Alaska Gov. Sean Parnell is playing the state's cards just right with the North Slope gas holders. Before they'll invest billions in a North Slope gas pipeline, they say they need more "fiscal certainty" over future taxes than the state is currently offering. It's too early to talk about more concessions, says Gov. Parnell. The big three gas holders are split between two different gas line projects, including one led by the state's licensee, TransCanada. When the gas holders unite behind a common project, Gov. Parnell says, then we can talk about whether more tax certainty is really needed.
That's absolutely the right call.
The state already has an offer of fiscal certainty on the table. In the Alaska Gasline Inducement Act, AGIA, the tax lock is available to companies that commit gas during the first official request for shipping commitments on the line. They can lock in the current tax structure for the first 10 years the gas line is actually pumping gas. Counting the lead time to build the project, that tax lock is good for about 17 years on the calendar.
North Slope gas holders say that's not long enough. And they also want a tax lock that can be enforced in court, rather than one that could be revoked by a future Legislature.
However, Alaska's Constitution clearly prevents the state from making a binding contract that surrenders its sovereignty over taxes.
Article IX, Sec. 1 clearly says: "The power of taxation shall never be surrendered. This power shall not be suspended or contracted away, except as provided in this article." Sec. 4 allows exceptions, but they must be established by general law. A general law is, by definition, subject to change by future Legislatures.
To get a legally enforceable tax lock that applies for 30 or more years, the North Slope gas holders will need a constitutional amendment. That would take two-thirds approval in the state House and Senate and ratification by a majority of Alaska voters. Legislators and voters are unlikely to approve that kind of amendment unless they know it is absolutely essential to the project and will in fact produce a gas pipeline.
So, for now, Gov. Parnell is continuing Gov. Palin's approach to the gas line -- he is treating the matter not as a political issue, but as a high-stakes business negotiation. And it most certainly is. The North Slope gas line is the biggest business deal the state has ever considered. It could yield the state as much as $100 billion dollars in future revenue from taxes and royalties and additional gas development.
With so much at stake, a misstep in this business deal could cost the state billions. As Gov. Parnell has said, in business, one rule is that you don't negotiate against yourself. You don't give up valuable things early in the process before you are absolutely certain it's necessary.
When Gov. Parnell took over, some worried that he might reverse Gov. Palin's course and take a more lenient view of the North Slope gas holders' request for more concessions. Parnell had worked for the company that is now Conoco Phillips and for Gov. Frank Murkowski's division of oil and gas.
So far, those worries are misplaced. Gov. Parnell is not worried about being "friendly" with the oil and gas industry on the gas line. He's doing what a responsible Alaska governor should be doing. He is taking a strong stand that protects the business interests of his "shareholders" -- Alaska's citizens -- in this multibillion-dollar business deal.
BOTTOM LINE: Gov. Parnell realizes the gas line isn't a political issue; it's a high-stakes business negotiation.
Copyright (c) 2009, Anchorage Daily News, Alaska. Distributed by McClatchy-Tribune Information Services.
