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State delves into how to pay for pipeline

Options include borrowing billions of dollars

Posted: Friday, July 29, 2005

The state of Alaska is taking a serious look into how much it should pay into the proposed natural gas pipeline that would carry the resource from the North Slope through Canada and to the Midwest states.

The administration is hiring three out-of-state financial consulting firms to review Alaska's options on how to pay for a portion of the pipeline if the state chooses to join in the ownership.

The financial team includes Challenger Capital Group of Dallas and Credit Suisse First Boston and UBS Investment Bank, both headquartered in New York City.

"They're helping us walk through these options," Porter said.

The pipeline is estimated to cost $20 billion. If the state agrees on 20 percent ownership, it would have to pay $4 billion of that cost and the producers would be responsible for the rest, said Alaska Deputy Revenue Commissioner Steven Porter said.

The government is reviewing three proposals to develop and transport the gas - one from BP Exploration, ConocoPhilips and ExxonMobil forming a consortium of North Slope oil producers; another from TransCanada; and another from the Alaska Port Authority, which is interested in building an all-Alaska line to Valdez for refining and shipping to the West Coast and Asia.

Issuing billions of dollars of bonds over a long-term period could be an option, Porter said.

The consultants' jobs are to look at the degree of risk the state would enter if it decides to own part of the pipeline, he said.

The consultants will speak with a handful of credit agencies to determine the rating for the bonds if they are issued.

Many Alaska legislators favor part ownership so that the state can make more profit and have more influence.

"It's good to own some part of the pipeline so we can control the future of it," said House Finance Chairman Rep. Kevin Meyer, R-Anchorage.

Meyer said ownership up to 20 percent would be a comfortable level without taking too much risk.

Rep. Harry Crawford, D-Anchorage, said the state could go as high as owning a third of the pipeline.

"It's not going to be a problem because I'm confident the pipeline will be successful," Crawford said. The pipeline would act as collateral on the bonds, he said.

Meyer said an interesting question would be whether voters would want to use money invested in the Alaska Permanent Fund to pay for the construction because the sooner the state pays off the debt, the sooner it can collect more profit on the gas. Some $31 billion is invested into the permanent fund.

The state is also negotiating for royalties and taxes on the pipeline.

Gov. Frank Murkowski said in the spring that the administration and producers hope prices in the future will be around $6 to $7 per cubic feet. But if the rate is $2, it could make the project "the worst investment in history of Alaska," Murkowski said.

The governor expects to have one or two contracts for the Legislature to review this fall. A 30-day public comment period would precede the special session.

The North Slope contains about 300 trillion cubic feet of explored and unexplored natural gas.

If the Legislature approves a contract this fall, the gas is expected to start flowing sometime between 2012 and 2014.

• Andrew Petty can be reached at andrew.petty@juneauempire.com



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