Huang Nubo’s application to buy the land at Grímsstaðir á Fjöllum caused a major government rift last year and ended up with Minister for the Interior Ögmundur Jónasson denying him an exemption from the law barring non-EEA businesses from buying land in Iceland. Left Green minister Ögmundur’s government associates in the Social Democrats were unhappy at his decision — especially Minister of Industry, Energy and Tourism Katrín Júlíusdóttir and Kristján Möller; head of the Alþingi industry committee. Together they declared they would try and help the Chinese investor invest in Iceland and called a meeting with his representative.

Now it seems a solution has been found thanks to a one-year-old law which allows the industry minister to grant concessions allowing foreigners to control land use and resources which would otherwise need to be controlled by Icelandic citizens. The law relates solely to brand new investment in Iceland and still precludes Huang Nubo from buying the land; but he may be able to lease it on a long-term basis. A special concessionary committee made up of representatives of the ministries of industry, finance and trade must agree to recommend that the Minister of Industry, Energy and Tourism give out such a concession to a particular company or individual.

Huang Nubo’s application for the concession is dated 18th January and it calls for Mr. Huang to be allowed to long-term-lease part of Grímsstaðir á Fjöllum and for an Icelandic company owned by him to be allowed to build and operate a 100-room luxury hotel. It also calls for the same company to be able to build and operate a five-star hotel in the Reykjavík area.

According to Vísir.is, the law means the decision will be in the hands of the industry minister and will not depend on Ögmundur Jónasson’s support at the Minister of the Interior. However, Katrín Júlíusdóttir’s approaching maternity leave complicates the matter, as it is not certain who will temporarily take her place as Minister of Indistry, Energy and Tourism, or even whether that minister will come from the Social Democrats or the Left Greens.

The Sunnlenska.is local news website reports that the company Heilsuþorp ehf. in Flúðir has been in negotiations with the Chinese company CSST International hoping to attract start-up funding. Now it is believed the Chinese company has agreed to invest ISK 6.5 to 7 billion (EUR 40.5 to 43.6 million) in the project.

It is likely that CSST would become a significant shareholder in Heilsuþorp.

Organisers hope the health resort will be built on land near Flúðir called Gröf. The plan is for the local municipality to allow the land (which it owns) to be used for free, in exchange for a chunk of shares in the new company.

Flúðir is in a geothermal area of south Iceland and is not short of natural hot water. It is also ideally located along the popular Golden Circle tourist trail.

Because of the ongoing capital controls in Iceland it will be impossible for the creditors to change their krónur onshore and doing so offshore would yield potentially extremely poor exchange rates. Fréttablaðið sources claim that the investors are being offered a way out of the problem if they invest their money within Iceland for a pre-determined amount of time.

Creditor representatives have met with ministers, MPs and other Icelandic parties trying to identify good investment opportunities for the foreign-owned krónur within Iceland. The potential investments apparently include the purchase of entire companies and sources claim there is an especially positive attitude to investments in the energy sector.

In addition to the expected rush of Icelandic krónur to be paid to bank creditors but essentially locked inside Iceland, there are also ISK 410 billion stuck offshore. The Central Bank of Iceland last month presented its proposal to repatriate the offshore funds by offering the owners of the money (which is of very little use at the moment outside Iceland) to invest it in Iceland on very favourable terms. To take advantage of the offer, the investors would need to match their krónur 50/50 with foreign currency and commit to their investments for a minimum of five years.

As has been widely discussed on IceNews and elsewhere, there is an imbalance between foreign currency/investment interests stuck in Iceland due to the exchange controls and Icelandic currency stuck overseas for the same reason. That imbalance will need to be addressed before the capital controls can be lifted and the above two methods are seen by those concerned as ways of achieving that. It is also hoped that the flow of investment will help ease the lack of inward investment caused directly by the currency controls and that returns for the foreign investors will be positive so that they keep their money in Iceland by choice once the controls are lifted.

The decision to grant or deny land purchase requests from non-EEA companies and individuals lies with the Icelandic Ministry of the Interior; but that is not the case with land leases. The Minister of Industry, Energy and Tourism was in favour of Huang buying the huge plot of land to build a luxury resort and she now plans to contact Huang Nubo about the land lease idea over the coming days, Vísir.is reports.

