Knowles proposes floating $17 billion in gasline bonds

Posted: Wednesday, February 13, 2002

JUNEAU (AP) -- Alaska would float $17 billion in tax exempt bonds for a natural gas pipeline to be built on the North Slope under a plan proposed by Gov. Tony Knowles.

Knowles introduced legislation on Tuesday to advance the proposal in hopes of enticing major oil producers considering the project. It would require legislative approval.

The bonds would come from the Alaska Railroad Corporation and would help reduce the cost of the project by about $1 billion, he said Tuesday.

''We have asked the producers to sharpen their pencils and give this a good hard look,'' Knowles said.

Exxon Mobil, BP and Phillips Petroleum commissioned a $100 million study of the proposed project.

Producers were considering whether such a pipeline should follow the trans-Alaska Oil Pipeline and Alaska Highway or take a ''northern'' route through Canada.

The group has not publicly released the results of its study, but company officials have tentatively said neither route appears to be profitable enough.

Knowles said estimates he has seen show that the cost of the two routes -- the Canadian and the ''southern'' route through Alaska -- do not vary greatly.

''We feel this certainly makes the Southern route a prime candidate for being commercially viable,'' Knowles said Tuesday.

The producers considering a natural gas pipeline have not taken a position on Knowles' bond proposal.

''Anything that helps lower our project cost is good,'' BP spokesman Ronnie Chappell said Tuesday. ''(But) our goal is a project that's competitive and stands on its own two legs.''

A natural gas pipeline is estimated to bring in $500 million annually in state revenues and provide as much as 8 percent of the nation's daily demand, the administration said.

Under the bond proposal, neither the state nor the Alaska Railroad would be responsible for repaying the debt. The state would also not own a share in the project, the administration said.

The legislation proposed Tuesday authorizes the railroad to issue up to $17 billion in bonds to finance construction and maintenance of a gas line and related facilities. It also authorizes the railroad to negotiate with natural gas producers on the bond issue.

Congress gave the Alaska Railroad Corp. the ability to issue tax exempt bonds to finance industrial development projects when the state took over operations in 1983.

Sen. John Torgerson, chairman of the state Joint Committee on Natural Gas Pipelines, said the proposal would get a full hearing. But Torgerson, a Republican from Kasilof, said he has many questions about the project.

Despite administration assurances that such a project would be acceptable to the Internal Revenue Service, the question hasn't been answered, Torgerson said.

And it's unclear what effect such a bond package would have on state corporate taxes received from a natural gas pipeline, he said.

''Those are issues the Legislature is going to have to look at very closely,'' Torgerson said. ''That's a lot of money and we need to be clear how to go forward.''

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