The recent article in the Frontiersman by Rindi White dropped the proverbial round short on what should have been a reasonable overview for the public’s consideration of a necessary and worthwhile fiscal plan to resolve both the short term and long term fiscal issues facing the State of Alaska. Absolutely nothing has been done in the last 20 years to promote stability and diversity in our economy, or to utilize Alaska’s resources to the benefit of Alaskans.
The fiscal proposal that I am supporting is the plan proposed by Ray Metcalf and endorsed by my party. This plan proposes ending the rape of Alaska’s oil resources. After all, what could be more extreme than our petroleum and gas development policies? After 30+ years of oil development, Alaska is two ends of a pipeline and little else. It is disturbing to note that the same rape is now being considered for the proposed gas pipeline.
In the case of Alaska’s oil and other resources, there is more money at the retail end, than at the wholesale end. Why then, do we continue to avoid redressing this taking of our resources without so much as requiring any value-added processing in Alaska? (Yes, there are two refineries in Alaska . . . two small refineries processing a very minute fraction of the State’s production of oil.)
The average world royalty on crude oil production is approximately 79% of the sell price ranging to a maximum of 85%. 79% of the sell price of a barrel of crude goes to the government of the producing country, with 21% as the share to the oil company. The difference between the royalty practice in Alaska versus the practice in the rest of the world, is that world-wide the practice is “cost plus”, meaning that the oil companies receive an accelerated repayment of their exploration and development costs first before the full royalty split occurs.
For example, the initial $12,000,000,000 investment by the oil companies in the North Slope and the TAPS would have been recouped at an accelerated rate of return with, say, a 50-50 split until those costs had been recouped by the oil companies. After which, the profit split on our crude oil would
then become 79% to Alaska and 21% to the oil companies.
At present, Alaska’s royalties and taxes collected are approximately 33%. With federal taxes (24%), the total take from the oil companies is 57% by Alaska and the federal government; which is 22% less than the world average.
Alaska has been losing 22% of its rightful share by world standards ever since. The 22% difference between Alaska’s and the fed’s 24% would have meant at least an additional $1.5 billion to the State this last year. Meaning, there would be no fiscal “gap”. There is a considerable disparity in our royalty rate versus what everywhere else in the world receives.
Has Alaska taxed at anything close to the world rate? Yes. In only three leases, negotiated during the Hammond Administration. Two on Duck Island and one near the Ivan River. The three operators and the state are accorded their respective shares as follows: BP’s royalty for its lease: 20.41%, the State’s share: 79.59% plus 20% of the crude oil produced; Exxon’s royalty for its lease: 51.13%, the State’s share: 48.87% plus 20% of the crude oil produced; Unocal’s royalty for its lease: 37.8% of the crude oil produced, the State’s share: 62.2% of the crude oil produced plus payment by Unocal of all State and federal taxes on the production and profits. No succeeding State Administration has been as aggressive in its oil lease negotiations.
Will the oil companies leave, if the royalties are redressed to a world standard rate in Alaska’s favor? Highly unlikely. After all, during the halcyon days of the Taliban in Afghanistan, from 1994 to 1998,Unocal invested $18 million in just trying to curry favor for the construction of a pipeline to take gas from Uzbekistan to Pakistan. Oil companies are investing heavily in remote, isolated regions in hostile political environments around the world. It is simply scare tactics to believe that oil companies would leave a place where they have had their way practically unfettered for the last 30 years.
Metcalf’s proposed plan will resolve the current budget deficit without any need for additional taxes on Alaskans. Like the Cremo Plan, this plan is a long-term, self-sustaining fiscal solution. This plan preserves and protects our PFD and insures the continuance of the Permanent Fund. Unlike other plans, this plan requires investment in Alaska and our resources. This plan would invest in Alaska’s petroleum production, transportation, refining, and retail marketing to create a petrochemical industry in Alaska using Alaska's gas and oil. This plan would also extend this development philosophy to Alaska’s renewable and non-renewable resource development. This plan would end the rape of Alaska’s resources to the benefit of anywhere but Alaska and Alaskans. This plan means a stable economic future for Alaska, jobs for Alaskans, and a very bright future for our children and future generations of Alaskans. This plan would make the idea of the “Owner State” a reality.
No, this is not socialism that is being proposed. This is an investment by our Permanent Fund into production, refining, packaging, transportation, distribution, and retail companies. We would own a majority interest through the Permanent Fund, but, the private sector would maintain management and control. ( God help us if the Legislature or an Administration ever gained direct influence! )
Where would you buy your gas? From a station owned by an oil company that provides little or no return to the State of Alaska? Or, would you buy from a station operated by a company owned by the Permanent Fund of the State of Alaska, managed and operated by Alaskans to Alaska’s benefit where a sizable fraction of your purchase profit goes directly to your PFD, to making jobs for Alaskans and to building a stable economy for Alaska?
One has to ask, "Why has this not been done already?".
The Frontiersman Newspaper of Wasilla refused to publish this article.