Former Arco head says gas pipeline tax break too generous

JUNEAU -- A former oil company executive says a bill that would grant as much as $900 million in tax breaks to spur a North Slope gas pipeline is too generous.

Ken Thompson, former president of Arco Alaska Inc., said he supports the concept of the bill, but suggested legislators offer a smaller tax break and leave the incentive on the table a shorter amount of time.

With changes, however, the bill could help push forward a project that Alaska politicians and business leaders have wanted for years, Thompson told the House Finance Committee on Thursday.

''I do think this could help jump start the project,'' said Thompson, now president of Pacific Rim Leadership Development, an Anchorage consulting firm.

The measure, sponsored by Rep. Pete Kott, R-Eagle River, would exempt a North Slope natural gas pipeline from local and state property taxes while it is being built and for the first two years of operation.

The Department of Revenue had earlier estimated the exemption could cost state and local governments $500 million, but now estimates it could cost $760 million to $900 million.

Larry Persily, a deputy commissioner in the department, said the department's earlier estimate had not accounted for the fact that the Alaska portion of the project would be more expensive -- and thus generate more tax -- than the Canadian portion. Thompson suggested the Finance Committee allow the outright property tax exemption during construction, but not for the first two years of operation.

Once the line starts producing, he said, the companies should receive the tax break only through negotiation with the state and only if they can show an economic need for it.

He also suggested lawmakers take the exemption off the table if the project is not under way by April 2004.

And he said legislators should tighten the definition of property that could be exempted from taxes to ensure it applies only to the project itself.

The three major oil companies on the North Slope -- BP, Phillips Petroleum and Exxon Mobil -- so far have said they're not sure they could make enough money to justify spending $15 billion to $20 billion to build a pipeline from the North Slope to the Lower 48.

Bill Allen, the president and CEO of Anchorage-based oil field services company Veco Corp., is backing the bill. He said it could help start a whole new gas industry in Alaska, and the benefits would more than offset the tax losses.

Representatives of BP and Phillips have said the bill would help, although by itself would not necessarily get the project off the ground.

Joe Marushak of Phillips said federal gas line legislation that would streamline regulations and offer tax credits is critical. An amendment adding those provisions to a federal energy bill was approved in the U.S. Senate, but the bill itself has not passed.

Some federal lawmakers have suggested the state is not doing its part, he said.

''We are continually asked 'What is Alaska doing?''' Marushak said.

He also said producers will still need tax relief for the first couple of years after gas starts flowing through the line because some construction will continue after that.

The Finance Committee will look at possible amendments to the bill Thursday.

Finance Committee member Rep. Jim Whitaker, R-Fairbanks, said he wants a tighter limit on how long the tax break would be available.

He'd also like to see some provision for aid to municipalities that would give up taxes while having to provide more services during a pipeline construction boom.

He'd also like to see assurances in the bill that companies other than the three majors would have access to the line to ship their gas and assurances that gas will be made available for use in Alaska.