Initialing of a power-purchase agreement late this month is expected to open the way to construction of Iceland's biggest-ever industrial project. To attract an energy-intensive aluminum plant, the island's state power company plans to invest over $1 billion on a major hydroelectric complex, flooding nearly 60 sq kilometers of arctic highland wilderness.

Large rockfill dams in glacial rivers north of Vatnajökull, Europe's largest glacier, will impound 57-sq-km Hálslón Reservoir. Water will flow through 40 km of tunnel to a 630-Mw powerhouse. Over 50 km of transmission lines will carry electricity to the proposed smelter at Reydarfjordur, on the east coast.

The PPA between utility Landsvirkjun and Pittsburgh-based Alcoa Inc. will be followed by a review of next month's hydro construction bids. A deal could be struck this February, triggering 41/2 years of construction, says Thorsteinn Hilmarsson, the utility's spokesman. Click here to view map

Such an outcome would disappoint an alliance of environmental groups bent on stopping the scheme. "It's a beautiful, intact wilderness area....We want to have a national park in this area," says arch-opponent Arni Finnsson, chairman of the Iceland Nature Conservation Association, Reykjavík.

Critics complain that the reservoir will submerge parts of the scenic Dimmugljúfur (Dark) Canyon, flooding land used by pink-footed geese and reindeer. Scarce mountain vegetation will be lost and the risk of soil erosion will increase, they add. Landsvirkjun says its impact mitigation efforts have satisfied the environment ministry and the national parliament, which approved the work early this year.

Officials say disturbing nearly 15% of the eastern 6,200-sq-km wilderness is a fair price for the economic gain of a 295,000-tonne-per-year smelter. The government has sought for decades to develop industries to reduce the island's dependence on fisheries.

The main Scandinavian contractors plus firms from Italy, Germany and the U.K. are among four groups due to bid for the dam construction. The same groups, joined by a French contractor, are competing for the tunnel work.

A 190-m-high, 750-m-long rockfill dam on the Jökulsá á Dal River at Mount Fremri Kárahnjúkur is the project's centerpiece. Two saddle dams, 60 m and 25 m high, will be built nearby to seal smaller outlets, creating the 57-sq-km Hálslón Reservoir, which will extend 27 km.

Some 20 km southeast of Kárahnjúkar Dam, the 32-m-high, 675-m-long Ufsar Dam on the Jökulsá í Fljótsda River will form the 1-sq-km Ufsarlón Reservoir, which will regulate flows from Hálslón.

From the Hálslón Reservoir, a 40-km-long, 7-m-dia headrace tunnel will feed penstocks at the Teigsbjarg escarpment. A second 13-km-long tunnel from the smaller Ufsarlón Reservoir will join the headrace to regulate its flows. At the escarpment, two 410-m-long vertical penstocks will deliver water to the underground powerhouse set some 600 m below main reservoir level.