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04. mars 04 Atvinnuvega- og nýsköpunarráðuneytið

Alþjóðleg ál- og orkuráðstefna.

Mr. Chairman, ladies and gentlemen!

It is a great pleasure for me as Minister of Industry and Commerce to welcome you all to this second international conference on aluminium and power, topics which have been key issues in my Ministry for many years.

As you probably know already, Iceland has a unique power situation. Its geographic location in the middle of the North Atlantic Ocean with large precipitation, glaciers and rivers provides abundance of hydro power potential. Secondly, being located on the crest of the Atlantic tectonic rift zone, Iceland has access to enormous geothermal energy potential, which we have learned to harness to our advantage.

For now over 40 years it has been the policy of all governments to promote the utilisation of the country´s clean and renewable hydro and geothermal energy resources for sustainable power development. As a result of these efforts two-thirds of the total energy consumption comes from our own "green" energy resources.

By promoting the utilisation of these resources, we are diversifying the industrial activity and economy and improving the living standard of the people. We further aim to expand merchandise exports and stimulate foreign investments, such as in the primary aluminium industry.

Intensive energy marketing efforts initiated by the Ministry for Industry and Commerce, particularly in the last 15 years, have brought about large investments in the power and energy intensive industry, which gradually have put Iceland on the world map as a serious alternative location for light metal production. And that is one of the reason why you, ladies and gentlemen from abroad, are gathered here today, to learn about why and how this small island with so few people have managed to make headlines in the international aluminium arena.

Let us, for a moment, dwell on the history of power and energy intensive industry developments in Iceland.

The harnessing of the power resources of Iceland for use in power intensive industries began late compared to similar developments on the European continent. The reason was not the lack of interest. There were potential projects in plenty, all in co-operation with foreign investors interested in the energy or power intensive industrial plants. These projects met with heavy political opposition. At this time we were fighting for our political independence from Denmark, which was attained in 1918, and many Icelanders were afraid of a new kind of foreign dominance through foreign investments, not only in the power sector but also elsewhere. Then the Great Depression came followed by World War II and nothing became of these project.

It was not until 1954 that the first power intensive industrial plant was commissioned. By then the State had become involved in the electrical power sector and the construction of a national grid had commenced. This project was the Fertiliser Plant still running at Gufunes in Reykjavík, which received dedicated power from a new hydro power station on the Sog river with a capacity of 30 Mega Watts. This was by far the biggest hydro power station in Iceland at that time and here a model was set that was to be followed for the next fifty years.

In order for the very small general domestic market to benefit from the more economical relatively big scale hydro power stations it was necessary to attract industrial customers that would secure the economical capacity utilisation of the relevant power plant from the start.

In the early sixties, after a renewed debate on the merits of seeking the co-operation of foreign investors to build power intensive industries, the Government made the fundamental decision to seek such co-operation. In 1966 the first agreement was made with Alusuisse to build a primary aluminium smelter in stages with a capacity of 60.000 tons per year. To deliver power, Landsvirkjun, the National Power Company, was established in 1965 to build a new hydro power station, Búrfell, with an ultimate capacity of 210 Mega Watts. The significance of the power intensive industry for the utilisation of our power resources can well be seen if we look at the year 1970. In this first year of full production for the aluminium smelter the power intensive industries used nearly 50% of the total power production.

In the seventies the build-up continued and the ferro-silicon plant of Icelandic Alloys Ltd. was added to the customer base of Landsvirkjun, followed by a diatomite filter aids plant at Mývatn in northern Iceland using geothermal steam as its main source of power

Efforts during the eighties to expand the power intensive industries were not successful for various reasons mostly world market related. It was not until 1995 that large scale projects in the power intensive industry started moving again. Since then the development has been rapid. A third furnace, increasing the capacity of the ferro-silicon plant by nearly 60% was built, a new greenfield primary aluminium smelter, Norðurál, started production and the existing ISAL Smelter, now Alcan in Iceland, was expanded by more than 60%.

Today the aluminium industry in Iceland produces some 270.000 tons per years of primary aluminium in two plants. Alcoa is preparing for the construction of a 322.000 tons aluminium plant on the east coast, scheduled for start-up in 2007. Nordural, having gone through the Environmental Impact Assessment procedure, has acquired operating licence to expand its smelter at Grundartangi up to 300.000 tons and Alcan in Iceland has obtained environmental approval up to 460.000 annual tons.

Only Nordural, however, has plans to expand within the next 5 years whereas Alcan has not announced their expansion plans yet. If all these projects were to be realised we might see the annual aluminium production in Iceland exceeding one million tons in the near future, making Iceland the largest primary aluminium producing country in Europe.

Bearing in mind this completely realistic development and the growing home market for supplies it is no wonder that the aluminium supporting industry has shown interest in possible investments in Iceland.

I am pleased that some very experienced and enterprising people have taken the initiative to establish a new company that will produce anodes for the Icelandic aluminium industry by the end of 2006. The Katanes Anode Plant, or KAPLA for short, intends to start its anode production at a time when a new smelter capacity, which has no anode plant, comes on stream. This initiative, which has the support of the Icelandic Government, makes the establishment of aluminium producing companies in Iceland even more attractive and underlines that Iceland has a lot to offer to the aluminium industry.

Other potential investors have recently studied the possibility of producing alumina on large scale, based on imported bauxite using geothermal steam in the conventional Bayer process.

Since 1995 we have seen energy sales to the power intensive industry more than double. Currently this industry utilises more than two-thirds of all electricity produced in Iceland, which is now close to 8.5 Tera Watt hours per year. When the projects now in the pipeline come on stream, the electricity supply to the power intensive industry will increase up to 80% of the total electricity production which in 2010 is estimated to reach 15.5 Tera Watt hours per year. Yet, this is only about one-third of the total electrical power potential, which can be harnessed economically and in reasonable harmony with the environment. Consequently, there is still plenty of power left to be developed for the benefit of future power intensive industry projects.

Experience from other countries has shown that it is not enough to be able to offer power at attractive rates. We need more and Iceland offers a number of other attractions.

I will mention but a few: The strategic location that Iceland has vis-a-vis the markets on both sides of the North Atlantic, USA and Europe, with only 3 days sailing time to the North Sea ports, is an asset. We also have a well-educated and highly skilled labour force and we are member of the European Economic Area (EEA), which means that the basic European Union freedoms of free movement of goods, services, labour and capital apply to Iceland. We are proud of our record as far as economic and political stability is concerned and the low corporate tax rate of only 18% demonstrates that the Government is not so hungry for your tax money.

Ladies and gentlemen!

I hope that you will enjoy this interesting conference and that you will take home with you good memories and impressions from your visit to Iceland.

Thank you!

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