The European Investment Bank is discussing support for the Karahnjukar hydropower project in Iceland. In a joint letter, environmental groups call on the EIB President not to finance the controversial dam, and declare the project a test case for the Bank’s commitment to reform. The groups have just published a report on the environmental, geological and economic risks of the dam project, and have warned all potential funders not to get involved in it.

Iceland’s power utility has announced that it intends to raise finance for the controversial Karahnjukar hydropower project from the European Investment Bank. The EIB recently informed environmental groups that it has “discussed aspects of the investment with various interested parties”. Six organizations warned EIB President Philippe Maystadt in a letter on 25 June that approving support for the project would “undermine the Bank’s steps towards strengthening its environmental and information policies in the recent past”.

If built, the Karahnjukar project will consist of nine dams, three reservoirs, a series of tunnels and river diversions, and a 690 megawatt power plant. It is only the first in a series of large new dam projects in Iceland’s highlands that are supposed to power new aluminum smelters.“ Karahnjukar will destroy unique environmental treasures on Iceland’s Eastern Highlands – the second largest remaining wilderness area in Western Europe”, says Olafur Andresson of the Iceland Nature Conservation Association (INCA).

In their letter to President Maystadt, the environmental groups point out that the project is not in line with the EIB’s Corporate Operational Plan, which prioritizes support for innovative technologies, environmental projects, small and medium-sized companies, and the social and economic cohesion within the European Union. “Support for Karahnjukar would contradict the EIB’s commitment to becoming more selective, and would seriously undermine the credibility of its environmental guidelines”, says Peter Bosshard of International Rivers Network.

In spite of repeated commitments to transparency, the EIB’s information policy still allows national governments to keep their project proposals to the Bank confidential. In the case of Karahnjukar, the EIB announced that it would encourage the Icelandic authorities to be transparent, but did not guarantee access to information. “Keeping a project proposal on Karahnjukar secret would confirm that the Bank’s information policy continues to be a pretext for forestalling public debate about controversial projects”, says Magda Stoczkiewicz, who leads the EIB campaign of Friends of the Earth International and the CEE Bankwatch Network.

The main contractor for the Karahnjukar dam and tunneling contracts is the Italian company Impregilo. Earlier this month, a South African consultant pleaded guilty to bribing the chief executive of the EIB-backed Lesotho Highlands Water Project on behalf of Impregilo. “As long as Impregilo has not been cleared of the corruption allegations in the case of Lesotho, the EIB should not finance another project with the same contractor”, says Martin Koehler of Italy’s Reform the World Bank Campaign.

International Rivers Network, in cooperation with INCA, FoE International and the CEE Bankwatch Network, just published a report on the environmental, geological and economic risks of the Karahnjukar project. The groups shared the report with all private banks that might consider funding the project, and urged them not to get involved in it.

The European Investment Bank is the main lending institution of the European Union. With total lending of EUR 39.6 billion in 2002, the EIB is the largest public international financial institution.


The NGO letter to EIB President Maystadt is available at

The new NGO report on the Karahnjukar project, Karahnjukar – a Project on Thin Ice (15 pp.), is available at


Peter Bosshard, International Rivers Network, +1 510 848 1155
Arni Finnsson, Iceland Nature Conservation Association, +354 551 2279
Magda Stoczkiewicz, FoE International / CEE Bankwatch Network, +31 20 622
1369 Martin Koehler, Reform the World Bank Campaign, +39 06 782 6855