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Financing option opens for LNG project State of Alaska gas authority could look to Alaska Railroad to issue bonds Larry Persily Petroleum News Juneau Correspondent
A possible option if the Alaska Natural Gas Development Authority cannot issue its own tax-exempt bonds to build a gas pipeline might be to ask the Alaska Railroad Corp. to step in and serve as a conduit for the project financing.
State officials have looked at the possibility of financing a gas line through the railroad corporation the past two years, ever since they realized the possible breadth of the 1983 federal law transferring the railroad from the federal government to the state. That law grants the railroad the authority to issue bonds exempt from federal taxes on the interest paid to investors.
The option would be for the railroad corporation to issue revenue bonds, backed only by the income earned on a natural gas project. Neither the railroad nor the state nor taxpayers would be liable for the debt. Fallback position for state gas authority Turning to the railroad corporation to help with financing is a fallback position, said Harold Heinze, chief executive officer for the gas authority. The state authority is first trying to determine its own financing strength, particularly whether it could issue its own tax-exempt bonds for all or part of its $12 billion proposed pipeline to carry North Slope natural gas to market.
Researching financing options is near the top of the gas authority’s work list.
The federal law, however, is unclear as to whether the railroad can issue tax-exempt bonds for any project or only for its own needs. The law does not say the corporation can take advantage of tax-exempt financing for non-railroad projects, nor does it say it cannot. It simply says the corporation may issue tax-exempt debt even though the money might be used to finance private business activities that normally would not qualify for a tax exemption.
Some have argued the broad language would allow the railroad to help finance a gas project, while others contend the federal law was meant to apply only to railroad-related activities. Research conducted for the state in 2001 and 2002 found no specific congressional history to support or discredit either argument. Differing opinions on railroad bonds State officials — with legal opinions in hand — have discussed the attractive potential of tax-exempt railroad bonds the past two years. Their varied conclusions include it’s OK as is, or it’s possible, or investors would want a ruling from the IRS before buying the bonds, or it would be even better to get language through Congress making it explicitly clear that the railroad could use its tax-exempt status to help finance a natural gas pipeline.
Separate from answering the federal question, the Legislature this past session amended state law to allow the railroad corporation to issue revenue bonds for construction of a natural gas pipeline. The law sets a $17 billion cap on the bonds. The measure, sponsored by Rep. Vic Kohring, R-Wasilla, passed both chambers without a single dissenting vote.
It adds a provision to state law allowing the railroad to provide revenue-bond financing for the construction, maintenance and operation of a natural gas pipeline and related facilities “without regard to whether the facilities are or will be owned in whole or in part by the corporation or located on land owned by the corporation.”
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