Download Government's role in investments in power plants in Iceland

Government's role in
investments in power plants in
Iceland
Sigurður Jóhannesson
Cost benefit analysis of public
investments
• You don’t have to calculate for full wage
costs in public investments during
economic recessions.
• The discount rate used in the evaluation of
those investments is lower than the one
private companies use.
Three kind of government support
• Investments in power plants backed by
taxpayer guarantees.
• Aluminium smelters excempted from
various taxes.
• Damage to the environment not accounted
for.
Kárahnjúkavirkjun
• The original idea was that it would be
privately financed- too risky for the
taxpayers.
• Private investors were not interested.
• So in the end it was financed by
government, and backed by taxpayers’
guarantees.
Kárahnjúkavirkjun-comes out in a plus if
energy prices (aluminium prices) are high
enough
Kárahnjúkavirkjun-comes out in a plus if
energy prices (aluminium prices) are high
enough
Landsvirkjun’s
revised forecast
in 2007
Aluminium
price
forecast of
CRU and
other
specialists
in 2002
The stock price index was influenced by
aluminium investments
Stock price index
Investment in el. & aluminium, % of GDP
10000
14%
12%
8000
10%
6000
8%
4000
6%
4%
2000
2%
0
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009