Italians Win Hydrodam Project for Iceland's Alcoa Smelter

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Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). Landsvirkjun (Reyjavik), the national power company of Iceland, has contracted Impreglio SpA (ISEI:IPG) (Milan, Italy) to build a $606 million dam and tunnels for a hydropower plant to provide electricity for the Fjardaal 322,000 ton per year aluminum smelter that Alcoa (NYSE;AA) (Pittsburgh, Pennsylvania) plans to build in Eastern Iceland.

The power plant has been the source of one of the biggest environmental controversies in the country's recent history, as it requires that two of the country's largest glacial rivers be diverted into a reservoir in the Icelandic highlands.

In December 2002, Impreglio's bid was $564 million but was still accepted after a rise of 7.5%. Modifications and additional work, which deviate from the tender specifications, have been accepted by Landsvirkjun. These include the use of three drills for tunnels instead of two and the construction of a wider tunnel for the Jokla river bypass at the dam site during the construction phase. The headrace tunnel will also be widened by 0.4 meters to 7.2-7.6 meters (from 6.8 - 7.2 meters). This yields greater and more economical power capacity to suit the requirements of the Fjardaal smelter.

Impregilo will also undertake the additional task of the full-face drilling of the section of the diversion tunnel for the river Jokulsa i Flotsdal to the intake tunnel. This involves just under 10 kilometers of the 14 kilometer diversion tunnel. Impregilo will start work on the project by the beginning of April and drilling equipment will be delivered to Iceland at the end of 2003.

Alcoa's $1.1 billion smelter is being designed to the most environmentally friendly aluminum production facility in the world. Annual production levels will be around 25% lower than those proposed in a previous design. There will be no on-site disposal of spent pot lining, a by-product of the aluminum production process. Alcoa is investigating designs to meet its goal for zero process water discharge. Carbon anodes, required continuously by the plant, will not be manufactured in Iceland, thereby eliminating a major source of sulfur oxide (SO2), nitrogen oxide (NOX), and hydrocarbon (PAH) emissions from the site. The project will comply with, and some areas surpass, all air and quality standards of Iceland and the EU directives scheduled to take effect in 2005 and 2010.

The project represents the biggest single investment in the history of Iceland and will provide 750 new jobs at the smelter and in related service industries. Construction is due to begin in early 2005 and the plant is due to begin production in 2007. The total cost of the dam, smelter, power generation, and project infrastructure is estimated at around $3 billion.

Following the signing of the power agreement between Landsvirkjun and Alcoa and final parliamentary approval, all contracts will be signed in March.