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Governor Clarifies Position on Reserves Tax


May 19, 2006

Alaska Governor Frank H. Murkowski today cleared up any lingering misinterpretation on the proposed reserves tax after it was earlier reported this week that he would back the reserves tax, a tax on the North Slope's natural gas reserves, if the gas pipeline contract is approved.

Murkowski said his position is very simple. "If the reserves tax proposed by Representatives Croft, Crawford and Guttenberg passes in November, it would go into effect 90 days after the election is certified. It would immediately begin levying an annual tax of $800 million to $1 billion on North Slope gas. This tax will very effectively kill any chance of a gas pipeline, because over the ten years it will take to build the pipeline, the tax will add $10 billion to the cost of getting the gas to market. It destroys the economics."

"I would urge Alaskans to vote down the reserves tax because it is not in the best interest of the state or the future opportunities available to our children," said Murkowski.

The governor said, "Under the proposed gas pipeline contract, which we now have in front of the Legislature and out for public comment, the producers would be exempt from a tax such as the reserves tax. This exemption is only in place as long as the producers are diligently working to build the pipeline under the schedule laid out in the project summary. If they are not diligent, the state can have the contract voided and their protection from the tax goes away."

Murkowski said, "We do not believe the threat of the tax is necessary because we are confident the producers want to build this pipeline. However, if the tax is enacted after the contract is finalized, then the tax does no harm and could be viewed as an added incentive to spur construction. Although I do not support the reserves tax, I would not oppose it if the contract is in place first. If it is not in place, the tax kills the project."

"Here is the critical difference between Croft's reserve tax by itself, and with the contract. With the contract in place, the reserves tax becomes a potential punishment for bad behavior. By itself, though, it punishes first," said the governor.


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Ketchikan, Alaska