Future of ammonia tax credit bill uncertain

A bill offering a tax credit to producers of ammonia and urea was passed by the State House of Representatives on April 13. It was referred to the Senate Resources Committee but has not been heard as of the committee’s most recent meeting on April 16.

Urea and ammonia are fertilizer products created by combining atmospheric nitrogen with hydrogen extracted from natural gas. The only ammonia and urea producer presently in Alaska is Agrium Inc., whose production plant in Nikiski has been closed since 2007, due to what Agrium has said is an inadequate natural gas supply in the region.

Introduced in early February by Rep. Mike Chenault (R-Nikiski), the bill gives ammonia and urea producers a tax credit equal to the royalty paid by the producer’s natural gas suppliers on their land leased from the state. During the seven years it would be in effect, the tax credit is estimated to equal $4 million in deferred state revenue.

Supporters of the bill have cited a study prepared for Agrium by research consulting firm McDowell Group, which stated that rehabilitation of the Nikiski plant would create 815 jobs, as well as 140 jobs while the plant runs at half-capacity — as it is expected to do following re-opening — and 240 jobs if it reaches full capacity. Supporters have also claimed the credit would create an indirect incentive for increased gas extraction in the Cook Inlet by expanding the market for gas.

Opponents have questioned if the tax credit would be an essential or decisive factor in Agrium’s decision whether to reopen the Nikiski plant.

“Agrium presented no evidence that they needed $4 million a year in state tax subsidies for it (the Nikiski plant),” said Rep. Les Gara (D-Anchorage), who voted against the bill. “In fact, their testimony was that they may move ahead without any state tax subsidies.”

Gara also opposed the subsidy because of an interaction between Agrium and the state financing body Alaska Industrial Development and Export Authority (AIDEA), which Gara characterized as a misleading attempt by Agrium to secure state money before the credit bill was introduced.

According to a letter from AIDEA Chief Infrastructure Development Officer Mark Davis to Gara, Agrium approached AIDEA seeking project financing. Although Agrium signed a cost reimbursement agreement in January 2014, opening the possibility of $60 million in financing, Agrium left the agreement and ended its interaction with AIDEA in September 2014.

Gara said he was in support of the Nikiski plant reopening, but said that he had “to be protective of the public first.”

As well as altering the market for natural gas in the Cook Inlet, the reopening of Agrium would change the local market for ammonia products.

Kenai Airport Manager Mary Bondurant said the Kenai Airport uses urea pellets to de-ice its runways every winter. During the operation of the Nikiski Agrium plant, Bondurant said the airport purchased the pellets from Agrium for around $200 per ton. The airport now buys urea from Anchorage at around $1,100 per ton.

 

Reach Ben Boettger at ben.boettger@peninsulaclarion.com.

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