Legislature(2015 - 2016)HOUSE FINANCE 519
02/17/2015 01:30 PM House FINANCE
| Audio | Topic |
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| Start | |
| Presentation: Aklng Project - Lazard Interim Report | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 17, 2015
1:32 p.m.
1:32:26 PM
CALL TO ORDER
Co-Chair Thompson called the House Finance Committee
meeting to order at 1:32 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Bryce Edgmon
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Randall Hoffbeck, Commissioner, Department of Revenue;
George W. Bilicic, Vice Chairman of Investment Banking,
Lazard Freres; Representative Chris Tuck.
SUMMARY
^PRESENTATION: AKLNG PROJECT - LAZARD INTERIM REPORT
1:33:24 PM
Co-Chair Thompson discussed the agenda for the meeting. He
communicated that the Lazard Freres and Co. LLC had been
engaged to provide assistance in reviewing and analyzing
various financial options for the state's interest in the
AKLNG Project pursuant to SB 138 [gas pipeline legislation
passed in 2014].
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
communicated that SB 138 had contracted Lazard to conduct a
financial analysis for a pipeline. He detailed that the
company would provide an interim report that included a
high-level overview of financing options. A follow up
report would be presented later in the fall [2015] specific
to the AKLNG Project. He noted that the final report would
dovetail with various project decisions to be made by that
point in time.
GEORGE W. BILICIC, VICE CHAIRMAN OF INVESTMENT BANKING,
LAZARD FRERES, introduced his colleagues. He provided a
PowerPoint presentation titled "Lazard Interim Report
Overview - Discussion Materials" dated February 17, 2015
(copy on file). He shared the team's excitement over
working on the project. The goal was to recommend an
optimal financing plan or plans for the state pertaining to
the AKLNG Project. He pointed to a disclaimer from the
company's legal department at the beginning of the report.
He highlighted that the presentation would provide an
introduction to the company, an overview of Lazard's role
on the project, topics covered in the interim report, and
steps that would be taken to get to the final report (slide
1).
Mr. Bilicic provided background information about the
company that been founded in the mid-1850s (slide 2). The
firm had become a public company and its market
capitalization was currently listed on the New York Stock
Exchange at $6.5 billion. He discussed the firm's global
presence and noted the importance of understanding global
dynamics to give sound advice pertaining to the project.
The firm was client focused and senior advisors were
motivated by client relationships and serving the interest
of the clients. He relayed that the company was conflict-
free and was only in the advice business. He highlighted
that a large part of the firm's business was in the
representation of governments. He noted that his biography
was included in the back of the presentation.
Co-Chair Thompson noted that Representative Gara and
Representative Munoz had joined the committee meeting.
1:39:14 PM
Mr. Bilicic moved to slide 3 and discussed the company's
global presence; it employed 900 investment bankers in all
major global business cities. He discussed Lazard's
assignment pertaining to the legislature (slide 5). He read
from a statement:
Our mandate was issued by Senate Bill 138 and a
Department of Revenue request for proposals. Senate
Bill 138 calls for the "development of a plan" for
Alaska municipalities, regional corporations, and
residents to participate in the ownership of a North
Slope natural gas pipeline. Pursuant to this
legislation the Department of Revenue solicited
proposals from qualified firms to serve as a
"financial consultant on the state's participation in
the continued development of a liquefied natural gas
project from Alaska's North Slope." The interim
report, which was requested by the legislature,
provided a detailed description of the project, an
overview of the state's finances, and an introduction
in an outcome agnostic way to various financing
considerations for the project in advance of the final
report.
Mr. Bilicic noted that the interim report outlined all
options available to the state to pursue the project from a
financing point of view.
Vice-Chair Saddler asked if there were two missions for the
interim report: first, to describe methods by which
municipalities and residents of the state could participate
in ownership of the AKLNG Project; and second, to address
the state's financing options.
