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Knowles introduces legislation for railroad bonds to finance Alaska Highway gas pipeline
Petroleum News Alaska Staff
Calling an Alaska Highway natural gas pipeline a “national interest” project, Alaska Gov. Tony Knowles sent the Legislature bills Feb. 12 to authorize the Alaska Railroad Corp. to issue up to $17 billion in tax-exempt bonds to finance the pipeline. (See story page 1.)
“Specifically,” the governor said, “this bill says that building a gas pipeline is an essential purpose of the state and is critical to the state’s health and welfare. And it also recognizes that a necessary and proper function of the Alaska Railroad is the ability to finance such facilities.
“In addition, the bill amends existing law to expand the railroad’s powers to issue up to $17 billion in bonds to finance the construction and maintenance of a gas line and related facilities for transporting natural gas from Alaska’s North Slope.
“Finally, the bill also authorizes the railroad to negotiate with producers of natural gas on the bond issues.
“This bill complements other incentives that we have proposed to get the gasline project moving, such as federal accelerated depreciation and measures to reduce commodity risk.” What’s in it for the railroad? Participating in the governor’s press conference from Anchorage, Alaska Railroad President Pat Gamble called the proposal “another in a series of great, bold moves that the state has taken in its history to further its economic development.”
The railroad has had the opportunity to issue bonds, he said, but hasn’t done so.
“I think that this is well within the railroad’s mission,” said Commissioner of Transportation and Public Facilities Joe Perkins, also the vice-chair of the railroad board. “What’s good for the state is good for the railroad,” Perkins said.
The governor was asked what’s in it for the railroad.
“Any economic development in this state is going to be good for the railroad,” Knowles said. Gamble agreed: “Once this pipeline starts to go, our experience with the oil pipeline indicated that the railroad was a very important part of moving major pieces of equipment up into the construction area. And then there’s continuing support that will follow on from that,” he said. The biggest impact would be during construction, but there would also be longer-term support, Gamble said.
“The revenue of the railroad pretty well depends on the economy of Alaska,” said Perkins. If the state’s economy is slow, he said, “we certainly see that impact on what we haul on the railroad.” IRS review? Knowles was asked if this bonding proposal will be submitted for IRS review.
“We don’t need permission from the IRS to do it,” the governor said. “We feel that it’s very clear… not only was it clear in the initial legislation (transferring the railroad to the state) but it was reaffirmed through the Tax Reform Act of 1986…”
Knowles did say the Internal Revenue Service may want to look into it.
“It’s certainly their prerogative.” Action from producers expected Asked if the tax-exempt bonds make a North Slope gas pipeline project pencil out, Knowles said “… when you put a billion-plus dollars on the table, it should not be just a small step: that’s a big step towards making the project work.
“I am asking the producers to look at this, to give us a report in terms of how it affects the project. And what else needs to be done. And I fully expect this will begin some very productive conversations in that regard.”
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