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Senate Finance gets AKLNG update from DOR
Revenue reassures senators project will get due diligence, legislators will have opportunity to approve further state investmen Kristen Nelson Petroleum News
The Senate Finance Committee got an update March 22 on the role the Alaska Department of Revenue plays in the Alaska LNG Project, with senators expressing concerns about the project’s financing model, impacts on communities and project risks and rewards.
The committee heard from Sheldon Fisher, Revenue commissioner designee, Mike Barnhill, Revenue deputy commissioner, and Maria Tsu, project financial specialist.
Fisher reviewed the department’s role under Senate Bill 138, which established the Alaska Gasline Development Corp. as the state’s participant in the project. He told the committee that one of the roles for Revenue is as a connection between the project and the Legislature, particularly on property tax or payment in-lieu-of-tax, PILT.
Fisher said the department also has a role to play in assisting the Legislature in thinking through whether the state should make further investments in the project, in addition to the substantial investments it has already made.
And while AGDC is the project sponsor and has the lead in defining financing options and how the project would be brought to market, Revenue has a role in working with AGDC in defining and understanding the models that are being created, Fisher. At each step in the process, as opportunities for additional investment become available, he said Revenue sees its role as working with the Legislature.
The committee clearly wanted specifics, with Finance Co-Chair Anna MacKinnon, R-Anchorage, asking how a model can be developed when it isn’t known whether the state is in or out as an owner; or, she asked, has the governor just decided the Legislature isn’t going to participate financially?
Fisher said it is his sense that AGDC and the governor would be pleased to have the state participate at whatever level it would be interested in and said Revenue’s objective is to gather and present information, so the Legislature can make a decision on whether to participate.
PILT PILT, payment-in-lieu-of-taxes, has circulated around various proposals for commercializing Alaska North Slope gas for some time, Barnhill said, and is the result of competing interests - producers needed fiscal certainty while municipalities needed revenue to offset the impact costs of construction and operation.
Those competing interests still existed when SB 138 was passed.
The Municipal Advisory Gas Project Review Board, consisting of pipeline corridor mayors, commissioners and public was reconstituted and met from 2014 through the beginning of 2016, Barnhill said, reaching some tentative understandings on two pieces of PILT, PILT during construction and PILT during operation.
While there were unresolved issues, agreement was reached that $800 million would be collected and distributed for PILT during construction and $15.7 billion would be collected and distributed during the operation of the project. He said the consensus was tentative and he didn’t believe the state participated.
While the producers have left the project and certainty on property tax is no longer an issue, municipalities still need impact funds, he said.
The board hasn’t met since 2016. Barnhill said AGDC would compute a number for PILT which will work in the financial model and will share that number with Revenue, which will reconstitute the board.
MacKinnon said that was the opposite of what the Parnell administration did - it went to the communities to determine what was needed.
Barnhill said the board would be picking up from where it left off, and said he envisioned that the ball had now shifted to AGDC to come up with a number. He said municipalities had recognized that flexibility on property tax was needed to make the project work and said they were willing to consider something less than 20 mils as the basis.
MacKinnon agreed that to get a project we must make it compete.
Modeling Tsu, who works for Fisher, has been embedded at AGDC for more than a month. She was hired, Fisher said, because Revenue is responsible for evaluating whether the state should take an equity interest in Alaska LNG.
Tsu, with more than 20 years of institutional investment experience, including nine years at the Alaska Permanent Fund Corp., came out of semi-retirement, viewing this as what she called a once in a lifetime opportunity to participate and bring her full skill set to help facilitate the state’s decision on the project.
An evaluation of state investment requires a very robust due diligence process, she said, and the state may want to engage other experts, building something akin to a due diligence team, bringing more people from different perspectives to evaluate the project.
Some $800 million is needed to finance work in preparation for construction, just to get to a final investment decision, she said. And after that more detailed work is done, they might not be able to make a final investment decision.
Asked about confidentiality requirements by Sen. Natasha von Imhof, R-Anchorage, Tsu said investment bankers engaged by AGDC will play a critical role and will need to develop what she called road show materials. Such materials, brought in to pitch a project, would be clearly labeled confidential, with disclaimers, Tsu said, and the receiving party will understand that those materials are confidential.
Sen. Peter Micciche, R-Soldotna, was concerned about what he called overplaying the benefit of less quantifiable elements in the model, where it would be most difficult for someone evaluating the model to see where those benefits were overplayed.
Tsu said what she hopes to bring to the Legislature is the assumptions behind the things in the model that can be quantified, and a distinction between quantifiable and unquantifiable elements.
Micciche said legislators were hearing from a lot of Alaskans who are wondering what is going on. He said legislators want to make sure Alaskans come first, and that in recent attempts at bringing the project forward he feels the most important partners have been left behind. He said Revenue needs to bring the project back to the people, to bring them along, saying that he thinks the project has lost a connection with Alaskans and if legislators and other Alaskans aren’t brought along there will be opposition.
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