Refinery threatens to close

Owner says state must grant the plant major concessions

Posted: Monday, February 27, 2006

ANCHORAGE - The owner of the state's largest crude oil refinery has threatened to close the plant unless the state grants it a major financial concession.

Flint Hills Resources, operator of the refinery at North Pole, is asking for a contract change that could cost Alaska up to $100 million, state officials said.

Refinery executives worry the Federal Energy Regulatory Commission might lower tariffs early next year for transporting oil through the nearby trans-Alaska pipeline.

Flint Hills buys oil from the state to run its refinery. Under its supply contract, Flint Hills would have to pay the state more if federal regulators lower the rates.

Flint Hills buys crude oil from the state, but gets to deduct the tariff from the price. A lowered tariff rate would be applied to the company's rates in past years, meaning it would have to make retroactive payments to the state.

In a letter to the state this month, Flint Hills chief financial officer Anthony Sementelli asked that the supply contract be altered so that the retroactive payment wouldn't be required.

Sementelli said the refinery would be jeopardized by the possibility of a huge supplemental payment for oil.

"It is important that everyone understand that we are not asking for a subsidy or handout," Sementelli wrote. The company just wants to know what its crude oil costs, he said.

State oil and gas director Bill Van Dyke, in a letter back to Flint Hills on Friday, declined the company's request.

He said all parties, including Flint Hills, knew when the oil supply contract was negotiated in early 2004 that disputes before federal officials over pipeline tariffs were likely and could affect the oil price retroactively.

The state and hired consultant also would need to examine financial information from Flint Hills to verify how much damage a back payment would do.

"I am sure you must recognize that without this information and our analysis we cannot agree to any new proposal," Van Dyke wrote Sementelli.

Jeff Cook, a Flint Hills spokesman, said the North Pole refinery is a vital economic asset not only for the Interior, but also Anchorage.

Much of the refinery's output is jet fuel, which supplies Ted Stevens International Airport, Cook said.

Flint Hills is a subsidiary of Kansas-based Koch Industries Inc., a large, privately held company involved in refining, pipelines, chemicals and other enterprises.

Flint Hills bought the refinery from The Williams Cos. in 2003 as part of a $265 million transaction.

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