Not in my backfjord, Icelanders tell Alcan

Perhaps the company didn't campaign hard enough among the Hidden Folk.

The votes of 88 Icelanders who live in a tiny, apparently elf-inhabited municipality near the windswept country's capital, appear to have blocked a $1.2-billion (U.S.) smelter project planned by aluminum giant Alcan Inc.

In a referendum held over the weekend, people in the seaside town of Hafnarfjordur voted 50.3 per cent against allowing the government to move a highway and rezone land as part of a planned expansion of the company's ISAL smelter.

The project has become a hot-button issue for the 25,000 residents of Hafnarfjordur, a small port suburb of Reykjavik that is said to be full of elves and mystical beings called Hidden Folk.

Alcan had won an agreement from the Icelandic government for access to cheap hydroelectric power to run the new facility. It had hoped to increase output from 180,000 tonnes a year to 460,000 tonnes.

But it seems the Montreal aluminum maker failed to convince enough local residents of the smelter expansion's benefits or the possible economic downside if the project does not go forward and the existing smelter is shut down.

Of the 12,747 votes cast in the referendum, the difference between Alcan being given the go-ahead and being stopped in its tracks was a mere 88 ballots.

Michel Jacques, president and chief executive officer of Alcan's primary metals group, said the public consultation is not legally binding, adding, however, that Alcan will carefully review the results.

"We will consider our options — if we can improve our project to make it more in line with people's expectations, we will do that," he said.

The company will now have to go back to the drawing board and perhaps resubmit a new project plan to Hafnarfjordur if it still wants to boost capacity at the facility, which is Iceland's oldest smelter and has been in operation since 1969.

"It is indicative of the world as a whole, where large industrial projects are not easily accepted by local communities," said Victor Lazarovici, an analyst with BMO Nesbitt Burns Inc. in New York.

However, Hafnarfjordur, whose name simply means "harbour fjord," is no stranger to commerce. It has seen business conducted at its port since the 1300s.

According to local folklore, the town also has one of Iceland's largest settlements of elves, dwarves and other mystical beings. It is said that whole clans of Hidden Folk live in the rocks near the town's centre.

According to a local tourist website, stories abound of instances where new roads or housing developments were under construction and strange happenings took place.

There is no evidence that the Hidden Folk were opposed to the smelter expansion. Indeed, the Icelandic government's practice of giving foreign aluminum companies access to cheap hydroelectric and geothermal power to run their smelters has erupted into a national debate.

Iceland's plentiful streams and rivers that flow from its glaciers along with the geothermal energy that bubbles beneath its volcanic rocks have blessed the country with the potential to provide massive amounts of power needed to run smelters. Aluminum producers have flocked to the country in search of low-cost power, which generally chews up a third of a smelter's costs.

At least three other major smelter projects are planned in Iceland, including two from the industry's largest player, Alcoa Inc. of Pittsburgh.

Alcoa hopes to have its Frjardaal smelter in eastern Iceland running within the next few weeks. The $3-billion project faced opposition from protesters in both London and Iceland, concerned about dams that have flooded land near Vatnajokull Glacier, in order to build the Karahnjukar hydropower project that will bring power to the smelter.

Alcoa is also considering a new smelter in northern Iceland that would be powered by geothermal energy.

California's Century Aluminum Co. plans to expand its Nordural