Furthermore, in an interview with Stöð 2 yesterday, Huang Nubo said that he is not even considering bending the rules by buying Grímsstaðir á Fjöllum through a European-based front company. He is, however, interested in leasing the land for his proposed resort.

Jóhannes H. Hauksson, who owns half of the land along with his sister, says that he would theoretically be happy to lease the land out — adding that his main concern is first and foremost the development of a strong and stable tourism industry in northeast Iceland.

Jóhannes told Vísir that Huang Nubo is the right man for the job. He has had purchase requests before and always rejected them — but now is the first time he has wanted to sell the land. He says that is largely because he wants Grímsstaðir á Fjöllum to be put to good use in developing the remote region. He also expressed sympathy with Mr. Huang’s vocal disappointment, saying that nobody from the government made contact with him to discuss the foreigner’s land purchase application.

Minister of Industry Energy and Tourism Katrín Júlíusdóttir told reporters she is looking into ways to help Huang Nubo invest in Iceland if he is still interested, saying news that he may be interested in leasing the land is positive and that she will talk to him in person soon.

Ögmundur says his decision not to grant Mr. Huang’s application for an exemption to the law barring non-EEA nationals from acquiring large plots of land in Iceland is in accordance with Icelandic law and rules. The size of the proposed purchase would have rendered the law pointless had an exemption been made, the minister said.

Ögmundur explained to RÚV after yesterday’s extended cabinet meeting that it was not an individual trying to buy Grímsstaðir á Fjöllum, but rather a limited company, largely owned by the individual: Huang Nubo. It was the opinion of the minister and the Ministry of the Interior, after careful consideration, that the company did not qualify for an exemption to the law. To provide the exemption in this case would have set such a huge legal precedent that non-EEA parties would have felt confident in gaining exemptions for almost any land purchases in the future, Ögmundur added. The land in question amounts to roughly 0.3 percent of Iceland’s entire land area.

Asked if his decision had been universally welcomed, or at least accepted, by his cabinet colleagues, Ögmundur dodged the question; saying it was a decision which fell solely on the Minister of the Interior to make.

Unsurprisingly the decision has split opinion within the two government parties. The larger Social Democrats were widely seen as being more pro- the potentially lucrative deal than Ögmundur’s Left Green Movement.

Northeast Iceland Social Democrat MP Sigmundur Ernir Rúnarsson was quick to criticise; describing the decision as “crazy”:

“I find this a crazy decision by the minister who, in his intransigence, is probably unfit to take this decision in light of the declarations he has made on the case in the lead up to the decision. Quite apart from that, there are at least 25 precedents for cases of this kind. This is a deplorable message to the people outside the capital region where there is a need to distribute the tourism industry better across the country and better across all times of year — and this is a devastating message to send out into the world to investors who are eyeing the country,” Sigmundur said.

He added that he has called for a special Social Democrat working group to go over the matter and he also said he wants to hold a meeting with Ögmundur Jónasson in person — adding that the matter is by no means over in his opinion.

Prime Minister Jóhanna Sigurðardóttir (leader of the Social Democrats) also commented later in the day, describing Ögmundur’s decision as “a disappointment”.

Background to this story can be read here:

Chinese investor wants to build luxury country hotel in Iceland

North Iceland tourism officials support Chinese land purchase plan

Chinese investment in Iceland making world headlines

Icelandic ministers gearing up for Chinese investment battle?

After abandoning three dry exploration stations earlier in the year, shares in the company went up 5.2 percent following the announcement that minor hydrocarbon shows had been found at their AT7-1 drilling site.

“The news on the AT7-1 well is clearly encouraging and the most positive well result to date (even if it does not turn out to be a discovery) having encountered thick, good quality reservoir sands for the first time,” Richard Rose, analyst at Oriel Securities, told Reuters.

Cairn also said it found similar indications of oil and gas at another of its wells, adding that it will continue exploration in both until the end of this month.

The Edinburgh-based firm reduced its stake in India this year to concentrate on the Arctic region. Cairn’s activities have not been received well by environmental groups, however, who say an oil spill in the area would be devastating for the pristine and previously untouched region.

Drilling schedules have been disrupted on several occasions this year, mainly by Greenpeace which has now been given a court order to stay away from the Greenland platforms.

