Idea for gas line stocks and bonds is premature

Posted: Sunday, August 06, 2006

This editorial appeared in the Anchorage Daily News:

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Gov. Frank Murkowski likes the idea of making it easy for individual Alaskans to invest some of their Permanent Fund dividend in the proposed North Slope natural gas pipeline project. He says the state could issue bonds to raise cash for its share of gas line ownership; then residents could simply check a box on their dividend application if they want to buy the bonds.

That was the announcement three weeks ago.

Then, two weeks ago, in his address to lawmakers meeting in special session in Juneau, Gov. Murkowski unveiled a slightly different idea for Alaskans to invest in the gas line. This time, it was a dividend checkoff to buy shares of stock issued by the state.

The governor, state officials and lawyers are working on the details. Gov. Murkowski says he wants to present something next year for legislative approval.

The state would need to raise billions of dollars under the governor's proposal that the government own 20 percent of the gas line, and Gov. Murkowski figures Alaskans may want some of the action.

We hope those working on the idea will answer all of these questions and more:

• Once the state issues bonds for construction, it will be several years before the gas line starts up. Until then, there would be no revenues. How would the state pay interest to bond holders during those years? Would the state essentially issue IOUs and pay when the cash starts flowing? And what if the project is delayed?

• How much would it cost the state to get into the retail business of issuing bonds, making interest payments and tracking bonds as they are bought and sold? And how much would it cost to get in the business of selling stock in the state-owned pipeline company?

• Would there be a secondary market for investors to sell their bonds if they need the cash before the debt is paid in full? And would shares in the state corporation be publicly traded, so that Alaskans could sell their stock to anyone any time they wanted? Would the shares fall under the oversight of the federal Securities and Exchange Commission?

• What if people use their Permanent Fund dividend to buy bonds or stocks and the state later determines they were ineligible for the dividend? Would the state take back the bonds or stocks? Could parents use their children's dividends to make gas line investments?

• Since the bonds would be backed only by gas line project revenues - not general state revenues - is it responsible to sell such investments to individuals, rather than soliciting money only from big-money firms that understand the risk?

• Is the state prepared for the political storm that would gather if Alaskans someday found their state-issued gas line stock worth less than they paid for it? Could happen.

• And if Alaskans want to invest in the project, why couldn't they just go to private brokerage firms and buy bonds issued by the state, or Exxon Mobil, Conoco Phillips or BP? Or stock in any of the three companies? Why does the state have to get into the business of selling the risk directly to its citizens?

Our answer to all these questions is: Slow down. Get a project commitment first. Then start thinking about how to cut Alaskans in on the deal.



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