A Citizen’s Guide

OK, we’ve heard your concerns, the administration says about the pipeline contract’s tax lock-ins.

While the administration hasn’t yet come up with anything that will address those concerns, it is working on it, said Jim Clark, the governor’s chief of staff, on Wednesday.

One proposal it has suggested could help came from Sen. President Ben Stevens, R-Anchorage, during the previous special session.

Stevens proposed a setup whereby oil taxes could be locked in for 14 years starting when the companies decide to go ahead with the pipeline or get all the project funding, whichever comes later. After that, the revenue commissioner could set up a method to make sure that if there were new taxes, they wouldn’t affect the three oil companies that signed the contract.

That could last until 25 years after the contract is signed, or five years less than in the proposed contract, which would provide fiscal certainty on oil for 30 years and on gas for 45 years.

The thinking, said Sen. Ralph Seekins, R-Fairbanks, who chairs the lead committee reviewing the pipeline, was that if the companies hadn’t been able to recover their capital investment in those first 14 years, the state would give them some extra time under the same tax regime.

“It would be on an after-the-fact basis and discretionary only,” he said Thursday. “That was how Ben described the intent.”

It turned out there was some trouble with the language in the proposal, which was included in a bill amending the law used to negotiate the contract. As written, the change could have allowed the state to agree to that second period now, not just after the fact, according to Seekins.

The Senate only passed the bill because it knew it would die in the House, he said.

Even if the language is fixed, there’s no guarantee it would fly with the oil companies.

Bill McMahon of Exxon Mobil expressed his concern to the Senate committee Wednesday. Allowing changes to oil taxes between contract signing and the go-ahead date—a period during which the companies will spend about $1 billion on the project—would expose the companies.

“Leaving that open increases risk to the project,” he said. Leaving those years open to tax increases and even the proposed reserves tax would undermine the fiscal stability, he said, which is “critical.”