Icelandic pension funds are to partially finance a $300m (€266m) silicon metal plant in the country’s north, partnering with Germany’s development bank for the project.

The factory, to be built for Germany’s PCC Group near the town of Húsavík, will attract up to ISK7bn (€46m) in direct investment over the next three years, Íslandsbanki Corporate Finance estimated.

KfW IPEX Bank, the subsidiary of Germany’s Kreditanstalt für Wiederaufbau dedicated to project finance, will cover the majority of the construction costs.

The domestic pension sector was previously said to be contributing more than one-quarter of the $300m in financing, with a statement from Íslandsbanki confirming that the funds would now contribute $80m through Bakkastakkur, a joint venture among more than 10 funds and the bank.

Bakkastakkur and the associated pension funds will offer debt financing and receive preference shares in PCC BakkiSilicon for providing financing.

The project received final approval after three years of planning when the EFTA Surveillance Authority, the regulator charged with overseeing the European Economic Area, ruled in May that the terms agreed between Iceland’s state power company and PCC to supply energy to the new plant did not constitute state aid.

Birna Einarsdóttir, chief executive of Íslandsbanki, hailed the final agreement as an “important milestone”.

“It is a very positive step for the Icelandic economy, as it directly supports employment development in the northern part of Iceland, as well as investment,” she said. 

Icelandic pension funds soon face the prospect of the government relaxing capital controls imposed after the 2008 collapse of several local banks.