Mr. Bilicic replied in the affirmative. He noted that the
missions wound up merging because one could also be a
source of financing. He stated that the first clause was
really a source of potential financing for the project. He
continued on slide 6 that provided a high level process
timeline. Lazard had been working on the project for
slightly over four months; the interim report had been
delivered on schedule. The company was currently
undertaking work on the final report and would deliver it
by October 1, 2015. He communicated that the advice would
be delivered when many of the variables would not yet be
determined; therefore, it was necessary to create a report
that identified the variables that would allow people using
the report in the future to view the report in a modular
way so variables could be inserted into the analysis and
changes could be made.
1:44:25 PM
Mr. Bilicic relayed that the interim report took
approximately 13 hours to read. He turned to slide 7 and
discussed his intent to provide a brief background of the
project including the state's objectives, preliminary
financing considerations for the state, and evaluative
criteria. He stated that a significant part of the work
would be done around financing alternatives and then the
company would filter its advice through evaluative criteria
that were important to the state. He detailed that there
were a number of objectives the state would hope to meet
through participation in the project; the objectives were
economically, non-economically, qualitatively, and
quantitatively motivated. He read state objectives on slide
7:
· Develop Natural Resources for Maximum Benefit to
the State
· Realize Investment Returns
· Support State Budget
· Replenish Reserve Accounts
· Stimulate In-State Job Growth
· Provide Investment Opportunity for In-State
Individuals and Entities
· Provide Natural Gas to Alaskans
· Support Local Municipalities
Mr. Bilicic expounded that Lazard's ultimate recommendation
to the state would be informed by the objectives set forth
on slide 7. He addressed the AKLNG Project economic
overview on slide 8. He detailed that the state was
currently contemplating project ownership up to 25 percent.
The project was anticipated to cost between $45 billion and
$65 billion in 2012 dollars (as time passed dollar amounts
would evolve based on overall economic conditions); the
state's share would be approximately $11.3 billion to $16.3
billion (the total cost divided by 4). He communicated that
the vast majority of the cost was expected to be incurred
during the engineering, procurement, and construction phase
that was estimated to start in 2019. He relayed that
project costs may change over time as a result of many
factors including project developments, negotiations,
market dynamics, and the passage of time. He remarked that
the risk factor was important because costs could evolve.
Co-Chair Thompson asked if TransCanada's involvement was
taken into consideration in the economic overview.
Mr. Bilicic replied that the larger report looked at what
the state's economic participation would be if TransCanada
were participating. He continued to discuss slide 8. He
noted that financial numbers used in the interim report
were based on a Black and Veatch model. He addressed slide
9 that included an AKLNG Project economic overview chart;
the chart illustrated cumulative projected cash flows over
time. As an investor in the project the state would need to
invest money in the beginning to develop and build the
project; as the project became operational it would begin
producing cash flows that would start to offset capital
spent. The chart showed the crossover point at 2026 (when
cash flows to the state would begin). He stated that the
actual crossover point would depend on actual costs and
revenues. He noted that the crossover point did not account
for the passage of time or time value of money. He added
that the chart was not atypical from other large
infrastructure projects.
Mr. Bilicic turned to slide 10 titled "State of Alaska
Financial Overview." The slide depicted the state's current
financial situation. The chart illustrated the state's need
of a new revenue source because of the way its financial
position evolved over time; the AKLNG Project could
potentially fill the need. He pointed out that the chart
depicted a material weakening of the state's financial
position in the coming years, which was the period over
which the project would need to be financed. He remarked
that the projections were based on an assumed price of oil
that was materially higher than the current spot price. The
firm's analysis would look at the overall long-term budget
position of the state as part of considering the financing
alternatives and assessing the project through the
different evaluative criteria.
