Mar20 0 6

R E V I E WRESOURCE

A PERIODIC PUBLICATION OF THE RESOURCE DEVELOPMENT COUNCIL FOR ALASKA, INC. www.akrdc.org

I N S I D E

Pebble Perspective 1, 9

Oil Tax Regime 3

New Timber Industry 4-5

BLM Management Plans 6

Alaska Exports 7

Young Alaskans 8

RDC Briefs 9, 11

A Simple Fiscal Plan 10

This Edition Sponsored By:

(Continued to Page 9)

SOUTHWEST

ALASKA’S

PEBBLE PROJECTPROTECTING COMMUNITY AND REGIONAL

VALUES AND ASSESSING OPPORTUNITIES

“We will not be persuaded by misleadingrhetoric for or against this or other projects.”

AAs mayor and lifelong resident ofthe Lake and Peninsula Borough, I amconcerned about protecting our regionalvalues while maintaining the ability toaccess opportunities to sustain viablehealthy communities. The long-term de-cline in salmon prices continues to nega-tively affect individuals, families andcommunities. The steady decrease instudents in many of our villages is, inpart, an indicator of the loss of economicopportunities for local residents. Ourborough’s population is declining.

Northern Dynasty Mines has beenconducting exploratory activities atPebble. The company has indicated itwill continue such efforts in 2006 andcommence work on an EnvironmentalImpact Statement in 2007.

We recognize such a project couldhave significant long-term impacts on ourregion. The assembly, staff and I con-tinue to closely monitor the project andits potential impacts. We have taken aninitial position in support of NorthernDynasty Mines’ exploration efforts. Theborough’s position, however, is subject tochange as more detailed site specific dataon the proposed project becomes avail-able. To date the assembly has identified

By Mayor Glen Alsworth, Sr.

Northern Dynasty Mines’ Pebble deposit near Iliamna is the largest gold resource and the second-largest copper resource in North America, and the fifth largest copper porphyry deposit in the world, according to theMetal Economics Group.

Past issues of Resource Review (1978-2006) are available at www.akrdc.org/newsletters/

Resource Review is the official periodic publication

of the Resource Development Council (RDC),

Alaska's largest privately funded nonprofit economic

development organization working to develop

Alaska's natural resources in a responsible manner

and to create a broad-based, diversified economy

while protecting and enhancing the environment.

Resource Development Council121 W. Fireweed, Suite 250Anchorage, AK 99503Phone: (907) 276-0700Fax: (907) 276-3887E-mail: resources@akrdc.orgWebsite: www.akrdc.org

Material in this publication may bereprinted without permission providedappropriate credit is given. Writer & Editor Carl Portman

Executive Committee OfficersPresident John ShivelySr. Vice President Rick RogersVice President Wendy LindskoogSecretary Tom MaloneyTreasurer Stephanie MadsenPast President Chuck Johnson

StaffExecutive Director Tadd OwensDeputy Director Carl PortmanProjects Coordinator/AMEREF E.D. Jason BruneFinance/Membership Deantha Crockett

Page 2 March 2006 Resource Review www.akrdc.org

TADD OWENS

A MESSAGE FROM THE EXECUTIVE DIRECTOR

(907) 276-0700 March 2006 Resource Review Page 3

Governor Murkowski recently introduced legislation todramatically overhaul Alaska’s oil and gas tax regime. TheGovernor’s proposal replaces the current economic limit fac-tor with a net profits tax. RDC staff is tracking this issue veryclosely and we encourage the membership to become asfamiliar with the details of the proposal as possible.

RDC’s website (www.akrdc.org) includes links to HouseBill 488 and Senate Bill 305. These links will provide you withthe text of the bills, as well as the committee hearing schedules.Also included are other links where additional background in-formation and testimony on the proposal can be found.

We intend to participate in the ongoing legislative processand to offer thorough remarks upon further analysis and con-sultation with our most affected members.

The Governor’s proposal targets the one industry alreadyresponsible for providing nearly 90 percent of Alaska’s generalfund revenues at current prices. It would annually take an ad-ditional $1 billion from the oil industry at current prices.How will the Legislature manage this new windfall going for-ward? This industry-specific tax proposal comes at a timewhen the state is wrestling with the question of how best tomanage an estimated $1.5 billion revenue surplus under thecurrent tax system.

RDC has advocated the development of a long-term statefiscal plan for nearly a decade. During this period we have ar-gued the state must do more to bring recurring revenues inline with expenditures in order to achieve tax stability and cre-ate a positive and predictable business climate. How the statemanages surplus revenues is as important as managing deficitswhen it comes to accomplishing these policy goals.

It is clear the proposed petroleum production tax (PPT) willgenerate additional revenue at high oil prices. However, itdoes not necessarily make Alaska’s revenue stream from oilmore predictable or stable. In fact, under the proposed pro-gressive system the state is assuming certain risks. This under-scores the critical importance of having a fiscal plan in place tomanage the peaks and valleys of revenues.

The legislature must evaluate how this increased tax burdenwill affect future investment and exploration in Alaska’s oilpatch. Maintaining significant production throughput inTAPS is paramount to the future health of both the industryand the state’s general fund coffers. It is not clear to RDC atthis stage how increasing the state’s take by $1 billion annuallywill facilitate new investment in the Alaska economy.

If the Legislature moves forward with a new oil tax regime,it must include incentives for both new frontier explorationand increased investment in existing fields and known re-sources such as heavy oil. Without ongoing capital infusionsby the industry, Alaska risks an accelerated decline in produc-tion flowing through TAPS. In addition to incorporatingproper investment incentives, the Legislature must analyzewhether a new tax regime places Alaska at a competitive dis-advantage for capital investment. Ideally the Legislature will

utilize the state’s tax structureto create competitive advan-tages.

