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PILT bill introduced to begin discussion
Kristen Nelson Petroleum News
Alaska Commissioner of Revenue Randall Hoffbeck told the House Community and Regional Affairs Committee in mid-April that House Bill 183 on payment in lieu of taxes for the Alaska LNG project is part of a three-part process including impact payments during construction; a durable and predictable property tax; and distribution of revenues between state and local entities, both during construction and operation.
The Municipal Advisory Gas Project Review Board began work under the Parnell administration, Hoffbeck said, and identified that a PILT needed to be fair and equitable to all stakeholders; clear and easily understood; robust and durable - able to cope with future changes in operation and not just static; unambiguous - not subject to judgment and interpretation; and commercially sound, enhancing the chance of project success, not an impediment.
The bill was introduced just to begin the discussion, he said, and start fine tuning issues. While a PILT agreement had been expected during this session, he said fiscal negotiations were not far enough along to establish a PILT.
Hoffbeck said the issue is how high a PILT the project can support and still be viable.
Relative to oil Janak Mayer and Nikos Tsafos, partners in enalytica, and consultants hired by the Legislative Budget and Audit Committee to advise the Legislature, said they agreed with Hoffbeck on broad areas.
Tsafos noted that property tax could be $1 billion a year on the project, that there will be a long construction period, that the tax is regressive, fixed regardless of revenue, and possibly contentious, given the state’s history with property taxes on the trans-Alaska oil pipeline. He said a good framework would include a clear formula which is predictable and stable, balanced - fair and equitable - and which enables project development.
Comparing property tax on an oil project with that on liquefied natural gas, he said the AKLNG project may need prices of $10-$13 per million Btu in Asia to be viable, and property tax could be as high as $1 per million Btu, more than the shipping cost to Asia. And that $1 is out of $10 or $13, he said, not out of a $50 or $100 price for oil.
Property tax is a huge chunk of what this project has to pay for, Tsafos said, and in the commercial context it’s not just the money spent, but stability. If that $1 could become $2.50 over time, he said, that is a difference in a project that might be viable at $90 oil or would require an oil price of $105 to $110.
PILT vs. property tax Mayer said it’s important to distinguish between the concept of a PILT and things done directly through property tax. The heads of agreement laid out the intention of all parties that AKLNG would have a negotiated PILT rather than a property tax, and be based on cents per thousand cubic feet vs. a property tax established under statute.
And, he said, once a PILT is negotiated and signed off on by all parties, the link with property tax is severed. PILT will be cents per mcf, whereas property tax is based on an ongoing assessment.
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