JUNEAU -- Despite increasingly dire warnings about the shaky finances of the refinery industry in Alaska, the House Finance Committee balked at a tax credit and grant program that could cost the state up to $300 million over the next five years.
In a meeting Friday night, committee members said that loans would be preferable and delayed action on the plan after Reps. Les Gara and Alan Austerman complained about the large amount of the subsidies and the lack of accountability for the cash, while others called for a new approach and a business plan.
One sore point with committee members was that Tesoro would be eligible for a subsidy though it had not asked for one, while another issue was that Petro Star Inc., which says it is losing money, has not given legislators a full picture of its finances.
"The worst part of this bill is not that the remedy doesn't fit the problem," Gara said, or that Petro Star won't open its books.
"It's that Tesoro will get $20 million a year, $100 million over the next five years, and they don't even want it," he said. "There's got to be a better way."
The debate over a financial aid package to Alaska refineries comes as the session nears its end and as the Flint Hills refinery in North Pole prepares to shut down. Flint Hills blames high operating costs and the sulfolane pollution problem as two big factors.
The disparity between the price of North Slope oil and lower-cost oil in the Lower 48 is a major handicap for the industry, Natural Resources Commissioner Joe Balash said, while Petro Star is also paying tens of millions into the so-called "Quality Bank." That is the fund that refineries drawing oil from the trans-Alaska pipeline pay into to compensate for the lower value oil they reinject into the pipeline.
The refineries only use about 30 percent of every gallon they withdraw from the pipeline, returning the portion that is less valuable than what they use to produce heating oil and jet fuel.
Balash said the administration is "greatly concerned at the consequences we'll face as a state if we were to lose the additional refineries that Petro Star operates both in North Pole and Valdez."
Balash said that the Arctic Slope Regional Corp., owner of Petro Star, is not a charity and the company has said its refineries are not profitable. He also said the state did not want to "pick winners and losers" with a financial aid package, so it wanted to make it open to any instate refinery selling to consumers. He said the administration has looked at Petro Star's books, but it cannot talk about that in public.
"We think that something needs to be done, must be done, or the consequences will be real," he said, warning of a domino effect that would harm the economy and probably make it impossible for the state to be considered as a home for new F-35 fighter jets.
The plan discussed Friday reduced the proposed subsidy somewhat by offering $10 million in tax credits or grants to each refinery with no strings attached as well as a separate credit of up to $10 million, not to exceed 40 percent of expenditures on infrastructure improvements.
Fairbanks Rep. Steve Thompson said the impact of losing Petro Star's refineries would be devastating to communities from Fairbanks to Kodiak. "This is an economic driver that we need in our state," he said.
Gara said he would prefer a program aimed at distressed companies. "I would not object to a repayment holiday to let the company get a breather. I would ask that you think through some sort of option like that," he told Balash.
Austerman said the Alaska Industrial Development and Export Authority could work with the refineries to assist in some manner with financing aid. He said the administration should have come forward with the details sooner.
He said Arctic Slope and Petro Star have not suggested raising the cost of fuel by some amount to help pay the bill.
"This is not a responsible request by the administration to do this without something that shows that there's a plan to dig them out of the hole that they're in," Austerman said. "I don't see how we can possibly just give this money away," he said.
The committee held the bill for more review to consider an approach that might win more support.