REYKJAVIK - Singer-songwriter Bjork is spearheading a push to put foreign energy takeovers to referendum if enough people oppose the deals.

The movement, which one poll shows is backed by 85 per cent of Icelanders, would block an acquisition by Canada's Magma Energy of geothermal power generator HS Orka, which was approved by a parliamentary commission on March 22.

More than 17,000 Icelanders have signed a petition demanding the deal be reversed, about half the number Premier Johanna Sigurdardottir has said should be enough to hold a referendum.

A July 21-28 Capacent Gallup poll of 1200 voters showed 85 per cent "would like to regain the rights to their energy source", Bjork, 44, said.

"Why not let the people of Iceland decide? We are asking the Government to stop the sale and organise a national referendum on how Icelanders feel about whether access to their energy sources should be privatised or not."

The Government last month ordered an investigation into the takeover after three coalition lawmakers threatened to bring the administration into a minority by withdrawing their support. The findings are due at the end of the month.

Iceland's Chamber of Commerce says the move will scare off foreign investors, harm the island's business climate and hamper any recovery from its 2008 financial collapse.

"A referendum on a particular private contract isn't good politics," said Gunnar Helgi Kristinsson, a professor of political science at the University of Iceland.

"If the Government wants to hold a referendum, it would have to pose a general question to the public, such as whether energy companies should be privately or publicly held."

Kristinsson says plebiscites that aren't required by the constitution aren't legally binding, "only consultative".

Magma's Swedish unit, Magma Energy Sweden AB, has bought 84.12 per cent of Orka and expects to buy a further 14.32 per cent soon.

"This matter has been reviewed twice in the past by a committee and each of those times has resulted in agreement that the transaction was completed according to existing laws," said Alison Thompson, a spokeswoman for Magma.

"We are confident the same finding will result from the third committee review."

Magma offered the Government the option of buying enough shares in Orka to hold a majority stake, Industry Minister Katrin Juliusdottir said last week.

Her ministry will examine the offer "in detail and see whether it provides grounds for a different approach".

Finance Minister Steingrimur J. Sigfusson said the Government would not reply to Magma's offer until after its investigation. The Government's probe will look into whether Magma circumvented Icelandic and European laws by setting up a company in Sweden for the sole purpose of investing in Iceland, Sigfusson said last month.

The island's laws prevent the sale of majority stakes in energy companies outside the European Economic Area.

Sigurdardottir, who has tried to push a bill through Parliament allowing for referendums if 15 per cent of voters want one, said last month her government wanted to "wind down the privatisation in the energy sector; our primary objective is to ensure public ownership".

Energy ownership is a sensitive subject in Iceland, which is unique in Europe in generating almost all its power from hydro or geothermal sources.

According to the National Energy Authority, 73 per cent of Iceland's energy was generated from hydro last year, 22.3 per cent from geothermal and 4.7 per cent from fossil fuel.

That's helped keep a lid on energy costs for a population whose incomes were reduced by a fifth last year following the 2008 banking collapse.

Orka, which generated 8.3 per cent of all the energy produced in Iceland last year, is the island's third-biggest energy producer after state-owned Landsvirkjun, and Orkuveita Reykjavikur, owned by the city of Reykjavik.

Still, blocking foreign ownership of natural resources will hurt foreign investment in one of Iceland's most attractive industries, said Bjorn Thor Arnarson, head economist with the Chamber of Commerce.

Iceland is trailing far behind other countries in luring foreign investors, who may back away in coming years "because they are scared politicians will meddle", he said.

Foreign direct investment in Iceland fell by more than 70 per cent between 2006 and 2008, the central bank says, largely because of the completion of an aluminum smelter by Alcoa, which began operations in April 2007.

Century Aluminum completed expanding a smelter in October 2006.

"International giants" like Alcoa get a discount on energy prices while local greenhouses have to pay in full," said Bjork, referring to a government price discount extended to large enterprises in return for guarantees to purchase a specified amount of power.

"Instead of harnessing all of Iceland's energy for huge industrial-age dinosaurs, we could invent and develop more sustainable options."

Icelanders have a unique relationship with geothermal energy - all houses in Reykjavik are heated this way, Bjork said.

"It is cheap and has always been public property."

- BLOOMBERG