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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

25 August 2006

Difficult bargains

On Tuesday, Alaska Governor Frank Murkowski suffered a humiliating electoral defeat, coming third in the Republican primary and securing only 19% of the vote. The reasons for his defeat vary—the Wall Street Journal believes “incumbent arrogance” is the problem—but negotiations for the building of a gas pipeline from Alaska through Canada and into the United States has to rank high among his constituency’s grievances.

The idea of a natural gas pipeline linking Alaska to the Lower 48 has been floating for years, and Gov. Murkowski has been an ardent supporter. As governor, he negotiated with the oil companies involved—ExxonMobil, BP, and ConocoPhillips—about the terms under which the pipeline would be built. At issue was the tax rate that would apply to earnings from the oil companies’ operations in Alaska as well as tax breaks on investment that were meant to make the capital expenditures for the pipeline more attractive.

After the governor came to an agreement with the oil companies, however, the Alaskan legislature voted into law a bill that varied from the governor’s initial agreement. The version that became law last week imposed a higher tax rate on net revenues, and also increased that rate as oil prices went higher. Needless to say that the oil companies and the governor were not pleased, and it remains to be seen how this different law will affect the building of the pipeline.

What this story underlines, more broadly, is the difficulty of striking a bargain between state and company when it comes to oil and gas. Venezuela and Bolivia, for example, are accused daily of bullying oil companies and of being inhospitable to foreign investment. It is easy to assume that such issues are the purview of “dysfunctional” polities in the developed world. But Gov. Murkowski’s failure in the Republican primary ought to remind us that finding a proper way to split revenues between the people and the oil companies is always an arduous task.

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