Knowles administration pushes changes in gas tax bill

Posted: Wednesday, May 01, 2002

JUNEAU (AP) -- The Knowles administration could support a bill waiving some taxes on a proposed natural gas pipeline if legislators agree to shrink the tax break and make other changes.

Department of Natural Resources Commissioner Pat Pourchot on Tuesday outlined suggested amendments that would make the bill acceptable.

''The amendments would narrow the scope and cost of the exemptions, but still provide an incentive to project sponsors of approximately $450 million,'' Pourchot wrote in a letter to Rep. Pete Kott, R-Eagle River.

Kott introduced the bill, which is intended to spur a project to ship natural gas from the North Slope to markets in the Lower 48.

The state's three major oil companies -- BP, Phillips Petroleum and Exxon Mobil -- say their analysis so far shows they won't make enough money to justify the risks of a $20 billion pipeline.

The bill would save them money by exempting a pipeline from local and state property taxes while it is being built and for the first two years of operation.

The Knowles administration estimates that would cost state and local governments $760 million.

The administration has opposed an outright exemption. Instead, Pourchot has favored a process in which the administration negotiates incentives with industry based on economic need, then brings the deal back to the Legislature.

But Pourchot said Tuesday the administration is willing to support the tax break bill with some changes.

He proposes having the tax break end when construction ends, rather than continue for two years afterward. There is a reasonable argument for exempting taxes during construction when the project is making no money, Pourchot said.

''Our feeling is that beyond the construction your philosophic rationale kind of breaks down,'' Pourchot said.

Making that change in the bill would bring the tax loss down to $450 million, Pourchot said.

The administration also wants the incentive to end in July 2008, rather than in 2012 as in Kott's bill.

Pourchot also asked for a tighter definition of what would be exempt from taxes, so unrelated facilities don't inadvertently get a break.

He wants stronger language calling for use of Alaska workers and Alaska businesses.

And he's seeking more assurance that municipal governments that would lose taxes under the bill will receive some help, since they will have to provide more services during pipeline construction. The bill sets up an impact fund for those communities, but identifies no source of money to fill it.

Kott said Pourchot's proposals are ''a good stepping-off point,'' and he's willing to work with the administration on a compromise.

But he said a 2008 end date for the incentive may be too soon to expect a project to be finished. Kott would also like to keep the exemption after construction is finished because problems during the initial years will probably lessen project income, he said.

Kott said he'd talk with producers and others involved ''to see if there's a middle ground'' on the proposed amendments, then bring a counterproposal to the administration Wednesday.

Bill Allen, the president and CEO of Anchorage oil field services company VECO Corp., is pushing the bill. He said it could help start a 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.

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