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Hired guns to guide Alaska gas talks
Anchorage Daily News


July 29, 2005

JUNEAU, Alaska - The Alaska Department of Revenue is hiring three international financial firms to guide the state about being part owner of the proposed natural gas pipeline from the North Slope.

The companies - Credit Suisse First Boston, Challenger Capital Group of Dallas and UBS Investment Bank - will advise the state during the current negotiations over a gas pipeline contract, and beyond if the state has an ownership stake.

"It's a sign we feel like we're near the end of the negotiations and really beginning to fill in details," said deputy revenue commissioner Steve Porter.

The governor's office has been negotiating for more than a year with the three major oil companies on the North Slope and others who have expressed an interest in building a pipeline to bring Alaska gas to market. The Legislature will have to approve any contract.

The talks cover what the state taxes and royalties would be if the gas line were built. They also include Gov. Frank Murkowski's proposal for the state to own a share of the line and take gas as payment instead of taxes and royalty checks.

The negotiations are confidential.

The three financial companies will help the state figure out partial ownership. Porter said the state would likely enter into some kind of partnership like a limited liability corporation with the other owners.

Fairbanks North Star Borough Mayor Jim Whitaker said he fears that, as a minority owner of the line, the state might find itself constantly outvoted by oil companies in the limited liability corporation structure.

"To subordinate the state's interests in the interest of British Petroleum or Exxon through a minority ownership position in a limited liability corporation is not a wise decision," Whitaker said. "It is foolish."

Porter said such issues would be part of the negotiations.

"The operating agreement for the pipeline and the voting procedures will be an important part of making sure that we protect our interests," he said.

Whitaker is chairman of the Alaska Gasline Port Authority, which is pushing for construction of a gas pipeline to Valdez. The gas would be liquefied and shipped to market in tankers. The oil companies say that approach doesn't make financial sense.

State negotiators have not revealed how much of an ownership stake they seek. Unknown at this point is how the state would pay for its share of the project, which could be several billion dollars.

It will ultimately be up to the Legislature how the state funds its portion, according to the Revenue Department. The governor has said that he does not intend to go to the Alaska Permanent Fund to cover the costs.

The state could borrow money through bonds or kick in cash from the general fund or its Constitutional Budget Reserve savings account.

Porter wouldn't say just how close the contract negotiations are to being done. But he mentioned the governor's repeated statement that he intends for the Legislature to take up the contract in a special session this fall.

To allow time for public comment and other work, the state would need to strike a deal on a contract in the next month or so to allow time for a fall special session.

The state's contract for the financial firms is "not to exceed" $400,000. Revenue Commissioner Bill Corbus said 10 firms applied for the state contract. The three chosen will start work immediately, he said.

Another company, Government Finance Associates, will continue to work with the state negotiating team on credit and other financial issues, the department said. The Legislature and the governor's office have spent several million dollars on consultants for the proposed pipeline.


Distributed by Scripps-McClatchy Western Service,

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