Major development projects across all modes of transport

Major development projects across all modes of transport

Iceland’s strategic location between North America and Europe has made it a vital transportation hub for traffic crossing the Atlantic Ocean since the time of the Vikings — a fact recognized by the US military during World War II when they built the foundations of what has become the main gateway into the country: Keflavík International Airport (KIA), which lies about 40 minutes from the capital Reykjavík.

Constant maintenance and upgrading of the vast island’s transportation systems is crucial to enable easy access to and from the country, as well as to ensure full mobility within Iceland. Unfortunately, public spend on transportation fell behind for some years after the global financial crisis of 2008. 

“Iceland’s dire economic situation led to cuts in infrastructure investment, which coincided with an unprecedented rise in tourism that quadrupled in only seven years. This created a great accumulated need for infrastructure investment, both in new construction and in maintenance. We needed to act fast to prevent this situation from affecting society adversely and so the transport budget was increased as well as direct investment in projects,” explains Minister of Infrastructure Sigurður Ingi Jóhannsson.


Revised plan for transport

Every three years since 2011, the Minister of Infrastructure has introduced a revised National Transport Plan (NTP) to parliament and Jóhannsson presented his latest proposed revision in June this year, which covers 2024-2038. “We put great emphasis on continuing the ambitious plans of the NTP, which prioritizes increasing safety in transport, as well as promoting regional development, inclusiveness and reducing our carbon footprint. Our NTP includes a 15-year investment program and many large, important infrastructure projects that are on the horizon.” 

This government investment program amounts to nearly $7 billion, almost $2 billion of which is allocated to be spent by 2028. But one major project that is not included in the NTP’s program is the ongoing development of KIA, a facility that is financially fit enough not to need government subsidies to fund its investments. KIA is expected to welcome about 7.8 million passengers on their way to or from around 80 global destinations this year and the airport’s operator, Isavia, is currently overseeing a 30% expansion of the airport’s terminal, which is expected to be completed by early 2024. 

Among the operator’s longer-term plans is a third runway; areas for the production, storage and distribution of sustainable energy sources for aircraft; and a substantial new logistics hub, Diamond Gate. In conjunction with KIA’s expansion, Isavia, the government and two municipalities have collaborated on a masterplan to transform the wider area around the airport into an integrated mixed-use development zone that fosters green innovation in aviation, energy and technology. 

Heavyweight projects that are included in the NTP funding program, however, include considerable enhancements of Iceland’s next three most significant airports, which have only received limited investment in recent times in comparison with KIA: Reykjavík that is just a mile from the capital, Akureyri in the north of the country and Egilsstaðir in the east, Jóhannsson states: “We are introducing an alternative airport fee, a new source of revenue that will allow us to fund these important upgrades, which focus on their role as alternatives to Keflavík Airport.” Icelandic ports are also set to gain from improvements, with $5.8 million being allocated to them by 2028.


Partnerships in infrastructure

The largest beneficiary of the NTP is land transportation, where improving safety is a particular concern that is being addressed. “We‘re separating out traffic lanes, effectively creating Iceland’s first true highways. Major strategic investments are currently underway in the Westfjords region, where the Vestfjarðavegur road is being improved, which is vital for regional development and should serve as the main route between the northwest of the country and Reykjavík for residents, tourists and exports in the future,” he says. 

Among many other road, bridge and tunnel initiatives in the pipeline, two of the most notable are a 8.4-mile tunnel between Seyðisfjörður and Egilsstaðir in the east, which will be one of the longest road tunnels in Europe, and Sundabraut, a project that will dramatically reduce travel times between districts of Reykjavík that lie on opposite sides of Kleppsvík bay. 

“Sundabraut will be the single biggest project in the country for decades. Preparation is already underway, but we intend the project to be tendered out as a public-private partnership (PPP) between 2024 and 2025. We expect to begin the construction in 2026 and it will take at least five years to complete,” notes Jóhannsson.

In cooperation with local municipalities, the state is investing heavily in the capital area’s transport infrastructure, not just in terms of roads, but also public transport and cycling infrastructure, he adds: “A key project in this is the new dedicated Borgarlína Bus Rapid Transit system, which should improve public transport in the area, support a more diverse transport modal choice and reduce our carbon footprint.”

Well aware of the need to limit government spending in order to balance the public books and to combat inflation, the Ministry of Infrastructure is working on introducing new ways to finance the country’s road transportation projects. These include road tolling, congestion charging within the Reykjavík area and looking at pivoting the tax system toward use of roads rather than diesel and oil fuels, to take account of the rising number of electric vehicles in Iceland, which is causing a drop in tax revenues. 

Partnering on investments is also seen as important and dedicated PPP legislation has been implemented that lists Sundabraut plus five other infrastructure projects that can be prepared and tendered out. As Jóhannsson makes clear: “The Icelandic government has every intention of maintaining a high level of investment in transport infrastructure in the coming years to make sure our transport system supports the continued growth and prosperity of our society.”