My turn: Turn the private sector loose

Posted: Monday, April 30, 2007

It astonishes me that Alaska's political pundits think it is up to the state to get a gasline. Government doesn't make private sector projects happen, the private sector does. That's the beauty of Gov. Sarah Palin's Alaska Gasline Inducement Act. It unleashes the private sector to do what it does best - compete.

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The AGIA solicits gas pipeline proposals from all companies in an open, competitive environment. The AGIA offers inducements for pipeline construction and for commitments of gas to the pipeline. In exchange, the state has its list of "must-haves." The state requires companies to make commitments regarding project timelines, low tariffs, delivery points for gas in Alaska, and a commitment to hire qualified Alaskans, among other stipulations.

The AGIA is very different from the Stranded Gas Development Act where the producers (ExxonMobil, BP, ConocoPhillips) wound up in exclusive, confidential negotiations with the previous administration. Instead, the AGIA assumes that the private sector knows best how to compete for and build these projects. The AGIA tells the private sector to come up with the best project, present it to the state in the form of a proposal and, if it's in Alaska's interest, the state will provide certain inducements. Like the federal government's approach of providing tax advantages to project sponsors, the AGIA makes clear, up-front, what the state will provide to move the project now.

A number of arguments have been made in opposition to the act, and I will address a few. Some claim, "You have to go back and negotiate with the producers because they have the gas (under lease)."

First, we'd love to have the producers' gas in a pipeline heading for market. That's why the AGIA offers the chance for the producers (and others) to get together to make a proposal to win the state's inducements. However, recent history demonstrates that if we negotiate exclusively with the producers, the process gets delayed and they will simply ask too much - locked-in taxes for 35 years and no real work commitments in Alaska for starters. Put competition into the equation; change the environment from a stalemate to one of opportunity, and parties move.

Former Gov. Hickel hit the nail on the head. The state and the producers already negotiated a deal to develop North Slope gas - it's called a lease. Decades ago, when the producers signed North Slope leases, they agreed to develop the gas if reasonably profitable. We know the producers will be part of the solution as that gas needs to get to market. And Palin and I think other companies and groups likely have some good ideas for completing a project as well. It's time for all parties, including individual producer companies, to step out and try other combinations to unlock Alaska's gas.

Some argue for changes to the AGIA. They ask, "Why should the state provide up to $500 million in matching funds for this project?" The AGIA provides matching funds as the state's "skin in the game" - something Congress requires since it has put in real value. Matching funds also provide real incentive early in the project, when company investment is most risky.

Of course the producers don't want the $500 million in matching funds - they want more. The producers have asked for a lower tax rate on gas, worth billions. And, just like in the past, expect them to ask for a tax credit on the gas treatment plant, worth another billion.

Another argument says, "the AGIA's 'must-haves' for the state should be 'bid variables' instead." This is simply a backdoor into more exclusive, confidential negotiations over "bid variables" after the bids come in. Palin and I ran our campaigns on openness and transparency - it doesn't make sense to again go down the path of long-term private negotiations.

Palin is on the right track with the AGIA. Let's make plain what the state is willing to ante up and turn the private sector loose.

• Sean Parnell is the Lieutenant Governor of Alaska.



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