By Tim Bradner
Alaska’s development finance corporation has become a political punching bag. Conservation groups and some legislators are taking issue with road projects to where minerals discoveries have been made.
What fuels more criticism is AIDEA’s unusual move, for a state entity, in bidding for oil and gas leases in federal lease sales in the Arctic National Wildlife Refuge, or ANWR. AIDEA bid for leases in the refuge in a federal lease sale in 2021 and won several tracts. Interior Secretary Deb Haaland cancelled the leases, prompting a lawsuit by AIDEA that is still pending. The authority may bid again in another lease sale in the refuge in January and defends its actions arguing that economic development, in this case exploration for oil in the refuge or facilitating new mines with an access road, strengthens the state’s economy.
Critics, however, say AIDEA should stick to its mission of helping finance private business expansion rather than indulging in risky natural resource ventures. Those are best left to private industry, they say.
There’s logic to both sides of this, which is often the case. Sharing risk, in certain cases, is what AIDEA is supposed to do, it’s argued. Where the private sector has been blocked for some reason it can be argued that state intervention is needed, in this case through Alaska’s development agency.
AIDEA has a long history and a mission that has expanded over the years. It was created in the early years of Alaska statehood because of the federal requirement that tax-exempt economic development bonds be sold by a state entity. To do that the Legislature created AIDEA. It was then called AIDA, the Alaska Industrial Development Authority. “Export” was added later when the authority was given permission to finance export transactions.
Tax-exempt economic development bonds for private projects are not allowed these days except for certain purposes, like hospitals. AIDEA has helped coordinate those financings and continues to do so.
What’s interesting is that AIDEA is unique in the nation, or at least unusual, because it was given an endowment of oil money in the 1980s by the Legislature. That gives it financial strength. Almost all states have entities that facilitate tax exempt bonding but few states have given their development authorities endowments like AIDEA has.
The bulk of the authority’s business these days is in facilitating long-term financing for commercial development in Alaska by partnering with commercial banks, including Northrim Bank. AIDEA’s earnings from these financings, now in a portfolio of long-term loans, are its major source of income. That helps fund the authority’s economic development work along with an annual dividend paid to the state general fund.
Economic development first came to the forefront significantly in the mid-1980s when the authority stepped in to help finance an industrial access road and port for the Red Dog Mine in northwest Alaska. The mine, road and port were built and shipping of zinc and lead concentrates began in 1989 and continue today. It is one of the world’s largest zinc mines, and at times the largest.
At the time Cominco, a major Canadian mining company leading the development, did not have the financial strength to finance both the mine and the infrastructure. The project was very costly because of the remote location of the zinc and lead deposit.
The state, through AIDEA, stepped in to fund, and own, the infrastructure.
Red Dog has also been a huge success with good-paying jobs in Northwest Alaska communities and support for schools through in-lieu of tax payments. It has been a good deal for AIDEA, too. Owning the road and port is now a good source of income now that the bonds to build the infrastructure are paid off.
But even now there are naysayers who say AIDEA’s financing wasn’t really needed and that private companies, if not Cominco then someone else, would have developed the deposit. This is probably true, to a point. But it would have taken longer and NANA Regional Corporation, the landowner, would likely have wound up with a partner that didn’t really share NANA’s ideas on local employment, contracting and subsistence protection.
Cominco, with experience in developing mines in the Canadian Arctic and working with local indigenous people, accepted NANA’s values.
Not all mining companies would have. In fact, NANA rejected one major U.S. mining company as a partner before settling on Cominco.
Building on this success AIDEA was able to undertake other development initiatives. Not all were as successful as Red Dog and some were failures, but sharing risk to help the private sector was built into the economic development mission.
One less-successful project in the late 1980s was the Healy Clean Coal project, a project built with U.S. Department of Energy funds at Healy, in Interior Alaska south of Fairbanks. DOE, AIDEA and Golden Valley Electric Association, the regional electric cooperative, were to test advanced technology to clean pollutants from a new coal-burning power plant.
The pollution-control systems worked well, DOE concluded, but the plant did not work well in commercial operation, GVEA found. It is still operating 34 years later but the plant may be shut down.
Three other economic development projects that are more successful but not well known are a large Federal Express jet maintenance hangar at Ted Stevens International Airport, a major FedEx hub; a shipyard in Ketchikan that does major maintenance on state ferries as well as vessel construction, and an ore terminal in Skagway.
AIDEA took over the terminal when the former owner, a private company, was about to close it, which would have deprived mines in nearby Yukon Territory of an outlet to markets in Asia. The terminal and the ore shipping were important to Skagway’s economy.
The Yukon mines fluctuate in their operations and periodically shut down when metals markets are soft, which means AIDEA’s terminal operations are suspended.
All three of these initiatives have created and sustained local jobs, which is core to AIDEA’s mission.
More recently AIDEA has moved to facilitate regional energy development, an example being its financing of the Interior Gas Utility, or IGU, which built a natural distribution system in Fairbanks supported by long-distance trucking of liquefied natural gas, or LNG, from a small gas liquefaction plant in the Mat-Su Valley near Anchorage.
IGU will soon begin trucking on LNG from the North Slope from a new liquefaction plant built by Harvest Alaska, an affiliate of Hilcorp Energy, a North Slope oil producer that will also supply the natural gas for the Harvest plant.
One AIDEA energy initiative that was unsuccessful was its financing for Brooks Range Petroleum, a small Alaska-based company, at the small Mustang oil field. The venture was complicated because of Brooks Range’s thin financing but was ultimately doomed when Gov. Bill Walker abruptly cut exploration tax credits for small companies like Brooks Range in 2016. The move undercut the financing for Mustang.
AIDEA wound up owning Mustang for a period after foreclosing on loans to Brooks Range but was ultimately able to sell the asset to another company that is proceeding with new drilling and development.
The authority’s new energy initiative, which has been successful so far, is supporting development of new Cook Inlet natural gas. The authority helped finance HEX Alaska in development of its Kitchen Lights gas field with those loans repaid early and in full. AIDEA is now helping fund an expansion of Kitchen Lights.
The authority’s Cook Inlet initiative comes at a time when natural gas production in the region is set to decline due to its aging reservoirs. There are prospects for new gas in the region but few companies exploring.
Questions can always be asked about some of AIDEA’s riskier initiatives, and should be. But in the final analysis it can be argued that the authority is doing exactly what it is supposed to do, stimulating development and jobs and shouldering some of the risks. Not all bets pay off, but many do.
Tim Bradner is publisher of the Alaska Economic Report and Alaska Legislative Digest