The impacts of removing Iceland’s currency control restrictions have not been taken into account in the new set of Central Bank of Iceland economic forecasts (which are more positive than previous forecasts), the governor says — adding that a team of people are working on ways to remove the exchange restrictions without impacting economic recovery.

Despite the ongoing turmoil on international markets, the Central Bank of Iceland has allowed itself a positive tone in its report, which was published yesterday. The new document holds more positive forecasts in most areas than previous predictions the bank has made. It says that the krona has strengthened and that the terms of trade for households and businesses have improved and the rate of economic growth is increasing. Property market demand has risen and it is predicted that increasing private consumption will be one pillar of next year’s economic growth.

The major elephant in the room is still the currency exchange restrictions; but CBI governor Mar Gudmundsson says that preparations are now in their final stages — both legally and practically — to remove them. According to the plan offshore kronur (Icelandic kronur held by foreign investors unable to exchange them for foreign currency since 2008) would be offered to other investors, with conditions attached. The idea being that Iceland’s strengthening economy will make the currency more attractive than it was.

Gudmundsson told RUV that the CBI plans to remove the restrictions in a way which has minimal impact on inflation and the strength of the krona. He hopes that the removal of the restrictions will cause a wave of investment into Iceland, as well as the inevitable flow of money outwards; but says it is too early to make forecasts for such eventualities. It is likely that the removal of the restrictions will result in lower unemployment levels, Gudmundsson believes.

The interest tax is discouraging for foreign investors who are already challenged by the ongoing currency exchange restrictions which mean that foreign investors cannot get their money back until the restrictions are lifted.

According to Vala Valtysdottir, the head of the tax and legal department at Deloitte, despite the fact that income tax laws have been changed for the taxation of profit on investment, they are still not in accordance with European law. Tax charges are gross; meaning that the interest payments are taxable instead of pure profit (which is the case for domestic investors) — there is a clear discrimination against non-Icelandic business interests, which runs counter to EEA legislation, she says.

According to Visir.is it is commonplace in neighbouring countries to exempt foreign companies from taxes on interest — especially when the foreign company is also based in the EEA/EU or if there is a double taxation treaty in place between the two countries.

The pension funds’ association assembled the working group following its December contract with the Icelandic government in which the pension funds commit to take part in the country’s housing market. The working group investigated whether the pension funds could get involved by owning property and renting it out. The group’s spokesman explained to RUV that it seems if the idea is going to be economically viable for the funds, it would be best to build new residential property from scratch. That way they would be able to choose the location, the style of housing and standardise some features so that the buildings would be easier to administer and run. It would not be economical to buy up existing units.

The spokesman said it could be very expensive for the pension funds to own houses and flats all over Reykjavik which are not necessarily all of desirable renting size. If the funds decided to buy 100 apartments, for example, it is possible that they could all be in different buildings; meaning complicated and potentially expensive dealings with 100 different house associations.

The idea will doubtless be welcomed by the still-beleaguered construction industry and renters struggling with the ever-more-expensive and scarce rental housing currently on offer. There are, however, a lot of empty houses for sale in Reykjavik and the number of people buying houses instead of renting is still depressed following the economic crash. More, better and (potentially) cheaper rental housing will likely not be welcomed by estate agents trying to sell houses.

No feeling should be allowed to develop that the Icelandic government is ready to take differing stances on similar issues, he says.

Minister Arni Pall Arnason told RUV that Iceland is considered a more dangerous place to invest than elsewhere in Western Europe and the Aon insurance company ranks Bulgaria and Tunisia higher than Iceland.

Adalsteinn Leifsson, a professor of economics at Reykjavik University, told RUV that foreign investors fear the Icelandic authorities will make emotionally-led decisions; which has a negative impact on the country’s risk rating.

Arnason says that it is important for Icelanders to be consistent when talking to foreign investors and should avoid hysteria at all costs.

Asked if government involvement on an emotional level or unexpected decisions are affecting foreign investment, Arnason answered that he sees great danger if an impression is allowed to form overseas that the Icelandic government deals with similar issues in very different ways. Iceland needs foreign investment and it is in the government’s favour to court it, the minister believes. He added that he would like to see clear rules and codes put in place for how the authorities should deal with potential foreign investors.