Browse by year:

State Aid

State Aid: ESA looks into Landsvirkjun's derivative contracts




The EFTA Surveillance Authority (ESA) has opened an investigation to determine if the Icelandic government has granted unlawful state aid to Landsvirkjun through state guarantees on derivative contracts.


 “We aim to clarify whether Landsvirkjun has been granted an unjustified economic advantage. However, the decision to open a formal investigation procedure is without prejudice to ESA's final decision,” says ESA College Member Helga Jonsdottir.

Landsvirkjun is an Icelandic state owned energy company and the fifth largest producer of renewable electricity in Europe. The company competes with other large scale electricity manufacturers in Europe. As Landsvirkjun is exposed to foreign currency exchange risk as well as interest rate risk on its debt portfolio, it uses various forms of derivatives contracts to control and manage its market risk. The Icelandic state has granted guarantees on Landsvirkjun's financial obligations under certain derivatives contracts. The guarantees are given to Landsvirkjun by the Government Debt Management (“GDM”), a unit within the Central Bank of Iceland.

The EEA Agreement prohibits state aid to ensure a level playing field for companies across Europe and state guarantees that are not concluded on market terms can be in breach of the agreement. In 2009, ESA concluded that unlimited state guarantees constituted existing state aid and instructed the Icelandic authorities to take appropriate measures to abolish the unlimited state guarantees to the publicly-owned electricity companies Landsvirkjun and Orkuveita Reykjavíkur.

Accordingly, Iceland amended the legal framework thus obliging the companies to pay a state guarantee premium, which covers the benefits they enjoy due to the state guarantee. This ensures that the guarantee cannot cover more than 80% of the outstanding loan or financial obligation. The GMD guarantees issued to Landsvirkjun on the derivatives contracts are not covered by the amended framework as they do not appear to meet these conditions.

In ESA's view, the GDM guarantees issued to Landsvirkjun on the derivatives contracts may result in an economic advantage to Landsvirkjun that does not appear to be in line with EEA rules.

ESA will now call for further comments from the Icelandic authorities and third parties. Once ESA has completed its investigation, the result may be that there is no state aid or that it is in accordance with the EEA Agreement.

A non-confidential version of the opening decision will shortly be published on the ESA's website and in the Official Journal of the European Union.

For further information, please contact:

Ms. Anne Vestbakke
Head of Communications
tel. +32 2 286 18 66
mob. +32 490 57 63 53

Other EEA Institutions

This website is built with Eplica CMS