Energy

Proposed tax credits aimed at encouraging reopening of Kenai Peninsula fertilizer plant

JUNEAU -- In tough financial times, Rep. Mike Chenault, R-Nikiski, has a tough argument to make.

He wants Alaska to create a new tax credit for fertilizer production, and use millions from the state to help convince Agrium to reopen its mothballed plant in his hometown.

A few million dollars in state tax credits for urea and ammonia production will spur hundreds of millions in new development, said Chenault, who also serves as House speaker.

Side benefits to the state range from a more stable supply of natural gas for Southcentral consumers and cheaper fertilizer for farmers to revenue for government and all-important new jobs, he said.

"It gets down to even your pizza places and hamburger joints -- more people working puts more dollars into the economy," Chenault said.

Chenault's House Bill 100 would provide a tax credit to manufacturers of fertilizer and also includes credits for a plant that would convert natural gas to liquid fuel, though no such plant is proposed.

Cost to the state is uncertain but is capped at the amount of the royalty the state would collect on the likely 21 billion cubic feet per year of state natural gas the reopened Agrium plant would consume, possibly $15 million a year.

ADVERTISEMENT

But the credits couldn't be any higher than the amount of income tax Agrium pays the state, probably much less than $15 million.

A cost estimate for the bill developed by the Department of Revenue cited $3 million to $4 million per year in Agrium's corporate tax liability, based on a recent article in the Peninsula Clarion newspaper.

Chenault's proposal was endorsed by Agrium and unions likely to work on the plant or in related operations, but it found skepticism among some Democrats during a Thursday hearing before the House Finance Committee.

That included some from Fairbanks, who mentioned recent scares that Cook Inlet was running out of gas and might not have enough to share with Fairbanks.

But Chenault said increased demand, such as that from a reopened Agrium plant, would result in more exploration for natural gas and actually increase the supply available. That's already begun with state incentives to attract new companies to Cook Inlet to look for gas to sell into the market, he said.

"They've went out and found more gas," Chenault said. "That's good for Alaska, that's good for Cook Inlet and hopefully that's good for Fairbanks."

Chenault said that whatever the cost of the tax credits against corporate income tax, the state currently isn't getting any tax revenue from the plant while it is closed.

Rep. Tammie Wilson, R-North Pole, supported the tax credits and said the state was responsible for the closure of the Flint Hills refinery in North Pole last year.

"There weren't enough incentives," she said.

The Agrium plant should get the state help it is seeking, she said.

"We've got to bring business into the state," Wilson said.

Steve Wendt, local manager for Agrium, told the House Finance Committee on Thursday that Chenault's bill would improve chances that Agrium would choose to invest the $275 million it would cost to reopen the plant.

But the bill's skeptics on the committee said they weren't convinced that the bill was even needed and said it could result in Alaska providing a tax break for an investment the company was gong to make anyway.

Company officials said that while they didn't yet know whether they'd reopen the plant, the tax credits could help sway top Agrium executives to chose Nikiski over other projects the company is looking to invest in.

"What we're trying to do is present the most attractive offer for this project, as opposed to other projects that are internally competing for that same capital expenditure budget," said Adam Diamond, Agrium's manager for governmental relations.

But offering a tax credit without knowing if it is needed is something akin to the "second cherry atop the sundae," said Rep. Scott Kawasaki, D-Fairbanks.

Rep. Les Gara, D-Anchorage, questioned providing a new tax credit when everybody else was getting cuts.

ADVERTISEMENT

"The mantra this year has been 'everybody's got to feel the pain,' but these guys are getting $4 million they say they might not need," Gara said.

And Gara disputed Chenault's contention that reopening the plant would increase revenues to Alaska from royalty gas sales. Others would buy the gas if Agrium doesn't, he said.

"Nobody is going to leave gas in the ground that's producible and affordable," he said.

Following the question of the tax credits, Wilson said her fellow finance committee members may not be supportive enough of business.

"I thought we were pro business, but going around this table, I'm wondering," she said.

Chenault's bill, already approved by the House Resources Committee, was passed out of the Finance Committee on Thursday and now awaits scheduling for a floor session for a vote of the full House.

Chenault had originally proposed 10 years of tax credits, but the newest version of the bill reduces that to five years.

Agrium officials said they'd like to see the plant reopened by July of 2017 if they receive corporate approval.

ADVERTISEMENT