Legislature(2005 - 2006)SENATE FINANCE 532
02/08/2006 03:30 PM Senate RESOURCES
| Audio | Topic |
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| Start | |
| Overview - Alaska Minerals Industry: Alaska Minerals Commission Report & Recommendations; Division of Mining, Land and Water Presentation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE RESOURCES STANDING COMMITTEE
HOUSE RESOURCES STANDING COMMITTEE
February 8, 2006
3:54 p.m.
MEMBERS PRESENT
SENATE RESOURCES
Senator Thomas Wagoner, Chair
Senator Ralph Seekins, Vice Chair
Senator Fred Dyson
Senator Kim Elton
Senator Albert Kookesh
HOUSE RESOURCES
Representative Jay Ramras, Co-Chair
Representative Jim Elkins
Representative Kurt Olson
MEMBERS ABSENT
SENATE RESOURCES
Senator Ben Stevens
Senator Bert Stedman
HOUSE RESOURCES
Representative Ralph Samuels, Co-Chair
Representative Carl Gatto
Representative Gabrielle LeDoux
Representative Paul Seaton
Representative Harry Crawford
Representative Mary Kapsner
COMMITTEE CALENDAR
OVERVIEW - ALASKA MINERALS INDUSTRY: ALASKA MINERALS COMMISSION
REPORT & RECOMMENDATIONS; DIVISION OF MINING, LAND AND WATER
PRESENTATION
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
IRENE ANDERSON, Chair
Alaska Minerals Commission;
Bering Straits Native Corporation
Nome, Alaska
POSITION STATEMENT: Introduced the members of the Commission
and began the discussion.
KARL HANNEMAN
Alaska Mineral Commission;
Manager, Public and Environmental Affairs, Teck Pogo, Inc.
Fairbanks, Alaska
POSITION STATEMENT: Discussed what the Commission considers to
be the most important recommendations.
CHARLOTTE MACCAY
Alaska Minerals Commission;
Bristol Environmental & Engineering Services Corporation
Anchorage, Alaska
POSITION STATEMENT: Answered questions.
ACTION NARRATIVE
CHAIR THOMAS WAGONER called the joint meeting of the Senate and
House Resources Standing Committees to order at 3:54:27 PM.
Representatives Ramras and Senator Wagoner and Kookesh were
present at the call to order.' Representative Elkins and
Senators Elton and Dyson arrived as the meeting was in progress.
^OVERVIEW - ALASKA MINERALS INDUSTRY: ALASKA MINERALS
COMMISSION REPORT & RECOMMENDATIONS; DIVISION OF MINING, LAND
AND WATER PRESENTATION
CHAIR WAGONER announced that the only order of business would be
an overview of the Alaska minerals industry.
IRENE ANDERSON, Chair, Alaska Minerals Commission; Bering
Straits Native Corporation, reminded the committees that the
commission was formed in 1986 by the legislature to which it has
provided its findings and recommendations. In fact, a number of
the findings and recommendations have been acted upon. The
commissioners introduced themselves from the audience.
3:56:07 PM
KARL HANNEMAN, Alaska Mineral Commission ("Commission");
Manager, Public and Environmental Affairs, Teck Pogo, Inc.,
began by informing the committees that there are four operating
mines: Usibelli Coal Mine, Inc., Red Dog Mine, Fort Knox Mine,
and Greens Creek Mine. The Pogo Mine is nearing completion of
construction. He further informed the committees that there are
a number of advance projects, such as Rock Creek, Nixon Fork,
Donlin Creek, and Pebble Copper. Mr. Hanneman then turned to
the Commission's recommendations with regard to the taxation
regime as it applies to mining. There is a mining license tax,
which was first enacted in 1913 and required 7 percent of net
profits [tax] for major operations payable from all operations
in the state regardless of land status. The industry also pays
mining rents and royalties, which was a major part of the
Statehood Act. In 1981, the attorney general's office
questioned the state policy and asked the legislature to review
the income to the state from mineral development. The
aforementioned lead the legislature to pass a modified law that
went through several years of litigation. Ultimately, in 1987
the Alaska Supreme Court ruled that rents or royalties needed to
be charged to mining operations. In 1989, the legislature
passed legislation to satisfy the aforementioned and thus there
is now a process by which rent is charged per acre per year as
well as 3 percent on the net profits. Mr. Hanneman highlighted
that all of the aforementioned occurred prior to any major hard
rock mining in the state. Therefore, [the Commission] views
this as a good model for how tax policy should be imposed such
that it's imposed prior to major industry expansion so that the
industry understands the terms of its investment.