1:49:57 PM
Mr. Bilicic addressed slide 11 titled "Selected Project
Risks and Potential Mitigants." He remarked that the
project had numerous risks, opportunities, and mitigants to
risks. For example, there was risk that the project would
never make it out of the development phase or that cost
overruns during construction would force sponsors to
abandon the project. He relayed that under the scenarios it
was possible the state could lose all of its investment it
had made up to that point. He advised that the specific
risk would be difficult to ever eliminate from the project.
Mitigants related to the quality of the state's partners,
planning, and the analysis. Other potential risks were that
relevant commodity prices could change in a way that could
negatively impact project viability or that an influx of
numerous competing projects could result in a global over
supply. He relayed that Lazard was watching projects in
Australia, Russia, and other; some of the projects were
being canceled and others were being announced. He stressed
the importance of the global perspective on the project.
The slide listed potential mitigants as:
· ongoing/iterative assessment of project
feasibility
· risk transfer provisions/third-party contracts
· partner/sponsor marketing
· political support and strategy
· take-or-pay contracts/hedging strategy
· in-depth market analysis
· delivery flexibility
· other
Mr. Bilicic relayed that the firm would take all of the
potential risks into account and would provide advice in
the final report.
Vice-Chair Saddler believed take-or-pay contracts
represented potential liabilities. He wondered how the
state would hedge against the commitment to make a take-or-
pay contract from transportation commitment.
Mr. Bilicic replied that take-or-pay contracts referred to
entering into long-term contracts with people who would
want the LNG. The contract would provide cash flow
stability, which could be used to enhance the
financeability of the project.
Representative Gara discussed that when the state had been
making a large amount of oil revenue the legislature had
passed a law specifying that companies that became involved
in a gasline could deduct certain upstream costs from their
oil taxes. He observed that financial circumstances had
changed and the state was currently bringing in negligible
revenue. He wondered if the firm had advice on how to move
forward with a law that would allow the "big three" oil
companies to deduct the significant portion of their
gasline expenses from their oil tax payments.
1:53:44 PM
Mr. Bilicic replied that the company had not considered the
scenario. He elaborated that the firm would focus on that
the state's consideration of risk had to be different than
that of the other partners that operated as for-profit
entities. Lazard would look at ways to mitigate risk and to
structure the investment in a way that would minimize
Alaska's exposure. He relayed that the company was open to
ideas.
Mr. Bilicic moved on to discuss preliminary financing
considerations on slide 12. The slide provided an overview
of the framework Lazard believed the state should use to
think about its investment in the project (i.e. how much
money the state would need, where the money would come
from, and how to structure its investment). The slide
illustrated three key points including: 1) the state must
identify sources of funds (internal and/or external) to
provide the capital required to invest in the project; 2)
the state can structure its economic interest in the
project via a mix of debt and equity financing structures;
and 3) construction of the project is expected to require
$13.7 billion of capital in the scenario in which the state
invests in the project on its own. He noted that the list
was not meant to be all encompassing. He relayed that
Lazard would provide advice on the mix of debt and equity
that would make sense; debt was cheaper than equity, but
too much debt would not make sense. He added that there
would be a period of time when the project would not well-
support significant debt. He listed the three large
components of the project including the gas treatment
plant, the pipeline, and the LNG plant [all related to
point 3 above].
Representative Edgmon pointed to the Sources of Funds
category on slide 12. He asked about the inclusion of the
Power Cost Equalization Endowment Fund.
Mr. Bilicic responded that the firm did not have anything
in mind related to the item; the point was to note that
there were funds at the state level that could potentially
support the project. He continued to address potential
funding sources on slide 13. As part of the final report
Lazard would offer its point of view on the various funding
sources because each source had different return
requirements and had a different investment appetite for
the project at different stages. The firm would also
comment on availability of capital, marketability,
financeability, and precedence for making investments in
items like the project. He noted that the back of the
interim report included case studies of similar projects.
The firm would also look at how use of the funding sources
would impact the state's borrowing capacity and/or future
borrowing costs.
