Legislator’s advisers also call for TransCanada buyout

The advisers hired by the Alaska Legislature to provide an independent view of the AKLNG natural gas project say they agree with the state in its call for a buyout of Canadian firm TransCanada.

Janak Mayer and Nikos Tsafos, speaking Saturday to the Senate Finance Committee, said they’re less bullish than the consultants hired by the state of Alaska, but the buyout still makes financial sense.

“In large part, we agree with the substantive case the administration has made,” said Tsafos, president of Analytica.

“For the most part, we think what they’ve presented is accurate,” he said. “We would also agree with the state’s financial advisers.”

The Legislature has convened in special session as it weighs whether to allocate $157.6 million to pay for the state’s share of the first phase of AKLNG, a megaproject that would take gas from the North Slope to Cook Inlet at a cost of between $45 billion and $65 billion.

To avoid paying up front for its one-quarter share in the project, the state entered into a contract with TransCanada. Under the terms of the agreement, TransCanada pays all of the state’s direct costs until construction begins, then half of the state’s share of construction costs. In return, the state gives TransCanada a cut of its revenue once gas starts flowing.

If the pipeline deal falls apart for any reason, or if TransCanada wants to walk away from it, the state must repay TransCanada every dollar plus 7.1 percent interest.

That’s a high interest rate compared to the open market, which is why the state is considering a buyout and has earmarked $68 million of the legislative request to take an “offramp” built into the TransCanada contract. If the state doesn’t act by Dec. 31, its next offramp is years (and hundreds of millions of dollars) later.

The state and its advisers have claimed that a buyout could generate up to $400 million per year more for Alaska once the pipeline begins operating, but Mayer and Tsafos said that’s a best-case scenario and isn’t likely.

In their presentation, they suggested that a more realistic figure is between $30 million and $130 million extra per year. “Yes, there is financial upside here, though it may be less compelling,” Mayer said.

Sen. Pete Kelly, R-Fairbanks, characterized that difference as “fairly small” but was rebutted by Sen. Anna MacKinnon, R-Anchorage and chairwoman of the Senate Finance Committee.

“$30 million or $130 million is a heck of a lot of money,” she said. “If you’re the Department of Education looking for savings, that could fund you for years to come.”

As the hearing came to a close, the committee took up a revised version of the TransCanada bill that calls for the state to complete the buyout by Dec. 1. That would give the Alaska Gasline Development Corporation — which will take over from TransCanada — time to prepare for an important vote scheduled for Dec. 4.

In addition, the revised bill calls for the state to keep better track of AKLNG spending by state divisions, including the departments of Law, Natural Resources and Revenue. Those departments have requested a combined $13.6 million in special funding from the Legislature.

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