MR. HANNEMAN explained that the taxes in Alaska aren't applied
to the exploration or development expenditure components of the
industry but rather taxation [is applied] to the value of the
mineral production. In the mid 1980s there was stable
production from the Usibelli Coal Mine and a significant
increase in 1989 when the Red Dog and Greens Creek Mines came on
line. The [production] remained relatively stable until the
entrance of Fort Knox in 1996-1997. In 2004-2005 there was an
increase in the value of mineral production primarily because of
world markets improving product prices. In fact, during the
early years of production from Red Dog and Greens Creek Mines,
which are primarily zinc mines, the zinc price during the
feasibility and construction was at $.60-$.70 range. However,
over the years the price decreased and thus pressured the
projects, the profitability of the projects, and the ability to
pay the net profits tax. Recently, prices have rebounded and
the projects are significantly more profitable. The same
occurred for Fort Knox Mine. The aforementioned is reflected in
the payments that ultimately come to the state and the
municipalities from the mining industry. He provided the
committee with a chart illustrating the payments to municipal
governments through payments in lieu of taxes (PILT) or property
taxes, the rents and royalties component, and the mining license
and income tax. The mining license and income tax, he noted, is
highly variable based on the profitability of the operations in
2004 and 2005.
4:03:20 PM
MR. HANNEMAN then turned the committees' attention to the
Commission's six primary recommendations. With regard to the
National Pollutant Discharge Elimination System (NPDES), Alaska
is one of the few states that doesn't have primacy. He
explained that primacy is when Alaska's Department of
Environmental Conservation has the primary role for reviewing
and issuing NPDES permits, which are the primary water discharge
permits of mining operations. Currently, the Environmental
Protection Agency (EPA) Region 10 issues and processes those
permits in Alaska. Mr. Hanneman opined that with primacy there
could be much improved efficiency coordination amongst the
technical members of the group. The legislature recognized that
last year and requested that the Department of Environmental
Conservation (DEC) file an application for primacy by July 2006.
Therefore, the Commission recommends following up with the
aforementioned and supporting DEC as it pursues primacy.
Furthermore, the Commission recommends that the legislature
ensure appropriate funding for the aforementioned.
MR. HANNEMAN moved on to the Commission's recommendation with
regard to permit efficiency. He highlighted that the Department
of Natural Resources (DNR) has a large permitting team that has
greatly improved state coordination. Furthermore, DEC has added
staff and reduced its application backlog. Still, there must be
improvement with [state] coordination with federal agencies.
Additional processes to the current permitting process aren't
necessary, he stated. He mentioned that there are
organizational challenges that are a result of some of the
reorganization in DNR. As a result, there is some strain on the
availability of human resources in the permitting agencies.
Therefore, the Commission recommends the continued use of high
quality third-party staff. The outstanding vacancies need to be
filled and senior-level vacancies need to be filled with
experienced and qualified people. Furthermore, the state
recruiting mechanisms need to be able to react to market
conditions in order to attract qualified people. Moreover, the
state needs to assume its federal responsibilities in order to
improve accountability. Mr. Hanneman emphasized the need for
the state to request from the agencies a periodic status report
on permitting.
4:08:08 PM
MR. HANNEMAN turned to mixing zones and explained that existing
regulations prohibit mixing zones in anadromous and resident
fish spawning areas. The current mixing zone regulations don't
provide flexibility in looking ahead such that mining operations
are permitted to minimize impacts. The DEC had proposed mixing
zone language that allowed there to be a mitigation approach,
evaluation of the potential impacts, and allowed science to
guide some flexibility in the regulations. The Commission
supported the promulgation of regulations that included such
flexibility and mitigation.
REPRESENTATIVE ELKINS asked if [the Commission] is satisfied
with the governor's proposed regulations or the proposed
legislation.
MR. HANNEMAN clarified that the Commission does not support the
legislation, which he characterized as a significant step
backward in terms of flexibility and recognizing science to
evaluate impacts. The governor's proposed regulations also fall
short in terms of incorporating science and flexibility into
the permitting process.
4:10:54 PM
MR. HANNEMAN addressed tax considerations. He then highlighted
a map, which illustrates that mineral development can provide
private sector employment in all areas of the state. However, a
substantial portion of this development lays within the
unincorporated areas of the state. The Commission is concerned
that the formation of boroughs creates uncertainty with regard
to the tax regime in these areas of potential mineral
development. Mr. Hanneman opined that the mining industry is
willing to pay its share of broad-based taxes, such as property
taxes. The Commission believes, he related, that industry
specific taxes such as a severance tax is the wrong approach and
can serve as a significant disincentive to development. In
fact, it could be used as a tool to halt or preclude
development. The aforementioned would make investment decisions
very difficult. Therefore, the Commission recommends that the
state establish a tax policy that provides stability and equity
in areas [of potential mineral development]. Perhaps the
aforementioned may include the payment in lieu of taxes concept.
