The Construction Projects

The Construction Projects

A MEMORANDUM OF UNDERSTANDING (MOU) was signed on 19th July 2002 confirming understandings between the Government of Iceland (the Government), represented by the Minister of Industry and Commerce, Landsvirkjun (the National Power Company), an independent company owned by the Republic of Iceland, the City of Reykjavík and the Township of Akureyri, and Alcoa Inc. (Alcoa), a Pennsylvania corporation.

The three Projects

  • The Fjardaal Aluminum Smelter,
  • The Karahnjukar Hydropower Project, and
  • The Fljotsdalur Transmission Lines.

The Project

The Project had been under active consideration in Iceland for some time and was through the years 2000-2001 the subject of discussions held by the Government, the Municipality and Landsvirkjun with Reyðarál hf. (Reyðarál), an Icelandic limited liability company founded by Hæfi hf. of Reykjavík (Hæfi) and Hydro Aluminium a.s. of Oslo, Norway, with extensive preparatory work being carried out by the respective parties.

Those discussions were suspended, and the Government, the Municipality and Landsvirkjun were fully prepared to discuss the Project with Alcoa on an exclusive basis, and established for this purpose a Special Committee appointed by the Minister of Industry.

The Government and the Municipality were interested in utilizing available energy resources, stimulating economic activity in eastern Iceland and ensuring continuity in economic growth as well as stability of the national economy.


According to the MOU, the overall project consists of:

  1. A hydropower project in eastern Iceland (the Kárahnjúkar Facilities) to be developed and operated by Landsvirkjun (and/or a limited liability company wholly or partly owned by Landsvirkjun).
  2. A primary aluminum plant at Reyðarfjörður in eastern Iceland, along with necessary physical infrastructure, to be built and operated by an Icelandic limited liability company or other entity organised by Alcoa for the purpose (the Plant Company).
  3. Plant site facilities on land owned by the Government at Mjóeyri in Reyðarfjörður.
  4. Harbour facilities at Mjóeyri, to be provided by the Municipality of Fjarðabyggð (the Municipality) and built and operated by its Harbour Fund (the Harbour Fund)
  5. Other related infrastructure.


Final Agreements

Alcoa also had discussions with Hæfi related to securing rights to the preliminary work and work products previously developed in relation to the aluminum plant project by Reyðarál, and reached an agreement on buying these from Hæfi.

At the same time, Alcoa conducted preliminary discussions with Landsvirkjun on the preconditions for delivery of power. An agreement was reached between Alcoa and Landsvirkjun in December, 2002.

On March 15th, 2003, final contracts (Site Agreement, Power Agreement, Harbour Agreement) were signed in Reyðarfjörður, East-Iceland:



Alcoa is a world-leading producer of primary aluminum, fabricated aluminum and alumina. It is active in all major aspects of the aluminum industry – technology, mining, refining, smelting, power generation, fabricating and recycling. Alcoa is interested in expanding its primary aluminum production capacity, and believes that participation in the Project will fit in with its long term objectives.


Landsvirkjun is engaged in the wholesale supply of power to public distribution networks and to industrial enterprises in Iceland and is prepared to enter into an arrangement for long-term power supply to the aluminum plant.