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This much is certain: Exxon wants fiscal certainty from Alaskans

  • Author: Dermot Cole
    | Opinion
  • Updated: December 8, 2016
  • Published December 8, 2016

In his masterful history of Exxon Mobil, Steve Coll explains something about the oil giant's approach to projects around the world that contains a lesson for Alaskans wondering about the mythical gas pipeline.

"The time horizons for Exxon's investments stretched out longer than those of almost any government it lobbied," Coll writes in "Private Empire: ExxonMobil and American Power."

"Exxon's investments in a particular oil and gas field could be premised on a production span of 40 or more years," he said. "During that time, the United States might change its president and its foreign and energy policies at least a half dozen times."

Knowing that governments change, "it behooved Exxon to develop influence and lobbying strategies to manage or evade political volatility."

In Alaska, managing or evading volatility means seeking a long-term guarantee from the state that it won't raise taxes in the years ahead if Exxon makes a long-term commitment to invest in a natural gas pipeline or sell natural gas to a state-run project.

The state operates on a timeline in which elections every two years guarantee political volatility. The company can wait, while whoever is in power in Alaska at the moment has near-term deadlines to meet. These circumstances led to Exxon chairman Rex Tillerson's famous complaint that "You can't take a project that is going to take five, six, seven years to execute and require $50-60 billion of capital and decide every two years you've got a different way to do it."

But the state also operates under a constitution that declares, "The power of taxation shall never be surrendered," which collides head-on with the decades-long tax freeze the oil companies want.

This tension has existed for as long as the pipeline talk has been serious and will remain an issue for as long as we have elections.

One of the enduring constitutional questions the oil companies like to downplay is whether a governor and Legislature have the power to cut a deal through a contract that prohibits future politicians from raising taxes, thus providing fiscal certainty.

In 2014, before he served as attorney general under Gov. Bill Walker, Craig Richards wrote that former Gov. Sean Parnell wanted to grant fiscal certainty by "eliminating production taxes paid in money in exchange for a contractual right for the state to receive tax payments in the form of physical delivery of gas."

"What, you don't understand what that means?" he wrote. "Don't worry, neither does anyone else. Just know it will likely involve a contract between the North Slope leaseholders and the state that provides if taxes go up in the future, contractual payments owed the state go down."

Binding tax contracts are not allowed by the Alaska Constitution, as Richards argued later as attorney general. The oil companies, however, had the backing of the Murkowski and Parnell administrations for their insistence that other language in the Constitution allowed ways to provide stable fiscal terms for the oil companies, which they said improved the chances that something would actually get built.

A constitutional amendment, which would be hard to get through the Legislature and more difficult to sell to the voters, may be the only way to settle this disagreement outside of a long court fight.

Contracts of this type are used throughout the world, the companies say. In Alaska, the level of trust needed for this approach does not exist yet.

Walker wrote Exxon in October to say that "it is not necessary to proceed with fiscal certainty" because in the state-run project now under review, the companies would not be investing in the infrastructure.

But that was in response to a letter in which Exxon said it would make its natural gas available to a state-run project as soon as a deal can be reached on key terms, including fiscal certainty.

Columnist Dermot Cole can be reached at dermot@alaskadispatch.com. 

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.

 

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