1:59:09 PM
Vice-Chair Saddler pointed to examples of third-party
investors on the lower left hand portion of slide 13. He
wondered if the firm envisioned looking for potential
overseas equity investors (e.g. from Asia).
Mr. Bilicic replied that there were at least four potential
"buckets" of investors that were non-U.S. The first was the
emerging class of infrastructure investors. He detailed
that portions of the project looked like infrastructure
(i.e. roads, bridges, utilities, tunnels, and other), which
was currently a "hot" area for investment. He expounded
that the party raising capital could receive an attractive
return profile in exchange for offering investments; some
of the investors were in the form of sovereign wealth funds
or pension funds in other countries (e.g. Canada, Asia, and
other). The second category included people who want the
gas and may find it interesting to take an equity
investment in the project directly or indirectly including
as part of entering into long-term projects. The third
category included bank lenders that happened to be
organized overseas. The fourth category included other
investors who were active in the LNG area. He detailed that
there were a significant number of trading firms that may
be interested in entering into arrangements to take the LNG
to resell to utilities or others in different parts of the
world.
Vice-Chair Saddler had heard that it was possible for the
state to offload its risk in exchange for equity. Mr.
Bilicic replied that the company had the idea in mind.
Mr. Bilicic advanced to slide 14 that included a
description of structuring alternatives for debt and
equity. The slide indicated that the least expensive
financing came from recourse debt; the party that purchased
the debt would have recourse against the state. Taking
traditional common equity at the lowest level of
subordination in the capital structure would tend to have
the highest cost. He noted that the factors that went into
choosing a financing structure were not limited to the
lowest or highest cost. Other factors included the
efficiency of capital raising, market capacity, and whether
the state wanted to be an obligor. The firm would look at
all of the alternatives in its analysis.
Mr. Bilicic turned to slide 15 titled "Illustrative
Financing Cost - Project Lifecycle." He discussed that as a
project began and the work continued the cost of financing
was the highest due to the most risk and uncertainty. He
detailed that as the project became more certain the cost
of financing would decrease; when the project was completed
a large portion would be viewed as a set of reasonably
risk-free cash flows. He added that the related financing
would be extremely efficient. The firm had spent
significant time on the consideration because the global
capital markets demonstrated that there was not significant
capital available that was efficient for greenfield
development. However, there was an overwhelming amount of
capital for operating brownfield infrastructure projects.
He elaborated that there was a value arbitrage between the
greenfield and brownfield pools of capital that was able to
be captured by the successful party constructing an
infrastructure project. He reiterated that the cost of
financing was the highest at the beginning of a project.
2:04:38 PM
Mr. Bilicic turned to slide 16 that included other
considerations reflected in the interim report. Other
considerations included ways to get credit support for the
project from third-parties; looking at whether there were
insurance products that would allow certain risk
mitigation; and ways for investments by the state or others
to be syndicated to other investors over time (perhaps
capturing some of the value dynamics covered on the
previous slide).
Representative Gara wondered if Lazard would look at the
state's law that allowed the big three oil companies to
deduct a certain portion of their gasline costs from their
oil taxes. He wondered about the net present value the
state would receive under the current terms of the project
given upfront costs paid by the state.
Mr. Bilicic replied that Lazard would inform the state of
the value proposition when it provided the final report;
explicit and implicit in that would be a point of view
based on the assumptions about project viability well in
advance of when project construction took place. The firm
would also look further at Representative Gara's question
related to tax.
Co-Chair Thompson asked for the information to be channeled
through his office for dissemination.
