Special Session Weekend Wrap: Gas Tax Part 2?

Late Friday, Governor Walker announced that he was withdrawing the gas reserves tax from the special session. However, when the session began the next morning, the tax remained a focus of the Governor’s team.

On Saturday morning, administration members gave a briefing to legislators, media and the public in Juneau. They presented an overview of legislation regarding the state’s buyout of TransCanada’s share in the AKLNG pipe and Gas Treatment Plant. Hearings on that will occur in the House and Senate Finance Committees in the coming days. Headlamp will be watching.

Despite the gas reserves tax being pulled from consideration, however, the idea behind a tax continues to be a focus of the administration. Consultants for the Governor’s team started Saturday morning’s session with a discussion of principles for new potential gas taxes – among them, a tax on gas flaring and a tax on gas reinjection. Russia and Nigeria, countries with state-run oil and gas companies, were offered as potential examples where a tax was used successfully. Attorney General Craig Richards ended the briefing with his takeaway that “taxes could be used as incentives” to push the project forward at a faster pace.

Taxing a project into existence, however, is not a successful tactic, and Headlamp is searching for an example of where this has been done successfully, in countries or states that don’t have government run oil and gas companies. Uncertainty is the enemy of investment, and the threat of taxes does not appear to be a tactic that can be used helpfully amidst ongoing negotiations between the state and its producer partners to move AKLNG forward. In the coming days, this blog will take a look at megaprojects best practices. Stay tuned for more.

HB 3001 – the TransCanada Buyout – More money, more pipe, more control

The rest of the weekend’s focus was squarely on the state’s potential buyout of TransCanada’s share in the proposed AKLNG’s pipeline and gas treatment plant (GTP). While the House Finance committee heard from the administrations’ consultants on the financing issues involved with a buyout of TransCanada, the Senate Finance committee heard from budget director Pat Pitney on the financial details and their consultants, enalytica.

Both consultants addressed core questions: How will the state’s credit rating and borrowing capacity be impacted? At what cost will the state finance its share of the gas treatment plant and the pipeline? How can the state fund its share of these additional costs?

The divergent views from the administration and the legislative consultants suggest that there is more at stake with the TransCanada buyout than simply appropriating money and moving the Alaska Gasline Development Corporation into a new role on the pipeline and GTP.

The administration’s consultants concluded that a buyout of TransCanada would not impact the state’s credit rating or borrowing capacity, nor would it impact the state’s costs in financing its share of the AKLNG project.

The legislative consultants, warned, however, that other uncertainties were lurking in the decision. They noted that “the financial case for keeping or getting rid of TC is too close by itself to be persuasive especially given the uncertainties involved with a project at such an early development phase.”

Pointedly, the legislative consultants advised that other core questions be addressed during the special Legislative Session, including: Has TransCanada delivered on the state’s expectations for their role to date? Would TransCanada’s departure from the project impact current project timelines?

They also asked a key question: what happens to the ongoing workflow on the pipeline? Would key personnel with the engineering know-how from TransCanada stay on? Does Alaska have the right people to pick up the pieces from TransCanada in the short term?

All of these questions raise a critical one that has implications for our state’s economic future: Does the decision on TransCanada progress – or rather delay – the AKLNG project?

That, ultimately, should be the focus of Alaska’s leaders over the coming weeks.