On Monday, House Speaker Mike Chenault, R-Nikiski, introduced a bill to the state House of Representatives that would create a tax credit for ammonia producers. According to its text, House Bill 100 would entitle “a taxpayer that owns an in-state processing facility whose primary function is the manufacture or sale of ammonia or urea” to receive a tax credit equal to the royalty paid by that manufacturer’s gas suppliers on their state leases.
Chenault’s staff said the bill was created with the consultation of Agrium Inc., a Canada-based manufacturer of ammonia fertilizer, represented by lobbyist Jeff Logan. In 2007, Agrium ceased the operation of its Nikiski ammonia and urea manufacturing plant due to what it said was an insufficient supply of natural gas from Cook Inlet sources. The plant created urea and anhydrous ammonia by combining atmospheric nitrogen with hydrogen obtained from natural gas.
Adam Diamond, spokesperson for Agrium, said that the bill will be a factor in the decision to be made by Agrium’s board of directors on whether or not to reopen the Nikiski plant.
“We’re still looking at the bill,” Diamond said. “We’re still trying to figure out how exactly this could help us, but on first read it would be helpful. … The tax credit helps present the best picture for the board, and then obviously it’s going to be up to them to weigh that against other project possibilities.”
Diamond said that the proposed tax credit would make the re-opening more viable by offsetting the large engineering and permitting costs of resuming operation at the plant, but was unable to say whether or not it would be a decisive factor.
“It absolutely helps, there’s no doubt about that,” Diamond said. “But there are so many pieces to it.”
Diamond said that although on paper the bill appears to create a neutral impact on the state budget by making the tax revenue lost from Agrium equal to the revenue gained in royalties from state gas leases, it would in practice result in a positive balance for the state because the royalty fees of a gas extractor operating on state land are likely to be much higher than Agrium’s expected tax liability.
“(Agrium’s anticipated tax liability) is looking like it would be closer to three or four million,” said Diamond. “The royalty to the state (owed by Agrium’s potential gas supplier) is in the neighborhood — depending on how much we get the gas for and how much of it is on state land — but I think the royalty value to the state is somewhere between 12 or 15 million. … Depending on the analysis, it would still be significantly net positive for the state.”
Chenault said the bill will likely be adjusted in the coming months.
“We’ll be putting together a sponsor’s statement on it, and the direction we’d like to see it go,” said Chenault. “Then start working with the taxation department, the administration, and any other department involved and see if this is a viable option to go forward, or if we may need to change it. … By introducing the bill, now we have a foundation to start with, and then we’ll go through the process and see ‘is this the correct way, or is there another way that might serve the purpose better?’”
After its first reading, the bill was referred to the House Resources Committee and will later be considered by the finance committee. If passed, the tax credit would become effective in July 2017 and expire in Jan. 1, 2027.
Ben Boettger is a reporter for the Peninsula Clarion.