Mr. Bilicic turned to slide 17 related to preliminary
selected evaluative criteria. The criteria was the method
the firm would use to analyze and filter through the myriad
financing alternatives. Lazard's goal in identifying an
optimal financing plan for the state would be to optimize
how the financing plan or plans compared to other plans
when taking into account the evaluative criteria. The first
criteria was the potential impact on debt
capacity/opportunity cost for the state. He explained that
the criteria examined how to account for lost opportunity
if the state invested money in one project and was not able
to invest it elsewhere. The firm would factor in the
potential impact of its recommendations on Alaska's credit
rating; it would also look at the potential cost of
borrowing or issuing equity. Additionally, Lazard would
consider whether an option under discussion was feasible
and practical. Lastly, the firm would look at how the
relevant financing plan did or did not align interests
among key parties; the state's view of risk could be
different than one of its partners, which may affect the
financing structure.
2:08:54 PM
Mr. Bilicic moved to slide 18 titled "Recommended Next
Steps." He relayed that the firm would focus on the global
LNG market dynamics and project developments in the coming
months in relation to advice the firm would give to Alaska.
Other recommendations would include further analysis of
potential sources of funds, capital structure alternatives,
further refinement of preliminary evaluative criteria,
formation of potential financing alternatives, analysis of
the plans, and a drafting of the final report. The final
report would include advice on the optimal financing plan
or plans including how the plans may be affected by changed
circumstances. He turned to slide 19 titled "Illustrative
Process Review." Lazard's process would begin with
potential fund sources, different capital structures, and
the state financing need including as affected by potential
partner arrangements. The firm would develop financing
plans (there would be more than three alternatives); it
would also look at various financing approaches that could
be pursued to be folded into an overall plan. Plans would
be analyzed based on the evaluative criteria and advice
would be provided to the state.
Representative Guttenberg asked about international risk
factors and market volatility. He observed that the price
swing had been phenomenal. He wondered how volatility
played into the firm's analysis. He recalled use of the
expression "we're always one car bomb away from $100 oil"
during a past legislative oil tax debate. He stated that
the price of oil had actually reached $100. He used the
statements in context of the current volatility of the
world.
Mr. Bilicic answered that the firm anticipated that a large
portion of the project would be contracted with long-term
contracts. He explained that the contracts would provide a
stability of cash flows and the state's risk would be
credit risk of the counterparty. He detailed that most of
the potential long-term contract counterparties had good
credit (i.e. utilities, trading firms, or other). He
suspected that another portion of the project would not be
contracted and would be subject to the whims of the market;
therefore, the value at any given point would be greatly
impacted by LNG prices. He communicated that the LNG market
had historically been an oil indexed market. However, one
of the Gulf [of Mexico] projects in the Lower 48 had
entered into contracts with a price index that was
different than the traditional index; Lazard believed there
may be flexibility for the state to structure its contracts
differently. He stated that there was a "whiteboard"
dynamic that was an opportunity for the state.
Mr. Bilicic discussed a third consideration related to the
global power generation market. He elaborated that the
power generation market was very different globally. The
firm believed the coal market would continue to come under
significant pressure in every country; new coal plants
would continue to be constructed in places like India and
China, but it was almost impossible to build a new coal
plant in the U.S. and Europe. Nuclear power continued to
grow, but not as rapidly as the overall global power needs.
Additionally, nuclear power was expensive and complicated;
sometimes the risk was not fully taken into account.
Renewable energy was improving and wind and solar power
were cheaper, but did not work in many places. He added
that a good full-time energy storage solution had not been
developed. He stated that for a while the answer was gas.
He elaborated that many parts of the world that were
growing and in need of power did not have access to gas or
their nuclear programs were under stress, which was a
positive for the Alaska project. However, there was
associated technology risk because someone would figure out
a storage solution in the future. Additionally, where other
gas sources would be discovered was not known. For example,
it had been clear in 2007 that the U.S. would need to
import LNG, which was no longer the case. He added that the
general front-page-of-the-newspaper risk would continue to
be a part of everything done in the [LNG] business for a
long time. All of the items would be taken into account in
the firm's analysis; the information would flow through as
a technical matter on the returns the state and others
should demand for investing in the projects. However, the
project would never be a safe, perfectly easy investment to
contemplate.
