State's pipeline plan brings privacy, conflict concerns

Posted: Monday, October 10, 2005

Alaska wants to go into the pipeline business with three private-sector energy titans, and they couldn't be happier to have the state - their landlord, taxman and regulator - on board.

Gov. Frank Murkowski has sent BP PLC, Exxon Mobil Corp. and ConocoPhillips a revised offer to lock in long-term tax and royalty rates for a North Slope natural gas pipeline. The $21 billion to $24 billion project is still a long way from reality, but one way Murkowski hopes to move it along is to offer the state as a 20 percent owner in the pipeline. That would create a public-private pipeline partnership with the three companies, with an upfront investment by Alaska of at least $4 billion.

Officials with Association of Oil Pipelines and the American Petroleum Institute say they know of no government in North America that owns part or all of a pipeline. A 2002 state Department of Revenue study said it has happened in times of war and national emergencies, but "absent such extraordinary circumstances, public sector investment in pipeline projects is not customary in the United States."

For this project, the reasons for ownership are clear, administration officials say. "We would at least be potentially be aligned with the producers in that we would have low tariffs. We would be interested in efficiency, safety and doing the best environmentally sound job at the lowest costs," said Chuck Logsdon, spokesman for Murkowski's negotiating team.

Critics say creating such a partnership would allow the state's biggest oil companies to keep their regulators in their pocket. And the 2002 report by the Department of Revenue under the previous governor, Democrat Tony Knowles, ticks off the risks and sticky problems that could arise from such a relationship.

Among them, how can the state act as an owner and a regulator at the same time? How would politics impede decision making? Would state government - which is far more open to scrutiny than the oil companies - have to quiet about information its partners want kept out of the public sphere?

Also, critics add, what voice can the state really have if it is a minority partner and can be outvoted, and therefore controlled, by a cabal of the three oil companies?

"Beyond cooperation is the inherent tension between the state and the producers," said Fairbanks borough mayor Jim Whitaker, who also is chairman of the Alaska Natural Gasline Port Authority, which has a competing pipeline proposal. "That tension relates directly to the state's responsibility to one, act as an owner, two, act as a regulator and three, act as a required taxer.

"To eliminate that tension and say you are no longer a sovereign, but rather a minority participant, is amazingly advantageous to the producers," Whitaker said.

Logsdon said the rules for decision making within the partnership are part of the negotiations. The confidentiality question also is something that needs to be addressed. Until the proposal is released, it is too early to know whether the state will have a conflict or be able to be pushed aside by its partners, he said.

"That's the tension within the (proposed partnership), to make sure we're not totally marginalized as a minority partner. That's obviously an issue that will have to be worked through," he said.

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