Gas station lot negotiations align with Reykjavík City's key interests

The City Council decided at its meeting on May 7, 2024, to task Reykjavík City's Internal Audit and counseling (IER) with conducting a review of the background and process of Reykjavík City's negotiations with operators and lot holders of fuel stations in Reykjavík. The review was presented to the City Executive Council this morning.

Audit finds Cty's negotiation objectives were sound 

IER's conclusion is that Reykjavík City's main objectives in negotiations with gas station lot holders were sound and advanced the Cty's existing policy and urban development goals.

This refers among other things to Reykjavík City's Climate Policy through 2020, which states that "[T]he goal will be for fossil fuel pumps to decrease by 50% by 2030 and be mostly gone by 2040."

The review states that "the case data also refers to additional considerations, such as reducing gas stations within or near residential areas, within the city center, on lots where there are opportunities to promote denser development, improve services, and support CityLine development."

IER notes that there were weaknesses in presenting the main objectives and that more factors should have been examined in preparation for the negotiations. The review provides a detailed analysis of Reykjavík City's policy-making and key decisions regarding the negotiations.

City's interests aligned with key objectives 

To assess whether Reykjavík City's interests were adequately protected, IER examined the agreements approved by the City Executive Council against the objectives that formed the basis for the negotiations.

"The negotiations began with those main objectives that were unanimously approved by the City Executive Council on May 9, 2021." Although IER has certain comments about presenting the objectives, the review states it is "clear that the underlying main objectives were sound and served to implement the planning vision outlined in the documents."

IER says the agreements made progress toward implementing Reykjavík City's municipal plan. The Cty has also moved closer to the planning vision described in the Policy on Power Stations for Private Cars report.

IER comments on the approach and methodology established by the City Executive Council, but uncertainty regarding development on individual lots means the full impact of the agreements cannot be assessed at this time.

According to IER, Reykjavík City's plans for a 50% reduction in gas pumps will not be achieved in the coming years. The special agreements with oil companies are not development contracts, but as before, development plans must go through the city's planning process before construction can begin.

City Executive Council's awareness of financial implications 

According to IER, City Executive Council members had detailed data and clear information about the negotiations and proposals when negotiation objectives for gas station lots were unanimously approved on May 9, 2021.

The planning vision and emphasis on reducing gas stations/pumps was clearly presented, and "it must be assumed that the City Executive Council was well aware of the difference between construction rights fees and the possible market value of lot rights, or at least that there wasn't necessarily a connection between them."

"In other words, the City Executive Council should have known that possible development plans on individual lots could involve financial incentives for lot holders to accept the repurposing of the gas station lots, and that this incentive could, in some cases, be considerably more valuable than just waiving construction rights fees."

Negotiation committee response 

In Reykjavík City's negotiation committee response, it states "[I]t is crucial to emphasize that this did not involve allocation of limited and/or financial assets. The oil companies were lot holders on the lots in question, and most lots had lot lease agreements in effect, in some cases long-term." The committee notes that construction volume plans were not available since the planning process had not taken place."

The negotiation committee also criticizes IER's suggestions that it should have considered whether to use eminent domain if agreements were not reached. The committee found this would not have aligned with either legal requirements or sound negotiating practices.

The negotiation committee also says comparing construction rights fees to the market value of lot rights is unfair. Responding to this criticism, IER agrees the comparison can be challenging and notes that specific caveats were included in the report on this matter.

Improvements and follow-up 

IER's review team puts forward 12 recommendations in its report for improvements designed to enhance Reykjavík City's operations and administration. These recommendations will be the basis for a follow-up study IER will conduct next year. This morning, the City Executive Council approved the recommendations for implementation within the City.

The review team included Ingunn Ólafsdóttir, acting internal auditor; Kristín Henley Vilhjálmsdóttir, Head of Office of IER; Trausti Fannar Valsson, associate professor in administrative law; and Víðir Smári Petersen, professor in financial law, both from the Faculty of Law at the University of Iceland, with Sigríður Guðmundsdóttir, independent internal auditor, serving as advisor. In addition to analyzing the background of the negotiations, the review examines agreements approved by the City Executive Council, investigating whether the agreements were based on objective criteria and whether the City's interests were adequately protected during the drafting process.