2:16:26 PM
Vice-Chair Saddler wondered how Lazard gauged its success.
He asked if success was defined by a good outcome for the
state or a good process leading to a decision. He asked if
the firm's goal was a well-crafted "yes" or a well-informed
"yes or no."
Mr. Bilicic responded that the firm needed to create a work
product and process where all options were evaluated and
the client could understand the pros and cons of the
different options and how the firm reached its particular
advice. The firm had undertaken the engagement because it
believed the project made sense for the state and could be
successful in different commodity price environments. He
opined that the project could act as a great "gap filler"
for the state and could set a nice foundation going
forward. The firm believed the project could be successful,
but did not diminish the complexity and large size of the
project that was subject to many variables. The goal was to
provide a financing plan or road map to a financing plan
that could make the project successful. He asked members to
keep in mind that the report would be issued in 2015, but
significant time would pass prior to the completion of a
project.
Vice-Chair Saddler wondered if the duration of the firm's
contract would last up to the FEED [Front End Engineering
and Design] decision or longer. Mr. Bilicic replied that
the firm had a three-year contract. He elaborated that
Lazard would like to work on the project for a long time
and liked to see things through to completion. The firm
anticipated that questions may arise after the delivery of
the final report and that a supplemental analysis may be
needed. He added that the firm could answer questions after
the completion of its contract.
Vice-Chair Saddler asked if the contract included a flat
fee or other. Mr. Bilicic replied that the contract
included a flat work fee and was "outcome agnostic." He
stated that the request for proposal had been designed with
the flat fee, which he believed was the appropriate
structure.
Representative Kawasaki spoke to the Black and Veatch slide
that was shown as an example on the economic overview. He
believed committee members saw the example as a great way
to stem off the state's revenue decline. He remarked that
the information was predicated on fiscal terms that the
committee had yet to discuss. He wondered if the
information [on slide 9] would be factored into Lazard's
analysis. He observed that similar cash flow charts were
provided for most projects. He spoke to the importance of
timing for the project. He noted that there would be a time
the state would not have any cash; the legislature was
working to ensure that the state would make money at some
point. He wondered whether Lazard was factoring timing into
its analysis.
Mr. Bilicic answered that the firm would try to create a
report that identified the sensitivities and was modular in
nature in order to identify what would change if revenues
were different. For example, what would happen to revenue
if 68.2 percent of the project was contracted compared to
43 percent of the project. He noted that in the example
there would be higher exposure to the market. He believed
the timing of the report was important, but it would be
provided before information was known (including an updated
estimate of construction costs).
2:22:21 PM
Representative Guttenberg asked what advantage a sovereign
or government had in a negotiation on a project like the
one at hand. He wondered about advantages that other
parties did not have. He asked if the state was acting in
its best interest thus far.
Mr. Bilicic responded that the state's presence added
credibility and conviction to the idea that the project
could move forward. He referred to a global map of projects
that were under contemplation and offered that the Alaska
project should stand out because of the state's
involvement. He relayed that some counter parties would
like the idea of the state's presence for purposes of
entering into contracts rather than dealing with pure
industrial players.
Representative Guttenberg referred to the Alyeska Trans-
Alaska Pipeline System (TAPS) in which the state was an
owner but not a partner. He noted that tariffs were
approached differently; there were also royalties and
other. He wondered if the state would lose anything if it
entered the project with a partner.
Mr. Bilicic replied that the state's interests and the way
it evaluated risk may be different than the other parties.
The state may need to structure its ownership differently.
He believed the state would gain more than it would lose.
2:26:03 PM
Representative Guttenberg noted that the partners had
different fiscal needs such as showing profits. The state
may be more interested in long-term gains. He wondered how
to use the relationships to the state's advantage.
