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Should Alaska create a fund to attract investors to develop the Arctic?

  • Author: Patti Epler
  • Updated: September 27, 2016
  • Published June 20, 2011

GIRDWOOD -- The state is positioning itself to be the banker as well as the builder of Arctic projects in the hope of attracting more private investment to the region. And that could be the catalyst to jumpstart broad development in the Arctic -- beyond just oil and gas operations. Investment experts speaking at the Arctic Imperative Summit portrayed the region as an "emerging market" that will need some sort of established investment fund to lead the way and then entice skittish private investors to follow.

The Alaska Industrial Development and Export Authority -- a state development agency that tries to ignite economic growth through financing sometimes risky projects -- could be that entity, if political leaders decide to put significant amounts of cash in the agency's bank account.

Some lawmakers attending the conference are intrigued by the idea, as long as it doesn't tap the nearly $40 billion Alaska Permanent Fund. But others were quick to recall big AIDEA projects that failed.

"It clearly can be a development tool that the state can add to its portfolio," said Lt. Gov. Mead Treadwell. "But the question that always comes up is can the state pick a winner?"

The Alaska Legislature earlier this year passed House Bill 119, introduced by Gov. Sean Parnell, that expanded the authority of AIDEA to let it own or co-invest in projects, as well as provide funding or loan guarantees. The new powers given to AIDEA didn't get much coverage at the time, but came up at the Arctic Imperative Summit on Monday.

"AIDEA can move in and provide things without a whole lot of difficulty," said Robert Sheldon, an AIDEA board member, who explained his agency's expanding role to the group of about 200 international dignitaries, business executives and political leaders.

He floated the idea of a "regional development syndicate" for the Arctic, a group that might include state, federal and private investors. Already, he said, foreign investors, including China, are backing Alaska projects or buying significant shares in U.S. companies that are doing business here.

But more needs to be done, and Alaska is going to need to help itself. U.S. leaders as a whole need to recognize the importance of the Arctic for resource development and economic strength, said David Rubenstein, co-founder of the $107 billion global asset management company, the Carlyle Group, and husband of Alaska Dispatch publisher Alice Rogoff.

The U.S. needs to do much more "to get us in the game," Rubenstein said, noting that Russia has become the major player in Arctic. The U.S. would do well to cooperate with Russia when it comes to developing the Arctic, he said.

'Can't wait for government'

The state, currently flush with surplus revenue thanks to high oil prices, could use its wealth to create an "Arctic sovereign fund," attracting investors, especially if it provided incentives and favorable terms, Rubenstein said.

"Alaska can't wait for the federal government," Rubenstein said. "It needs to do some things on its own."

One "thing" might well be AIDEA. In an interview Monday, Sheldon said discussions are currently going on to create an "infrastructure bank" that would fold into AIDEA. The state is in a good position to pay for ports, runways and roads that would make it easier -- and cheaper -- for private developers to move forward with their plans. That would generate jobs for Alaskans and boost the economy, which is what AIDEA is intended to do, he said.

The authority can now also co-invest with private equity partners, which could be the thing that persuades private investors to throw in because the state is lowering the risk and demonstrating there's a mutual advantage, Sheldon said.

But the infrastructure bank would need money to operate. And that means the Legislature would have to agree to seed it with cash.

AIDEA has assets of $1 billion and has paid the state about $364 million since 1995. Sheldon said AIDEA's biggest success story was helping build the Delong Mountain Transportation System, a road and port that serves the Red Dog Mine, the world's largest zinc mine.

AIDEA likely would be involved in any port project in the western Arctic, including facilities at Nome, Kotzebue or Barrow. And mining operations, including new projects for rare earth elements, would be the kinds of things the authority would help with, possibly helping build separation facilities that are currently not available in the U.S. but would bring solid investment to the state.

Sheldon thinks it makes sense to take some of the state's oil revenue surplus that might otherwise end up in a budget reserve account and put it into an infrastructure bank.

Getting beyond 'igloos and Sarah Palin'

Sen. Lyman Hoffman, co-chair of the Senate Finance Committee, has been attending the conference. He says it's an idea worth looking at, rather than tapping the Permanent Fund. One or $2 billion could be set aside in a new fund, with the mission of developing infrastructure.

"I think it's worthwhile," Hoffman said. "I don't think we're going to dig into the Permanent Fund because that's a sacred cow."

Ethan Berkowitz, a former state lawmaker who ran for governor last year, is at the conference, in part, to pitch his own Arctic Cable project, an ambitious idea to extend broadband cable between Asia and Europe and around the western Arctic as well. His cable project isn't looking for state money, but he says as a policymaker the idea of a state fund that could do big things is a good one.

"One of the problems Alaska has had is the dearth of capital for projects and trying to explain Alaska to Outside investors is exceedingly difficult," Berkowitz said.

People think of "igloos and Sarah Palin" but have trouble grasping the immensity of the state and the potential it holds, he said.

Rep. Bob Herron, a Bethel Democrat, followed the AIDEA bill through the legislative process. He said lawmakers raised concerns that AIDEA had a history of failed projects -- among them a fish processing plant in Anchorage and a coal power plant in Healy -- but proponents garnered enough support to get AIDEA's expanded role through. Still, the legislative process is a slow one, and the idea of giving substantial amounts of state cash to an AIDEA fund will take some convincing, he said.

"That's an idea that will take a couple of sessions before it's even a possibility," Herron predicted.

Contact Patti Epler at patti(at)

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