"We need to improve the tax certainty in those areas to allow
those projects to proceed," he said.
4:13:09 PM
MR. HANNEMAN turned attention to the issue of geophysical and
geological mapping. Although the state has done much to improve
the mapping, the state remains one of the poorest mapped areas
in the world, he related. Furthermore, the state doesn't have a
good database to show mining companies that may be interested in
investing to Alaska. Since 1993 expenditures on the mapping
program has averaged $400,000 annually, but only 6 percent of
the state land entitlement has been accomplished. He noted that
the governor has a fiscal note for geological/geophysical
mapping this year that includes the $350,000 increment for
surficial mapping along the potential pipeline corridor. The
Commission recommends increasing the rate of funding for
geological/geophysical mapping as well as providing an increment
of $150,000 over the governor's request to complete the bedrock
mapping.
4:15:05 PM
MR. HANNEMAN opined that power supplies is an area in which the
state could provide significant leadership, which could lead to
support of the mineral industry over time. Major mines require
substantial power supplies and remote mines have to generate
their own power. Working on the grid could help projects such
as Pebble and Donlin Creek Mines, but the cost of base load
generation is of significant concern for all power users. Coal-
fired generation offers the ability to create stable, long-term
power. The Commission, he related, recommends improving the
base load coal generation on the grid system. Mr. Hanneman
concluded by stating that he has discussed the most important
issues that the Commission wanted to highlight, but the report
includes many more recommendations. In response to Senator
Elton, Mr. Hanneman specified that AMEREF is the Alaska Minerals
and Energy Resource Education Fund, which is a partnership
between the state and the industry to offer Alaska specific
resource-based education in Alaska's schools.
4:18:19 PM
SENATOR ELTON recalled the recommendation that the department
provide a status report of permits, which seems to be
bureaucratic make-work. He opined that he would rather have
department staff working on a permit than a report about
permitting.
MR. HANNEMAN said that Senator Elton's concern is valid. He
noted that the issue was discussed at length by the Commission.
CHARLOTTE MACCAY, Alaska Minerals Commission; Bristol
Environmental & Engineering Services Corporation, explained that
the report is intended to be a succinct summary regarding
whether permits are being awarded, the number of applicants, and
the stage at which the permits are. Ms. MacCay mentioned the
potential of retaliation from the permit writer if an applicant
brings forth complaints. Therefore, there is the desire to
review the progress of permits and review and discuss
controversial actions of permit writers. The aforementioned is
desired so that permit writers aren't establishing policy, which
is for the commissioners to establish.
SENATOR DYSON recalled Mr. Hanneman's earlier comment regarding
the need for there to be no industry specific taxes. He related
his understanding that most of the companies investing in mining
in Alaska are Canadian firms. He asked if there is an industry
specific tax in Canada.
4:21:30 PM
MR. HANNEMAN said that he does not know.
SENATOR DYSON related that he is delighted about all the mining
activities in the state. However, he inquired as to how the
state can recoup the funds expended on infrastructure necessary
to mining, such as mapping. He opined that it should be at
least revenue neutral for the state.
MR. HANNEMAN clarified that there are industry specific taxes,
including the 7 percent net profits tax, the 3 percent net
profits tax on state land, and the corporate income tax. He
explained that the Commission's recommendation is in the context
of local municipal governments being able to apply an industry
specific tax that unduly burdens the project or is used as a
lever to preclude the project. In further explanation, Mr.
Hanneman specified that the recommendation is specific to the
unorganized areas of Alaska that don't have a local municipal
tax regime, which creates uncertainty.
4:23:37 PM
CHAIR WAGONER asked if the Commission has reviewed SB 203, which
creates one-stop shopping for permitting.
MR. HANNEMAN answered that it is under review by the Alaska
Miners Association. He pointed out that the large mine
permitting team has done much to coordinate and work together as
a team in that direction. He noted that the Commission's report
includes a recommendation for one-stop shopping for small remote
exploration camps. The mine permitting process, he commented,
is technical and detailed and thus the legislation would need to
be reviewed.
4:25:52 PM
ADJOURNMENT
There being no further business before the committees, the joint
meeting of the House and Senate Resources Standing Committees
was adjourned at 4:26:09 PM.
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