HB 393 - DEVELOP STRANDED GAS RESOURCES Number 1069 CHAIRMAN HODGINS announced the committee would hear HB 393 "An Act relating to contracts with the state establishing payments in lieu of other taxes by a qualified sponsor or qualified sponsor group for projects to develop stranded gas resources in the state; providing for the inclusion in such contracts of terms making certain adjustments regarding royalty value and the timing and notice of the state's right to take royalty in kind or in value from such projects; relating to the effect of such contracts on municipal taxation; and providing for an effective date." He stated that he asked his colleagues to present their concerns and suggestions regarding the bill. Number 1080 REPRESENTATIVE TERRY MARTIN, stated that he has concerns about this issue. He referred to the history of the issue of financing a gas pipeline. He stated that he had voted against the bill that had initiated this because the legislature was giving too much up to the executive branch. He referred to Title 9 of the constitution that stated the power of taxation should never be surrendered. He stated that legislators should not force the economy one way or another. He stated that the free market should be allowed to work and the legislature should not be in the way. Number 1282 REPRESENTATIVE MARTIN stated that as legislators they should look at what is being done with the gas. He stated that recycling of gas is producing more oil resulting in an estimated 2 billion barrels of excess oil received. He stated that if the pipeline is forced the oil will decrease because once gas is taken out the oil reserves will be depleted. He asked how much this will cost the state of Alaska in oil royalties. Number 1401 REPRESENTATIVE MARTIN stated that the incentive programs should make the participants, "run like mad". He referred to Section 2, "The legislature further intends, however, that any fiscal terms agreed to in a contract under this Act in lieu of other taxes will fully and fairly compensate the people of the state of Alaska for the severance, production, and sale of natural resources belonging to the people" and "The value of the infrastructure that may be provided by the state to a project, including all the advantages of civilized society that may be provided by the state to the sponsors of a project." He stated that clause should cause any investor to not participate in the project. He stated that at the most investors would receive 3 percent of what they invested even with the incentive. Number 1581 REPRESENTATIVE MARTIN stated that a market should be established first and the market should invest in the pipeline if China had equity in the pipeline it could be assured that they would uphold their contract. He stated that almost immediately the pipeline would be able to put 15 million metric tons on the market which will result in a drop in prices. He stated that we are willing to give away gas to get more jobs. Number 1618 REPRESENTATIVE MARTIN referred to the Alaska hire issue and feared that there would be a influx of people coming to Alaska to live off our welfare system and fill the residency requirement in order to work on the pipeline. He stated that Alaska does not have 5,000 top quality welders needed for the pipeline. He stated that Alaskan hire is misleading. He asked that the reasons motivating the project be looked at. Number 1946 REPRESENTATIVE RAMONA BARNES stated that she was just here to listen in on the committee process and did not intend to comment. She then stated that a big concern that she has with the bill is that it is called stranded gas legislation instead of the gas pipeline legislation. She stated that gas-to-liquids subject should not be in this bill as it is a different tax regime. She stated that a taxing regime for using the pipeline that exists is different from building a new one. She asserted that the socio- economic aspect of the bill should be deleted and the section dealing with local government needs a lot of work. She stated that there is a section in the bill dealing with the commissioners laying their plans before the Budget and Audit committee, she objected to that and stated that any plan needs to come before the entire legislature. Number 2157 PAM LABOLLE, President, Alaska State Chamber of Commerce, stated that she did not have the expertise to speak to any of the details of the bill. She stated that her testimony is in support of the concept of bringing the stranded natural gas into production and specifically their resolution on the subject urges the legislature and the administration to continue to take those steps to provide a stable appropriate fiscal and regulatory environment which will give the project the best opportunity to become commercially viable thus enabling the earliest possible development of the resource. Number 2266 REPRESENTATIVE RYAN stated that the committee has asked a lot of questions to which the answers were not forthcoming because there has not been any conceptual engineering done, no one knows what the market is and who the investors may be et cetera. He stated that these basic fundamental questions need to be answered. He reiterated his concerns on the bill and stated that he needs to know that we would be operating on a more secure basis. TAPE 98-15, SIDE A Number 0013 CHAIRMAN HODGINS stated that the committee is trying to get answers to those questions. Number 0038 REPRESENTATIVE BARNES stated that the van Meurs' study went into great detail as to what is needed to be done to make the project economically feasible and it is known that there is at least 15 trillion cubic feet of gas at Prudhoe Bay and 6 to 11 estimated trillion feet of gas at Point Thompson. She asserted that it is known that 15 million metric tons a year would be needed to be put into the system to make the gas line economically feasible. It is necessary in order get the gas into the market place, Alaska has to be in the market place by 2005. She stated that some of the purchasers are interested in holding an equity position in the pipeline such as China Petroleum and would purchase 25 percent of the gas that Alaska would put into the market place. She stated that Alaska is competing with the world market and the several gas projects that are scheduled to come on line. If they get into the market before Alaska does, our gas "will sit up there in what they call a stranded gas hold for eternity I suspect." Number 0290 REPRESENTATIVE KEMPLEN stated that this proposed legislation is establishing a framework by which the Administration and the private sector can move forward with this complex project. He pointed out that the legislation lays out the process for how the project is to be done and identifies the key issues that needs to be addressed by the sponsor group. He stated that it gives permission for the Administration to negotiate with a qualified sponsor group. He stated that it will take a few years before there is a contract presented to the legislature. He stated that it is important to move forward with this bill and to make sure the project does happen. Number 0456 REPRESENTATIVE ROKEBERG advised everyone to read the memorandum by the Honorable Kay Brown. He stated that area of interest is if there are going to be any equity issues as it relates to the affected municipalities of the state, a decision on what is to be done on this needs to be made. He stated that the financing mechanisms need to be looked at, as it is key to this project. He suggested that the bill may need to be sent to a subcommittee because there will not be any progress until the committee starts making its changes. Number 0622 CHAIRMAN HODGINS stated that he agreed and would consider a subcommittee. Number 0678 REPRESENTATIVE BARNES referred to Representative Martin's statement raising the issue of gas re-injection to raise oil. She stated that should not be an issue because if Point Thompson was developed first, we would not need any of the gas in Prudhoe Bay but beyond that, there is a tremendous amount of excess gas that is being put back into the holds. She addressed the question of equity interest and if taxes are deferred in the up-front portion of the gas line to recoup at the back-end, that is an equity interest. She stated that would be Alaska's contribution to making the project financially feasible. Number 0783 CHAIRMAN HODGINS stated that he would talk with Representative Martin to inform him on past meetings. He stated that it is a big project for Alaska and a lot of work regarding the enabling legislation will be done in this committee.