Hot Deal Gone Cold: Government probe stalls HS Orka sale to Magma

In Iceland, the government has opened an investigation into the legality of the planned sale of a stake in HS Orka, a local geothermal company, to Magma Energy Corp. of Canada. For its part, Magma has said that the transactions made during its acquisition of HS Orka are permitted by the provisions of the Act on Foreign Investment.

Magma has been slowly building its interest in the Icelandic geothermal power producer. Two additional transactions have bought a 43.2% stake, and the current one will give Magma 98.53% of the company. And there in lies the rub. If there is anything close to hearts of the people of Iceland, it is their geothermal power mojo. And its about to become Canadian.

One of the country’s most famous citizens weighed in recently in opposition to the sale. As we noted last week, Bjork is heading a campaign protesting against the decision to allow Magma to forward with its takeover of HS Orka.

She noted that the deal “smells like the leftovers from the corruption that brought us the bank crash.” Those in favor of going forward note that geothermal energy is one of the country’s few natural resources and for the moment its most valuable one. Geothermal could attract much-needed foreign investment that could help Iceland recover from the 2008 financial crisis that decimated the island’s banks.

Iceland has been pressing to limit the scope of private interests in the sector and the Economics Ministry said it had received a complaint about the deal. The source of the complaint was not specified, but the result will be the establishment of a committee to look into foreign investment into Icelandic energy companies.

The inevitable result of that move will be to delay the deal. Magma has already raised the money it needs to complete the purchase. More in fact. While it is clear that a Canadian company will profit from HS Orka’s assets, it is not clear what would happen if HS Orka was forced to say no to the deal. We’ll keep watch.