Alaska editorial: Oil execs offer weak argument for tax stability on gas line

Posted: Thursday, October 02, 2008

A local BP executive gave a speech in Anchorage earlier this month in which he made a familiar but dubious pitch for tax "stability" on the Alaska gas pipeline.

Gary Boubel was speaking to the Alaska World Affairs Council about the huge political and economic challenges facing multibillion-dollar international oil and gas pipelines.

Taxes are one of those challenges.

Since pipelines are "money machines," he said, governments are eager to get their "piece of the action." But "if you change it (the tax regime) later on after you start (a pipeline), you can destroy the economic viability of a project like that," Boubel said.

That's why gas shippers need tax stability.

"Think of you and your mortgage company," Boubel said. "The banker comes to you and says, yeah I'll loan you the money ... but I'm not gonna tell you what the interest is, and I'm not gonna tell you what the payment terms are. I'm gonna decide that as we go along."

"Is that OK with you?" Boubel asked. "Would you like to invest in that? Well, I don't think many of us would."

Hmmm. Couple of things wrong with that analogy.

First, he's talking about your mortgage, not your taxes. Here in Alaska, no house buyer gets any guarantee from the government about what future taxes on the home will be. Somehow thousands of people each year manage to spend hundreds of thousands of dollars on a home and cope with not knowing what government is going to charge them on taxes over the next 30 years. BP says it needs something ordinary citizens would never get.

Second, as long as we're talking about mortgages, not taxes: Of course you nail down the terms of your mortgage in writing when you buy a house. (An unethical loan agent may misrepresent what those terms are, but that's why you need to read the fine print.)

So this dubious comparison, which has come up repeatedly during the Legislature's work on the gas pipeline, is a classic apples to oranges distortion. It's a way multibillion-dollar, multinational companies try to build a sense of kinship with ordinary Alaska citizens.

In his speech, Boubel didn't say the state has already made a pretty generous offer of tax stability for the North Slope gas line.

Any company that agrees to commit gas in the first open season will qualify. The state says it will lock in the tax rate that's in effect during that open season. The lock-in is good until the pipeline has been operating for 10 years. It will take five to 10 years to get from open season to pipeline operation, so the tax lock-in would run for 15 to 20 years, depending on how long construction takes.

That's about as long, and as firm, a commitment as the state can legally make.

The Alaska Constitution bars the state from contracting away its power to tax. That means the state cannot give an ironclad, legally enforceable guarantee that it will never increase taxes on a gas pipeline. Lawmakers can - and did - pass a law making an explicit promise not to monkey with taxes on the gas line, for a limited period, in return for certain public benefits. It's not enforceable in a court of law, but it would carry considerable weight in the court of public opinion.

BP's pipeline partner Conoco has complained that the state's tax-lock offer is neither long enough nor firm enough. Conoco officials have said they want a contractually enforceable guarantee covering more of the life of the project.

Absent some creative legal alternative that has yet to emerge, there's only one surefire way to do that: Passing a constitutional amendment. That would require a two-thirds vote in the state House and Senate and ratification by Alaska voters.

It will be a tough sell to get Alaska lawmakers and voters to do something that extreme. It would require Alaska to sign away a sovereign power that Alaska's founders insisted on writing into the Alaska Constitution. They had seen how easy it was for powerful economic interests to manipulate the desperately poor Territory of Alaska's Legislature and get favorable financial treatment. Our founders wanted to ensure it didn't happen again.

So if Alaska's gas shippers and would-be pipeline builders want ironclad guarantees of tax stability, they are going to need to offer Alaskans and their lawmakers a much more compelling case.



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