Hydro to review Iceland smelter

(March 23, 2002) Hydro must review all potential investment projects in wake of its acquisition of VAW. This means the company will not be able to take a position on the Reydaral project in Iceland by September 1, 2002, as stated in the intentional agreement.

The Noral project to build an aluminium plant and related power systems in eastern Iceland has progressed towards a goal of concluding all preparations for a final decision by September 1, 2002. Preparations have so far underpinned the feasibility of the project while profitability assessments send encouraging signals.

Nevertheless, Hydro has informed its partners that it cannot make a final decision on the project by September 1, 2002, as stated in a joint announcement attached to the Declaration on the Noral Project1.

The Noral Project consists of a primary aluminium plant (with capacity for up to 400,000 tonnes per year), hydro-electric power plants and related infrastructure investments.

The project was formalized on May 24, 2000, in the form of a declaration between the Ministry of Industry and Commerce on the behalf of the government of Iceland, Landsvirkjun (the National Power Company), Hydro Aluminium, Reydaral (a special purpose company owned 50/50 by Haefi and Hydro Aluminium) and Haefi (a special purpose company owned by a group of Icelandic investors).

The sole reason behind Hydro´s decision is that more time is needed to re-evaluate mid to long-term investment plans after the recent acquisition of the German company VAW. This requirement for strategic re-evaluation has nothing to do with the quality of the Noral project.

The declaration parties will work towards defining a revised timetable for the project. Participants in the Reydaral smelter have agreed that it is desirable to add a new project partner and thereby reduce the Icelandic ownership share. Further work will therefore include evaluation of a broader ownership structure. The nature of the work ahead demands additional time, which is difficult to accurately predict .

This transition period brings to the forefront a dilemma between the parties. The preferential project time-frame differs between the Icelandic authorities and Landsvirkjun, and the investors in the aluminium plant. Subsequently, an understanding exists between the Noral Project parties that the Government and Landsvirkjun have the right to approach new partners for the project while no formal declaration exists between the parties.

This does not, however, change the intention of all the parties to establish - as soon as possible - a framework leading up to a final decision on the Noral Project. A meeting will be held in early June to reassess the situation.