Mr. Bilicic responded that the project was distinct
relative to other governmental situations. He detailed that
in the private sector Lazard had worked on partnerships
where one party wanted stable cash flows and one party did
not care about the stability of cash flows and believed
they could manage the commodity price risk. Lazard had
structured the party concerned about price risk in a long-
term security situation that provided more stability (some
of the upside was given away with lower risk); the other
party assumed the variability of cash flows. He noted that
the structure could be considered for the project.
Representative Guttenberg asked if the options would be
provided in the final report. Mr. Bilicic replied in the
affirmative.
Vice-Chair Saddler noted that two directives would be
addressed including local/municipal participation and the
state's financing. He asked how frequently the
municipal/individual participation was a common feature in
large infrastructure projects. He cited Australia and
Indonesia prospects as an example.
Mr. Bilicic answered that many of the projects done in the
U.S. were done at the municipal level (e.g. municipal water
systems). He stated that the combination of oil companies,
a pipeline company, state government, and individuals would
be an unusual mix of investors. He was not aware of a
situation in which individuals invested in an
infrastructure project like the AKLNG Project except in
cases where the project became a public company. For
example, the Charles De Gaul airport in Paris, France was a
publicly traded company.
2:29:42 PM
Vice-Chair Saddler envisioned individual participation
along the lines of a person investing their Permanent Fund
Dividend in a big "good deal" project, which he believed
was unusual. He wondered if there were other projects that
included individual ownership (such as a class B stock).
Mr. Bilicic replied that in Australia there had been
circumstances where the provincial governments had sold
infrastructure to the provincial pension fund (investors
were all individuals in the region) to provide a long-term
financial return for a young population in the country. He
would look into the question further and surmised that
there was probably a situation that included an attempt to
bring in individual investors. Except to the extent
individuals would have been investing as part of a public
offering, there had been examples where labor unions had
been brought in as investors. He referred to the nuclear
Bruce Power Plant in Canada where British Energy had leased
the plant from the Ontario government in the late 1990s;
the lease had included TransCanada, labor unions, and
Borealis (a Canadian pension fund in Toronto) as investors.
He reiterated that he had seen bringing in labor unions or
workers as investors, but nothing quite like the scenario
under discussion.
Vice-Chair Saddler discussed that it had originally been
debated whether the Alaska Permanent Fund should be an
investment return or a development bank for in-state
projects. He stated that many Alaskans would be fascinated
to see Lazard's recommendations for or against the
involvement of the Permanent Fund in the project financing.
Mr. Bilicic hoped the report was not disappointing.
Representative Pruitt was looking forward to the report. He
was concerned about the current state of Alaska's finances.
He was concerned whether the state would have the necessary
equity for the project. He asked how Lazard saw the current
state of Alaska's finances playing into the picture.
Mr. Bilicic responded that if the project was viable the
state would be able to find the money. He stated that it
may be necessary to cobble it together with different
partners.
Representative Pruitt asked for verification that the
project would sell itself despite some of the challenges
the state faced internally. Mr. Bilicic responded that if
the project made sense, the state would be able to find the
money. However, if the project did not make sense or it was
borderline and the state took into account many factors in
pushing the project forward that the capital markets did
not take into account, it would be harder to find the
money. He believed the state's borrowing capacity would be
focused on in the debt/equity split (e.g. what the internal
source of funds looked like, how the partnership with
TransCanada worked, and other potential partners). He
reiterated that if the project made sense, Lazard believed
the state would find the money.
Co-Chair Thompson noted Representative Chris Tuck's
presence in the committee room.
Co-Chair Thompson thanked the presenters. He discussed the
schedule for the following day.
ADJOURNMENT
2:35:54 PM
The meeting was adjourned at 2:35 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AKLNG Project - Lazard Presentation to Legislature (02 17 15) vF.pdf |
HFIN 2/17/2015 1:30:00 PM |
|
| AKLNG-PROJECT-LAZARD-INTERIM-REPORT-2015.pdf |
HFIN 2/17/2015 1:30:00 PM |