Landsvirkjun - Company Announcement

Rio Tinto Alcan Iceland and Landsvirkjun review their power contract

Rio Tinto Alcan Iceland and Landsvirkjun have today agreed on a modified power
supply agreement to better reflect the power requirements of ISAL, Rio Tinto
Alcan's aluminium plant at Straumsvik. 

In 2010 Landsvirkjun and Rio Tinto Alcan Iceland signed a power contract, for
power delivery extending to 2036. To fulfil the contract Landsvirkjun built the
Budarhals hydro power project and Rio Tinto Alcan entered into a US$500 million
investment to be able to produce higher valued products and increase the
capacity of the ISAL plant. 

Most aspects of the ISAL investment project have been successfully completed:

  -- Transforming the casthouse to produce higher value-added products.
  -- Improved environmental control facilities (installed; on track for full
     completion next year).
  -- Improved power substation reliability.

As already announced by Rio Tinto Alcan, increased production capacity has only
partially been realised due to unforeseen technical and safety difficulties.
Therefore the plant has not been taking the full power provided by Landsvirkjun
according to the 2010 power contract. 



The agreement of the parties consists of three parts:

  -- Rio Tinto Alcan returns 35 MW of unused power to Landsvirkjun, which can
     therefore be used to increase the supply of energy to the Icelandic power
     market.
  -- Rio Tinto Alcan retains an option during the next few years to take back
     power for its needs, and thus to increase its power consumption up to a
     maximum of 422 MW, in the event that its current efforts to identify
     alternative means to implement further production growth at the plant are
     successful. This would strengthen the competitiveness of the plant and its
     position as a major contributor to the Icelandic economy.
  -- Rio Tinto Alcan pays Landsvirkjun US$17 million to cover the costs incurred
     by Landsvirkjun by building the Budarhals power station sooner than
     required.



The modified agreement is beneficial for both companies, as it gives
Landsvirkjun increased scope to attract new customers while at the same time
preserving Rio Tinto Alcan's options for continued growth. 

Hordur Arnarson, CEO of Landsvirkjun, said: “We welcome this agreement where we
are addressing the unforeseen difficulties that Rio Tinto Alcan Iceland
encountered during their expansion project. The agreement is based on our
long-standing relationship with Rio Tinto Alcan Iceland and on the mutual
respect that the companies show towards each other's business interests.” 

Rannveig Rist, CEO of Rio Tinto Alcan Iceland, said: “We are proud to have
undertaken by far the largest investment project in Iceland in recent years in
order to produce more valuable products, increase our operational reliability,
enhance our environmental controls and increase our output. This has created
over 1,000 man-years of labour at a time when the Icelandic economy needed it
most. The agreement with Landsvirkjun is yet another confirmation of the fact
that the relationship of aluminium and energy in Iceland is characterised by
mutual respect and mutual benefits.” 



Frekari upplýsingar:

Magnús Þór Gylfason

Yfirmaður samskiptasviðs

Magnus.Thor.Gylfason@landsvirkjun.is

5159000