Anchorage Daily News

Flint Hills, the refinery in North Pole that is the center of much concern lately, is owned by Koch Industries of Wichita, Kan. Koch is the latest in a succession of owners of the refinery that was built in 1977. I had a small hand in that refinery's birth as a member of Laborer's Local 942, helping build the spill containment system.

Most of us on the crew were grateful for the work and enthusiastic about the goal: locally refining and distributing a part of Alaska's crude oil that was otherwise being exported to the Lower 48. I was also hopeful that the North Pole Refinery (as it was called) would provide a chance for my old hometown to finally gain economic stability. Earth Resources of Alaska, Inc. the developer of the refinery, was given a 25-year, 35,000-barrels-per-day contract for state royalty oil in kind (RIK).

Soon thereafter a company named Mapco Alaska bought out Earth Resources and took assignment of that RIK. In the mid-90s, the state agreed to increase its royalty allocation to Mapco, which then sold out to Williams Alaska Petroleum, which received the benefit of that assignment. In 2004 Williams' parent company was acquired by Koch Industries and the North Pole Refinery came along with it.

To accommodate the new owners, the state agreed to a 10-year supply contract based on a formula that starts with Alaska North Slope spot pricing and deducts certain fixed costs like tariff. When the ANS spot market price goes up, so do royalty revenues. This is the source of hand-wringing by the company: The MBAs at Koch Industries' headquarters are not happy with the return on investment of our refinery.

Besides asking for a break in the state's royalty portion of the charge for RIK, the folks at Koch are starting to make noises about divestment in Alaska. Is this just a tactic to get them off the hook for the $100 million in upgrades to the facility and other obligations they agreed to in exchange for the 10-year supply agreement back in 2004? The state Division of Oil and Gas, which handles these matters, has hired a consultant to look at Koch Industries' information documenting their dire straits.

Our consultants may want to bring a grain of salt to that task. Investigative journalist Greg Palast tells us in his book "The Best Democracy that Money Can Buy" that the U.S. Senate committee cited Koch oil in 1989 for "... deliberate mismeasurement and fraudulent reporting" and Koch Industries was cited under the Clinton administration for hundreds of violations of law. The record during the Bush administration has been silent, other than the $800,000 contributed by Koch principals to the Bush campaign and those of other leading Republicans.

The recent national economic crisis has given Alaskans a cram course in capitalism. For a generation we have been told that the forces of the free and unfettered marketplace are the best means to allocate the resources of society. We now have good reason to question that bit of dogma as an article of faith.

The late Chuck Behlke, my boss at the state pipeline office during the northwest pipeline days and the former dean of engineering at the University of Alaska Fairbanks, explained to me how companies like Koch "game" the system. They buy an asset, depreciate that asset as quickly as possible, declare a dividend from the fattened bottom line and then sell it off as quickly as possible. As a pipeline project watchdog, Dr. Behlke earned a reputation as a skeptic of the promises of large Outside companies in Alaska.

Everyone in business knows that sometimes if you want something done right, you've just got to do it yourself. In the case of Flint Hills, it's time to stop allowing one of Alaska's critical assets to be used as a throwaway deduction in an Outside corporation's balance sheet. It's time for the state to assume ownership of the refinery under a utility management structure that includes participation by distributors. Integrating our resource with production and distribution for our small and fragmented market is the only option that makes sense.

As for Koch Industries, I have this advice: Don't let the screen door hit you.

Elstun Lauesen is a rural development specialist. E-mail, elauesen@oz.net.

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