Refinery tax credit subsidy approved by House committee
The Tesoro refinery on the Kenai Peninsula is seen in this Journal file photo. A package of incentives for in-state refiners was approved April 14 by the House Finance Committee, and included a measure to renew the state’s royalty oil contract with Tesoro.
JUNEAU — The House Finance Committee approved a tax credit subsidy plan for in-state refiners but has scaled it back from what Gov. Sean Parnell originally proposed. House Bill 287 was voted out of the committee April 14.
Language was added to the bill that allows a 40 percent tax credit for refinery investments up to a cap of $10 million for a refinery was tacked onto the bill, which also approves an extension of a state contract to sell royalty oil to Tesoro Corp., owner of a refinery at Nikiski, near Kenai.
The bill was expanded to include the Agrium fertilizer plant, also at Nikiski, in a change made April 16 by the House Rules Committee.
PetroStar Inc., owner of two small refineries at North Pole, near Fairbanks, and at Valdez, has pushed for the tax credit plan, arguing that it would help in financing capital improvements that would make the two refineries more competitive.
The two PetroStar refineries face economic difficulties because of high crude oil prices and because payments must be made to the Quality Bank, a mechanism that compensates companies that ship oil through the Trans-Alaska Pipeline System, as well as the state of Alaska, for any degradation of the quality of oil in the pipeline.
PetroStar takes crude oil from TAPS and removes parts of the oil to make jet fuel, diesel and other products, and returns the unused part of the crude oil, which has less value, to the pipeline.
Parnell had originally proposed a direct tax credit for refineries combined with a tax credit for capital investments.
The version approved by the House Finance Committee removed the direct tax credit subsidy but also expanded the investment tax credit to 40 percent of expenditures that are approved. If the company does not have enough Alaska corporate tax liability, the tax credits can be turned in to the state and paid in cash, under the bill.
Under this, a $25 million investment by PetroStar would net tax credits for $10 million. If $25 million were invested in both of the company’s two refineries, a total of $50 million, PetroStar could be paid $20 million, either as an offset to state corporate tax liability or in cash.
Tesoro spokesman Matt Gill said his company’s priority is the part of HB 287 that extends the royalty oil contract.
“We don’t oppose the tax credits, and in fact we support them now in an effort to help out our Interior refineries,” Gill said.
Tesoro did have concerns with the earlier version of the incentive that included a direct tax credit subsidy out of concerns “for how it would affect the competitive playing field,” Gill said. But this concern is reduced now that the incentive program is scaled back, he said.
Fairbanks legislators are concerned about PetroStar because it is the main supplier of jet fuel to Eielson Air Force Base. Fairbanks has been courting the U.S. Air Force to keep the base open and to attract a squadron of new-technology F-35 fighters to Eielson.
Loss of a local supplier of jet fuel could imperil those efforts, said state Rep. Doug Isaacson, R-North Pole.
“If Eielson goes, there goes a third of Fairbanks’ economy,” he said.
The bill raised some critical voices in the Finance Committee, however. Rep. Alan Austerman, R-Kodiak, co-chair of the committee, said he is concerned that a refinery that is unprofitable, thus paying no state corporate income tax, would receive state payments.
Rep. Les Gara, D-Anchorage, objects to the tax credit also applying to Tesoro, which said it doesn’t need state financial help.
“This is a $10 million gift to Tesoro,” Gara said.
Parnell praised legislators for acting on the measure in a statement released April 15: “I commend the House Finance Committee for advancing HB 287, and in particular, I want to thank Representatives Tammy Wilson and Steve Thompson for their work to keep Alaska’s refineries strong. Our refineries provide great economic benefits for Alaskans across the state, including jobs, economic opportunities and affordable fuels.”