State gives gloomy outlook for gasline session this fall

  • By Tim Bradner
  • Saturday, September 12, 2015 9:26pm
  • News

PALMER — Gov. Bill Walker will not call a special legislative session to ratify Alaska LNG Project agreements unless there’s progress made quickly on several key issues, a top state official told two legislative committees in a briefing Sept. 9.

In a gloomy assessment of the negotiations, Dan Fauske, CEO of the state-owned Alaska Gasline Development Corp, told legislators that, “The state (negotiating) team is very concerned about the lack of progress on many of the key commercial and fiscal issues.”

“The process we are currently involved in assumes that all parties are equally motivated in getting a project built as quickly as possible within reasonable engineering and design constraints,” Fauske said, reading a prepared statement.

“This may have been an unreasonable assumption given the different alternatives and economic considerations of each party. In the state gas team’s opinion, the progression (of negotiations on agreements) will not allow them to be completed in time for a special session this fall.”

Fauske made the remarks to a combined meeting of the House and Senate Resources committees in Palmer, who were meeting to hear a quarterly update from industry and the state administration on the Alaska LNG Project, in which the state is a partner. The meeting lasted more than six hours, running past midnight.

Industry members of the LNG management team, who were sitting at the table for the briefing, had not seen the administration’s statement or been made aware of its tone prior to Fauske reading it to the legislators.

Fauske said he had been asked to keep the statement confidential until the meeting.

Key unresolved issues were identified:

Negotiations on a critical “gas balancing,” which assures gas supply to the LNG project if there is a production upset, “are at a virtual standstill with little progress amongst all parties having been made the last several months,” Fauske said.

Darren Meznaarich, a ConocoPhillips manager representing his company on the gas team, said the gas supply agreement is critical to his company’s participation.

“A tax stability agreement, historically referred to as a fiscal agreement, has yet to be agreed, and there is little common ground between the parties,” Fauske told the legislators.

The companies and the state are now in agreement that an amendment to the state constitution is needed to allow the fiscal agreement to be legal. The amendment must be approved by a two-thirds legislative vote in a special session or the 2016 regular session if it is to be placed before voters in the 2016 November general election, as the Constitution requires.

Before the constitutional amendment can be considered by legislators, an agreement on the fiscal terms is needed.

If the November 2016 election is missed the next time it can be moved will be November 2018, which effectively delays Alaska LNG for two years.

Two other items unresolved include a “withdrawn parties” agreement that would allow the project to proceed, “without interruption or delay” if one party fails to agree to move forward, has yet to be reached, Fauske said.

The other item important to the state, an agreement on project “milestones,” involving a firm schedule, is also not settled, Fauske said.

Two legislators on the Senate committee, Sen. Cathy Giessel, R-Anchorage, who co-chaired the meeting, and Sen. Anna MacKinnon, R-Eagle River, said blame for lack of progress isn’t entirely industry’s fault.

The state administration has failed to show progress on two key matters that are entirely within the state’s control, Giessel said. One is a formal decision by the state to take its royalty and taxes on gas “in kind,” or in the form of gas, she said.

A second, pointed out by MacKinnon, is a “Payment-in-Lieu-of-Tax,” or PILT, agreement with municipalities to cover property taxes on the big project. MacKinnon said the PILT was to have been completed earlier this summer.

Meznarich, of ConocoPhillips, said the delayed “RIK” (royalty-in-kind) decision by the Department of Natural Resources has been made complicated because it requires certain commercial agreements to have been made among the producers, and those are still being worked out.

On the PILT, Fauske said that conceptual agreement on a plan for property taxes has been reached between the administration and the companies, who are the taxpayers, but details on it cannot be released until it is reviewed by the affected local governments who are members of a municipal advisory group to the project.

The group is scheduled to meet with municipal officials Sept. 23 in Fairbanks and if they approve, the details will be released, Fauske said. The PILT deal will include a structure for construction impact payments to municipalities, a matter of particular importance to the Kenai Peninsula Borough where the large LNG plant will be constructed.

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