 
feasibility study on April 18.  The parties to the original 
declaration of intent for the smelter, Alcoa, the Ministry of 
Industry, and the municipality of Husavik, all agreed that the 
feasibility studies were promising thus far and should be continued. 
 
 
¶9.  (SBU) Comment: Environmental activists have heralded the 
Alcan/Hafnarfjordur vote as the first step towards a halt to heavy 
industry's growth in Iceland, and hope to use that momentum to sweep 
the current government out in national parliamentary elections on 
May 12.  It is not clear, however, that voters nationwide will make 
the same calculations as Hafnarfjordur residents when they head to 
the polls.  The outlook for U.S. firms' plans is fuzzy, but not 
automatically negative.  Local sentiment in Husavik, for example, is 
far more pro-smelter than the overall feeling in Hafnarfjordur.  If 
the next Icelandic government continues the current GOI policy of 
devolving authority to town councils on such matters, the vote in 
Hafnarfjordur may not have any impact on Century Aluminum's or 
Alcoa's plans.  End Comment. 
 
 
VAN VOORST