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My turn: Pipeline contract is worrisome

Lifting away all the fog from the details reveals a bad deal for Alaskans

Posted: Wednesday, July 26, 2006

Some girls have math anxiety. Their brains just shut down around math, so they can't use their full intelligence.

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Well, I don't have math anxiety, and I'm no longer a girl. But I do have oil tax and gas pipeline anxiety. My mind just kind of panics and freezes whenever I hear the words ELF (economic limit factor), stranded gas, oil production tax, or gas line. I've been scared off by the 600-plus page gas pipeline contract, the endless days of testimony during the special session, and the scope and complexity of the thing.

But I decided to side-step my anxiety and study up on oil taxes and the proposed gas line contract because I've come to realize how much is at stake.

The fog began to clear when I learned that the oil production tax is not really a tax. Tax is a misleading term, but we're stuck with it. People or corporations are taxed on what they earn or own. The oil companies do not own Alaska oil and gas. We do. The oil production tax they pay is also, and more accurately, called a severance tax. It is the fee the oil producers pay the state for severing or removing the oil from our state. Once they sever it, they own it. When you understand that this severance "tax" they pay is really a fee for buying our oil, the 20-percent, 22.5-percent or 25-percent "tax" rates being debated seem ludicrously low.

I began to understand the necessity of taxing gross production instead of net profits after attending Sen. Kim Elton and Rep. Beth Kerttula's question and answer session on the proposed Alaska gas line last week. The deputy commissioner of Revenue and a gas line consultant were also on hand to give the Murkowski administration's point of view. Taxing net profits instead of gross production is totally flawed. It's too complicated. Net profit is difficult to measure, costly to audit and subject to manipulation or gaming by the oil company accountants. A company who pays its CEO's exorbitant salaries, inflates its expenses, or is just plain poorly run would report lower profits. Why should Alaska's share of the gas be lower if a company has bad business practices or overpaid executives?

Gaining confidence with my fledgling understanding of these oil and gas issues from the Q and A session and reading newspaper articles, editorials, BP ads, and the "Alaska is not a Third World country" ads, I screwed up my courage and looked online at the proposed gas pipeline contract. Now I'm really scared.

It's clear to me that the contract is a very bad deal for Alaska. It is full of concessions that would compromise our state's sovereignty and the right to obtain relief in court. The provision to allow the producers off the hook in an arbitrated dispute if they just claim "errors in judgment" is way too loose. The contract stipulates that Alaska receive its royalty payments in gas or oil, losing the current flexibility we have to receive royalties in cash. The provision to freeze corporate income taxes also robs Alaska of potential income. This sweetheart contract doesn't even require that they build the gas pipeline and yet it locks in their tax rate for 30 years as an incentive to build the gas pipeline.

In this era of exponential change, wars looming on many horizons, global warming and depleting oil and gas reserves, we would be doing our children and the young adults of today a disservice to lock them into a tax system that may not be appropriate for their future. Alaska can find other companies willing to build a gas pipeline without this major concession.

BP, ConocoPhillips, and Exxon-Mobil are not the best companies to build the gas pipeline, especially since Exxon has not yet paid for all the damages caused by the Exxon Valdez oil spill. We need better partners in such an important project. Alaska needs to consider an all Alaska pipeline and bids by other companies that were rejected without full review. Murkowski's contract with its oil company giveaways and convoluted links to oil tax legislation should be scrapped.

• Carol Anderson is a Juneau resident.



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