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Railroad bonding bill on the move The Legislature begins consideration of administration proposal to use railroad bonding ability to provide tax-exempt financing for gasline project Kristen Nelson PNA Editor-in-Chief
Both the House Special Committee on Oil and Gas and the Legislature’s Joint Committee on Natural Gas Pipelines are taking a look at the Knowles administration’s proposal to use Alaska Railroad Corp. tax-exempt bonding to provide conduit financing for a gas pipeline.
The House Special Committee on Oil and Gas heard testimony on House Bill 423 March 25, amended it to remove language which said the bonding would be only for a pipeline along the southern route and into Canada and moved it out of committee.
Sen. John Torgerson, chairman of the Joint Committee on Natural Gas Pipelines, said the joint committee has retained counsel to look at some of the legal issues in the railroad bonding proposal, and will be holding hearings on the proposal. State authority Deputy Commissioner of Revenue Neil Slotnick told the committee that the Alaska Railroad has federal authority to issue bonds for industrial projects. The objective of HB 423, Slotnick said, is to give the railroad the state authority it needs.
Slotnick said HB 423 provides conduit financing: the Alaska Railroad Corp. would issue the bonds, but would not own the pipeline system and would not be liable if the project defaulted on the bonds: the producers would be.
“We would expect the producers to enter into ship-or-pay contracts … meaning that even if the project doesn’t get built or is delayed, there is a requirement that the producers come up with the money that would be backing the bonds,” Slotnick said. Joint committee Torgerson said the Legislative Council funded outside counsel for the joint committee and Hogan & Hartson of Washington, D.C., was selected.
“They are going through and doing the first due diligence on whether or not the railroad actually has the authority,” he said, and are answering some basic questions:
Can the Alaska Railroad provide tax-exempt bonding for that portion of a pipeline within the state? Can it provide such financing for a portion of the pipeline outside of Alaska? In a foreign country? Could it provide financing for non-pipeline portions of the project such as extraction plants, liquefaction plants or re-gasification plants in Alaska or elsewhere? Can it provide financing for more than one project?
“And then maybe one of the larger questions, is a private letter of ruling due from the IRS? Do we need to do that? Are there ways around not doing that?”
“I want this to work,” Torgerson said. “But this is a big question. It’s a lot of money and we need to make sure that we have all the information that we can.”
Torgerson said he wanted it on the record “that the Legislature’s not sitting back on our hands waiting for the administration to get something done. I would have hoped they’d have had a lot of this done before this bill got this far. But they didn’t, so we’ll do our job on it any maybe eventually we’ll compare notes and see where we’re at.” Industry support Michael Hurley of Phillips Alaska Inc. said Phillips has “reviewed the concept embodied in this bill and our initial view is that that ability to utilize conduit financing does have the potential to benefit a natural gas pipeline.”
“But right now we’re concentrating on trying to get a project that is actually economically viable, because we may have bonding authority, but if we don’t have a viable project, it won’t do us much good,” he said.
Paul Fuhs, speaking for Yukon Pacific Corp., spoke in favor of the bill but also requested an amendment removing language which said the bonding could only be used for an Alaska Highway pipeline. The committee did make that amendment.
Dave MacDowell, external affairs manager for BP’s gas activities in Alaska, told the committee: “We’re supportive of this bill because there is a possibility that it could reduce financing costs for a gas pipeline.” Like Hurley, he told the committee that while railroad bonding could help move a project forward, the project is “of yet, not commercially viable.”
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