Gov. Bill Walker's state-owned North Slope gas line would be the most audacious venture into private industry an American state has ever made. It also has the greatest potential to destroy a state if it goes wrong.
Alaskans have paid limited attention to the issue because, after so many decades of failed pipe dreams and with gas prices low, many of us don't believe it will happen. But it's time to wake up.
Decisions are in motion and carrying risk — in a rush, without clear public information and with muddy lines of authority. At a Senate Finance Committee meeting Thursday, administration officials would not rule out signing binding agreements on the line without legislative approval.
Walker's supplemental budget requested blanket approval to spend money coming in from potential gas line investors, called receipt authority. The Alaska Gasline Development Corp., known as AGDC, said this month it needs authority to spend $700 million for engineering and permitting.
ADGC said in an email statement Friday that legislators have asked the corporation to obtain outside investment, but to do so it needs the authority to spend money it raises. The statement said the state would still retain majority ownership after the investments and the Legislature would continue to be involved.
But where would that money come from, and what obligations would it carry for Alaska? That's not disclosed.
"To me, that is not OK," said Sen. Natasha Von Imhof, R-Anchorage. "We do not know who, what are the strings attached, what is the liability to the state, where are they going to spend the money? Those are just the things off the top of my head."
Sen. Cathy Giessel, R-Anchorage, who oversees the project as chair of the Senate Resources Committee, said blanket receipt authority would give up most of the Legislature's remaining oversight. The House Finance Committee is considering limiting the authority to $1 billion for the current fiscal year and $1 billion for next fiscal year.
The Legislature would still approve sale of the state's own gas and payments in lieu of taxes. Those elements will help decide if the project is economic. But the project's financial structure and risks are in AGDC's hands.
Commissioner of Revenue Sheldon Fisher told Senate Finance the Legislature would be asked for additional investments later. The state has already sunk more than $400 million on various gas line ideas, by Von Imhof's accounting, including about $100 million ADGC is living on now. The Alaska Permanent Fund could invest without legislative approval.
Fisher said ADGC is working on a model to evaluate the project's financial viability and how to raise money to fund it. But the model is secret. Fisher himself has not seen it, although his staffer has.
In November, Walker sat with President Donald Trump and Chinese President Xi Jinping as large Chinese companies signed an agreement to study a unique loan to pay for 75 percent of the project's $43 billion cost.
The so-called "debt for capacity" loan would provide money to build the project in return for a 30-year supply of gas.
China has many other options for buying gas, likely for a lower price, and without prepaying decades in advance. Politics may be the best explanation for its consideration of this extraordinary investment.
Short term, the deal helped Xi flatter Trump when he visited China. Now that Trump has proposed punishing tariffs against China on steel and electronics, that motivation may be at risk.
Long term, the investment would follow the pattern of China's Belt and Road Initiative, Xi's strategy to build infrastructure outside China's borders as a way of leveraging his country's wealth into status as a superpower rivaling the United States. He currently is spending $150 billion a year in 68 countries.
China can't hope to rival the U.S. in military might — although it is starting to try— but its colossal fortune can build roads, rails and pipelines that cement a dominant economic role that could be just as powerful.
To put it in Alaska terms, consider how much influence China can buy with Alaska's two U.S. senators over the next 30 years if our state government owes it more than $30 billion that can be paid back only by keeping gas flowing.
But even with China's potential investment, Alaska would still need to come up with $11 billion for its equity share.
Publicity put out by AGDC imagines various ways to get the money, but Fisher's testimony Thursday suggested the company doesn't have a clear financing plan. Recently, Meyer said the project could borrow against long-term gas contracts.
The major oil companies couldn't make the financing work. Project boosters hope government can do better.
Alaska could cut its profit and taxes on the project to near nothing. Why would we do that? To get the project built, with jobs and economic activity.
But giving up those financial benefits — cutting the project to bare break-even –would remove a cushion for setbacks. Alaska would take the risk of ownership without the rewards. (Commissioner of Natural Resources Andy Mack said Wednesday he expects the state to remain the owner of the project.)
The risks are large.
Chevron's Gorgon LNG project in Australia was budgeted to cost $37 billion and ended up costing $54 billion. An overrun of similar size on Alaska's project would vastly exceed a planned contingency.
After that disaster, Chevron's CEO left, but the company survived. But then, Chevron is 20 times larger than the state of Alaska in annual revenues.
Are our leaders smarter than Chevron's? Our state government's record of building big projects speaks for itself, with billions wasted on unfinished roads, bridges, a rail line, power plant, farm project, fish plant, dam and other schemes.
ADGC's board isn't qualified to run a project of this magnitude and complexity. Other than a former Alyeska Pipeline head, its seven members are local-scale business people and political appointees.
Alaska state government has no business playing at this level of international finance. Our leaders are unqualified, our financial resources are too thin, and our desire to succeed too strong to trust ourselves to make good decisions.
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