Granted exemption vs. negotiation

House Bill 519 would grant property and sales tax during gasline construction, startup; bill supported by VECO, BP, Phillips; administration wants negotiations

Kristen Nelson

PNA Editor-in-Chief

The state needs to offer incentives to get an Alaska gas project started, Rep. Pete Kott, told the House Special Committee on Oil and Gas April 19.

Kott, chairman of the House Rules Committee, was introducing House Bill 519, sponsored by House Rules.

The bill is supported by VECO Corp., BP Exploration (Alaska) Inc. and Phillips Alaska Inc. and opposed by the administration.

Kott said the state has a window of opportunity for a gas pipeline project, and needs to provide an incentive. HB 519 provides a tax holiday from sales and property tax during construction and the first two years of operation and reauthorizes the Alaska Stranded Gas Development Act, which lets the administration negotiate fiscal terms for a project.

Kott disagreed with administration fiscal notes for the bill: there is no loss of revenue, he said, because without this bill there won’t be anything to tax.

As this issue of PNA went to press, the bill was being held in House Finance for a second day of hearings and was tentatively scheduled to be heard in House Rules April 29.

Action needed now

“VECO feels a sense of urgency,” he said: “If action is not taken this year the only opportunity for a significant boost in the state economy may be lost.”

Asked about differences between this bill and Senate Bill 360, the proposal for pipeline relief that is moving in the Senate, Marquez said SB 360 requires “clear and convincing” evidence that tax relief is needed. That is a very vague test, and may be insurmountable, he said, and predicted it would be a test that would discourage producers from taking it on.

VECO Chairman and CEO Bill Allen and Vice President Rick Smith told the committee that VECO believes the state needs to act quickly to seize unique opportunities to market North Slope gas while the window of opportunity is open.

VECO “strongly suspects,” Allen said, that “if the window shuts it may never open again.”

They also said that Sen. Frank Murkowski said recently that opponents of an Alaska gas pipeline are now pointing to a lack of commitment from Alaska.

BP, Phillips support bill

Konrad said HB 519 is modeled after the 1998 stranded gas act. It updates that act and makes it available for a gas pipeline project.

There would be negotiations, he said, negotiations which both the executive branch and the Legislature would need to approve under the stranded gas act provisions, because that is the only way for the producers to ensure fiscal certainty over the life of the project.

Marushack said Phillips does not believe federal legislation is not a certainty.

State participation is important, he said, and HB 519 would be an “important signal to Congress” that Alaska has stepped up to the plate on the project.

Thompson urges more limits on incentives

The version of the bill discussed in House Finance April 24 had an April 1, 2004, deadline, which bill sponsor Rep. Pete Kott, R-Eagle River, credited to Thompson.

The former senior ARCO executive and a member of the governor’s gas policy council told House Finance that he was pleased that the deadline for applications under the stranded gas act had been changed, but recommended applying that same April 1, 2004, deadline to the tax exemptions.

“I urge you,” he said, “not to pass 519 without a firm line in the sand.”

If tax exemptions are given, the state should ask for one thing in return, he said: a project approved and under way by April 1, 2004.

He also urged a clear definition of what parts of a project were tax exempt.

And he said the Legislature should limit the outright incentive exemption to pipeline construction. An additional two years should be subject to negotiation, he said.

Opponents of the bill are arguing, Thompson said, that the state shouldn’t give away hundreds of millions without investors showing need, and shouldn’t be granting that incentive for any period after gas startup.

“I propose a compromise,” he said. “I do believe the state should grant this incentive” because there are billions in state revenues at stake.

But grant the exemption during construction and the calendar year of startup, he said. Then let investors at that point ask for the additional two years — based on economics.

Legislators have asked if we have too much on the table with this incentive, Thompson said, and granting the tax exemption only during construction helps answer that.