FAIRBANKS - A bill to help finance a natural gas pipeline from the North Slope was signed last week by Gov. Frank Murkowski.
House Bill 267, sponsored by House Oil And Gas Committee chairman Vic Kohring, a Wasilla Republican, authorizes the Alaska Railroad Corp. to issue up to $17 billion in tax-exempt bonds for private owners of the project. Murkowski signed the legislation on Wednesday.
It would be the largest bond sale in state history. Private builders of a gas line would use the bond proceeds to pay for the pipeline, then pay the railroad the principal, interest and costs of the sale.
Gas line backers could save more than $1 billion during the life of a project with the bonds, which would effectively give them a subsidy compared with what they would spend to borrow the money themselves.
"This bill provides financing to build a gas pipeline. That's the bottom line," Kohring said on the House floor in May. "I think this is a very key piece of legislation that will go a long way toward seeing the gas line become a reality."
The railroad corporation, owned by the state, was given the power to issue tax-free bonds when it was transferred from federal to state ownership in 1983.
According to Johne Binkley, the railroad's board chairman, U.S. Sen. Ted Stevens inserted the language in the railroad transfer bill to allow the railroad to be involved in economic development projects similar to those undertaken by railroads in the Lower 48.
But Binkley said the provision gives the railroad a power unique in the entire country.
"No other entity has the authority to extend tax-exempt bonds for private projects," he said.
The railroad has never before taken advantage of the provision, Binkley said, and is prohibited from doing so without legislative approval.
Kohring's bill, which passed the House and Senate by unanimous votes last month, grants that approval for up to $17 billion in bonds that could finance up to 70 percent of a gas line.
The bill says that the railroad must determine before any sale that the backers can repay the bonds as scheduled, maintain fund reserves for the payments and pay all associated costs.
"The state's not going to allow the railroad or themselves to be on the hook for that kind of money," Binkley said.
The bill's fiscal note says the deal would save the backers of a gas line more than $1 billion over the life of the project.
The bill does not specify a route for the pipeline.
The measure is part of a package of incentives being crafted on the state and federal levels to lure oil companies to build a gas line from the North Slope to a Canadian terminal or all the way to the Lower 48. Such a line is expected to cost up to $20 billion.
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