State development corporation plans to give road – and possible costs – to Alaska government

Alaska’s state-owned development corporation is planning to give away a 4.5-mile North Slope road instead of paying a cash dividend to the state treasury, an act that could sap millions from projects elsewhere in the state and may force the state to shoulder the cost of road maintenance.

Under the proposal, the Alaska Industrial Development and Export Authority would hand over control of the road — valued at almost $14 million — and pay $4 million in cash to fulfill a state law that requires it to pay a dividend to the state treasury. 

Without the road transfer, AIDEA would pay $17.9 million in cash to the state.

“In a sense, it’s asking for the approval of a credit … in the amount of $13.9 million,” Randy Ruaro, AIDEA’s executive director, told the House Finance Committee on Thursday.

The road was built for an oil project that hasn’t been developed, and the arrangement suggested by AIDEA allows it to keep cash for other work and get rid of a failed project that has cost it millions of dollars.

“AIDEA is actively trying to find the best solution for this issue, this project, that results in the most return possible,” said Ruaro in a Wednesday hearing of the Senate Finance Committee.

Speaking on Thursday, he said he’s not aware of any other case when AIDEA tried to use an asset to pay its dividend.

While the move could help AIDEA, state lawmakers are disgruntled because it amounts to a forced purchase by the state treasury and reduces the amount of money available for the state’s capital budget. That budget pays for construction and renovation projects across Alaska.

During a Thursday hearing of the Senate Finance Committee, Sen. Lyman Hoffman, D-Bethel, said he has asked legislative attorneys to investigate whether AIDEA’s plan is legal under state law.

“You can always spend cash, but you can’t spend a road,” he said. “I think it sets a bad precedent that we are accepting non-cash for something we can’t spend.”

Created in 1967, AIDEA is Alaska’s state development bank, loaning money for large infrastructure projects and new businesses in the state. 

Under state law, AIDEA is required to pay an annual dividend to the state treasury, but this year, the corporation’s board voted to pay that dividend partially in assets and partially in cash.

The asset chosen by AIDEA is the Mustang Road, built in 2013 as part of a major AIDEA investment alongside Brooks Range Petroleum, an Alaska-based oil company.

AIDEA loaned $70 million to help Brooks Range develop the Mustang oil field on the North Slope, but after oil prices fell, AIDEA’s investment partner backed out and the project was suspended. 

The Alaska Department of Revenue approved a bailout loan that was subsequently investigated by state auditors, who found irregularities and couldn’t determine why the department approved a bailout for that project but not others.

AIDEA took over the Department of Revenue loan and found a second buyer for the project, but in August 2021, after that buyer failed to make loan payments, AIDEA foreclosed and took ownership of the Mustang project.

A $26 million gravel road — of which AIDEA paid $20 million — is one of the main components of the project. Because it could be used to access oil facilities in use by other companies, AIDEA and its partners – including Brooks Range – sought to collect tolls.

In 2019, Oil Search Alaska, one of the companies using the road, applied for and received an easement from the Alaska Department of Natural Resources that allows it to use the road for free.

Brooks Range appealed that decision, but Corri Feige, the commissioner of DNR at the time, issued an order forbidding Brooks Range or AIDEA from collecting tolls while the appeal takes place. DNR declined to explain why Feige issued that order.

A separate, similar access dispute is in federal courts and involves lands leased by ConocoPhillips Alaska.

Three years after Feige’s decision, DNR’s order is still in place, Oil Search has been bought out by Santos, and Oil Search’s old lobbyist is now the DNR commissioner. Through a holding company, AIDEA still owns a road it must maintain and can’t charge tolls on. Santos is paying some of the maintenance costs for the road, but Ruaro said he’s not sure whether it covers all of what’s needed.

If AIDEA successfully uses the road as part of its dividend this year, the road would end up in the control of DNR itself. Would DNR charge tolls, or would the state shoulder the cost of maintenance? 

“While DNR does charge fees for permits or fees based on the appraised value of land in a right-of-way or easement, DNR does not charge tolls or per-use fees,” said Lorraine Henry, the department’s communications director. “Companies who wanted to make use of the road — or further improve the road — may have to acquire a permit, lease, or right-of-way from DNR based on the circumstances of use.”

During Wednesday’s Senate Finance hearing, Hoffman asked Ruaro how AIDEA would spend the $14 million it keeps by giving the state a road instead of money.

Ruaro said there isn’t a particular goal.

“I’m not aware of an identified spend allocation for the funding,” Ruaro said.

AIDEA is pursuing more than a dozen major development projects in the state, including the 300-mile Ambler Road in northwest Alaska and the West Susitna road project in the Matanuska-Susitna Borough, and it’s the only company still holding oil leases in the Arctic National Wildlife Refuge. 

The federal government has attempted to cancel those leases, but AIDEA is waging a legal campaign to open the refuge to drilling.

In December, AIDEA board chairman J. Dana Pruhs argued in favor of a smaller dividend to the state because of the need to pay for those projects.

“The way I look at it is (funding) gets sucked up real fast when you put the percentages you have to do for Ambler Road, or West Susitna, other other resource developments which are big dollars. And obviously we don’t know what those ultimate dollars are. … I’m a very conservative person because of that,” he said.