Refinery operator says funding out

Flint Hills Resources says the refinery has lost money over the past year while the company considered whether to sell it, close up shop or invest in major upgrades to make it more profitable.

"After completing our review, we have determined that significant investment in the plant is not an option," Flint Hills spokesman Jeff Cook said. "We remain interested in discussing any other alternatives with the state, including selling the plant."

Joe Balash, special assistant to Gov. Sarah Palin, says one possibility under consideration is for the state to take ownership, possibly through the Alaska Railroad Corp. or a similar structure.

"It is not a preferable outcome, but the consequences of the facility shutting down are significant enough that we're going to take a hard look at it," he said.

A key product of the refinery is jet fuel used by the cargo and passenger planes that fly in and out of Anchorage's international airport. The refinery ships the fuel by train to Anchorage, making the railroad's single biggest customer.

Flint Hills buys much of the North Slope crude oil it refines from the state's share of North Slope production. It pays the state a premium of about 30 cents a barrel under a 10-year contract signed in 2004.

Earlier this year, Flint Hills sought out the state Department of Natural Resources, hoping to renegotiate the price. But the company balked at granting the agency's request for financial data.

But now, Balash said, the state and Flint Hills have agreed to work together at a higher level. Palin this week announced a more formal cooperation between the state and Flint Hills.

"It's been sort of a hot-cold, start-and-stop situation, but we think we've moved past that," Balash said. "We've had a breakthrough."

He said both parties have agreed to commit three to six months to assess options without closing the refinery.

Besides jet fuel, Flint Hills makes home heating oil and some gasoline in North Pole. Between the refinery and terminals at the Port of Anchorage, Flint Hills has about 175 employees in the state.

Public ownership could involve the railroad, a state-owned corporation.

Shipment of the refinery's products accounts for about 45 percent of the Alaska Railroad's total revenue, according to railroad chairman John Binkley.

"I would describe it as a critical part of our business," he said. "Without that, we would be a much different-looking railroad."

The Anchorage Daily News contributed to this article.