ANCHORAGE — Gov. Bill Walker is still pushing North Slope producers for a larger share of the Alaska LNG Project, and may promote a state gas reserve tax as leverage against the companies, state legislative leaders briefed recently on the governor’s plans said in interviews.
The governor’s office would not comment on the briefings.
“This is all very deliberative, so it’s too soon for us to comment,” press secretary Katie Marquette wrote in an email.
Legislators were willing to share what they’ve heard so far.
“We were told the governor desires a majority ownership in the project, at least 51 percent, and that the administration is considering the use of a gas reserves tax if one or more of the companies don’t want to play,” said Rep. Mike Hawker, an Anchorage Republican who was one of the leaders briefed.
Hawker is chairman of the Legislative Budget and Audit Committee. He and House Speaker Mike Chenault, R-Nikiski, were briefed by administration officials.
A reserves tax is a property tax on the value of natural gas reserves in the reservoir.
Hawker said his overall concern is that the governor is veering away from a partnership concept in the plan now agreed to by the producers where each owner of gas resources on the North Slope, including the state, finances and owns a share of the project equal to the gas ownership.
Under this arrangement “alignment” on commercial terms among the parties is achieved, Hawker said.
“The governor’s idea (of a larger state ownership) goes another direction, possibly dividing the parties rather than seeking alignment,” he said.
Chenault said, “I know the governor wants a bigger piece of the pie but this project is working now as it was designed,” as a partnership with the state on an equal footing with each of the three major producers.
“For years the three producers tried to figure out a way to make this work having to pay 100 percent of the costs but getting only 75 percent of the revenues,” because of the state royalty and tax share, the Speaker said.
In making the state a partner, the costs and shares of revenues were aligned, “and it made sense,” Chenault said.
On the reserves tax, Chenault said people have talked about it for years and the option for the state is always there, but now is not the time.
“We shouldn’t be threatening them now. We should be working with them,” he said.
State Sen. Anna MacKinnon, R-Eagle River, another legislative leader who was briefed, voiced similar sentiments: “If you want to be partners who work your disagreements out, you don’t hammer people,” with things like a reserves tax.
MacKinnon is co-chair of the Senate Finance Committee. MacKinnon also said her impression is that Walker may be looking to enlarge the state share, or be ready to do it, as a hedge against one of the three producers balking at the last minute on the big project, which is now estimated to cost $45 billion to $65 billion.
MacKinnon and State Sen. Cathy Giessel, R-Anchorage, who was briefed along with MacKinnon, said they are primarily concerned with how Alaska will be able to pay for an enlarged share of the project given the state’s diminished finances and large budget deficits due to a sharp drop in oil revenues.
“For the state, the financing issues with this are mind-boggling,” Giessel said, who is chair of the Senate Resources Committee.
The lawmakers were told that the governor’s plan is to finance the state share — currently 25 percent but up to 51 percent if the state achieves a majority share — with debt through project revenue bonds and with no cash equity invested by the state.
If the project cost is $50 billion, the state’s financing share would range from $12.5 billion to $25 billion.
“That is certainly possible, but it could be expensive in the long run,” Hawker said. “I’d also have to be convinced that it could be done without pledging the state’s general credit as a guarantee, particularly our Permanent Fund.”
Alaska’s Permanent Fund is a state savings fund of oil revenues, and now exceeds $55 billion in value. Tapping the fund to backstop a state gas project financing would likely require a constitutional amendment.
“I don’t have a great deal of confidence in this approach,” MacKinnon said, but she is still willing to listen to ideas for creative financing, she said.
• Tim Bradner is a reporter for the Alaska Journal of Commerce. He can be reached at tim.bradner@alaskajournal.com.
