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State policies caused ARCO to fail, UCLA economist tells IAEE
Kristen Nelson
“If you don’t like it — you’ve brought it on yourselves,” J. Fred Weston of UCLA told an Anchorage audience June 24, blaming state policies for the proposed acquisition of ARCO by BP Amoco.
Weston, who spoke at a meeting of the Anchorage chapter of the International Association of Energy Economists, is a professor emeritus at UCLA and heads that school’s program on takeovers and mergers.
Alaska’s taxing policies, he said, reduced ARCO’s income to the point where it was ripe for takeover.
“Fifty-three percent of ARCO’s revenues were from the state of Alaska and your policies were so — Alaska’s policies were so difficult — the taxing positions were so great ARCO’s been losing money for the last 6 years,” Weston said.
“ARCO is limping,” Weston said. If not actually losing money, the company was “at least not earning its cost in capital.” Weston compared Alaska and Texas, noting each provides “12 percent of refinery usage in the United States.” Severance taxes, he said, average $1.57 in Alaska and 74 cents in Texas.
“What does this say?,” he asked. “This says that you made it less financially sound to drill for oil in Alaska than in Texas.”
“Alaska’s oil policies have violated sound principles of public policy and economic logic and have produced results that have been the opposite of the goals of that policy,” he said.
Commenting on what he’s read of concerns Alaskans have about the acquisition — concerns that “Alaska’s going to become a colony of BP … A lot of emotionalism involved. But your reality is different. If you don’t like it — you brought it on yourselves,” he said.
State acting as a monopsonist The state of Alaska, Weston said, has tried various ways “to siphon dollars away from the oil industry. And the very thought that you have tried a number of different things says that the Department of Revenue in the state has had discretionary power which is equivalent to saying you’ve been a monopsonist in technical terms.”
“And you’ve been using your monopsony powers to make it more expensive, more risky and less profitable to drill in Alaska — to make Alaska an expensive place to drill in the world.”
A monopsony, according to “Webster’s New World Dictionary of American English,” is a situation in which there is only one buyer for a particular commodity or service.
Making things “more expensive and more uncertain,” he said, “is going to result in less activity in that area than otherwise would be the case.”
“Now of course for those who don’t want to see Alaska drilled, that’s great — you’ve helped those people, you’ve helped their objectives. But if you wanted jobs, it hasn’t helped that.” Alaska more difficult than Middle East Weston acknowledged that “taxes are a way of life for governments.” But, he said, “I’m suggesting that the state of Alaska’s probably more difficult for the oil companies to deal with than most of the Middle Eastern provinces.”
You can’t, he said, “be out of line with what has been general practice for decades in the name of maximizing the state’s revenues and being able to provide a negative income tax. These are counterproductive and they defeat other economic, basic economic objectives that you have.”
“I think,” Weston said, “that you have to be consistent with what is recognized as a gentleman’s behavior in this world…”
“Now without going into details of Alaska,” he said, “I think any economist would say if you make things more expensive and more uncertain, that is going to result in less activity in that area than otherwise would be the case.
“Now of course for those who don’t want to see Alaska drilled, that’s great — you’ve helped those people, you’ve helped their objectives. But if you wanted jobs, it hasn’t helped that.”
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