Below are several pointssome of RDC’s oil and gasmembers have made duringthe opening round of hearingson the new tax proposal:

• The PPT is too high to in-sure adequate investment in future oil development. NorthSlope production is declining 6 percent annually. Currentrates of investment are inadequate to reverse the trend. TheNorth Slope needs $2 billion to $3 billion per year in new in-vestments to slow the decline to 3 percent, double currentrates of investment.

• The proposal moves Alaska from a “high-cost, medium-tax” competitive position to a “high-cost, high-tax” grade.

• The proposed PPT will double production tax liability at$60 oil for a major North Slope producer. Another companyoperating in Cook Inlet would see its tax liability quadruple ifthe tax rate is increased to 25 percent.

• Under the proposed PPT system, industry will retain 42percent of the value of Alaska’s oil resources while the com-bined state and federal “take” will equal 58 percent.

• An unintended consequence of the new tax is that differ-ent companies, who are partners in producing fields, will be indifferent tax situations, creating potential problems such as“misalignment” in reaching agreement on new initiatives.

• An “independent’s” view: The proposal is well balancedbetween interests of the state and companies. The new tax willimprove Alaska’s competitive position, but modificationscould compromise it. New development on the North Slopewill take a mix of companies. Large firms will not chase smallprospects, but small firms will.

• A “producer’s” view: Large companies bring financialstrength to pursue the largest, highest-risk projects. They alsohave experience in heavy oil and ability to assume long-termrisks. The proposal should encourage large investors as 80 per-cent of North Slope production in 2015 will still come frombig fields. While the PPT is high, it provides a stable taxregime moving forward.

• The bill should give special consideration to Cook Inlet,given the declining production levels of the aging fields.

RDC’s membership is always concerned when new industrytaxes are proposed. The petroleum production tax is a pro-posal with massive potential consequences to the wellbeing ofAlaska’s largest industry and the state’s general fund. Thechallenge is to strike the proper balance between Alaska gettingits appropriate share of the wealth generated by its own resources andproviding the fiscal certainty necessary to encourage the investment required to turn those resources into wealth.

DRAMATIC OVERHAUL TO ALASKA’S

OIL AND GAS TAX REGIME“The Governor’s

proposal targetsthe one industryalready responsiblefor providing nearly90 percent ofAlaska’s generalfund revenues atcurrent prices.”

Page 4 March 2006 Resource Review www.akrdc.org

By Jack E. PhelpsIt is no secret among those

who pay attention to Alaska’sjobs picture that timber, as acomponent of Alaska’s econ-omy, is much less significantnow than it was 10 or 15years ago. Until 1992, Alaskahad two pulp mills producinga grade of dissolving pulpthat was highly prized bymanufacturers of everythingfrom Rayon to syntheticsponges and rope to tooth-paste and ice cream. In 1992,the pulp mill in Sitka ceasedoperation and in 1997, themill in Ketchikan followedsuit.

These mill closures notonly threw Sitka’s andKetchikan’s local economiesinto turmoil, they also madeit exceptionally difficult forthe region’s small sawmills tooperate economically.Tongass harvest volume overthe past five years has fallento pre-World War II levels.

After nearly four decades ofeconomic prosperity for theregion’s small communities,the loss of economies ofscale, combined with dramat-ically reduced timber offer-ings from the Forest Service,has resulted in no more thana skeleton industry.

This situation is tragic be-cause it is totally unnecessaryfrom a sustainability perspec-tive. It is a fact that the eco-nomic return to SoutheastAlaska from both commer-cial fishing and tourism grewexponentially during the pe-riod of large industrial timberharvests in the Tongass. It isalso a fact there are now moredeer on Prince of WalesIsland than there have beenin the memory of anyone liv-ing there.

This is because timber har-vests, especially clear cuts, re-move sections of relativelysterile old growth forest andreplace them with fresh sec-ond growth, lush with nutri-

tious plants on which deerthrive. A continuing rotationof harvest units scatteredthroughout the forest ensuresa constant mosaic of stands indifferent stages of growth.This is not only good fordeer, but for many otherspecies. And it produces asustainable supply of timberto maintain local employ-ment.

Unfortunately for localwage earners, well-organizedand funded environmentalgroups have continually andloudly made claims to thecontrary. These groups havemanaged to turn vast areas ofproductive multiple-useforests into virtual parkswithout benefit of theCongressional process usu-ally required to create park-lands.

Sadly, we now see a similardynamic emerging in theSusitna Valley. After decadesof effort by foresters andeconomists, the opportunity

to develop a viable long-term, sustainable timber in-dustry has emerged.

The timber resource in theValley is very different fromthat in Southeast. Mixedstands of white spruce, paperbirch and aspen comprise themajority of the boreal forest.The timber volume is notdense and covers a vastacreage of flat or gentlyrolling country, interspersedwith creeks and bogs. The in-dividual trees are also smallerthan their commercial coun-terparts on the coast.

However, like the coastalforests of Southeast, Valleytimber is old, over-matureand contains a high defectrate. This has made it difficultto create more than the fewjobs offered by log homebuilders and very smallsawmills. Like the Tongass,

At Port MacKenzie last summer, a large pile of birch wood chips was loaded onto the Keoyang Majesty for shipmentto South Korea. The wood chips came from timber harvested in the Susitna Valley by NPI, LLC.

CHALLENGES FACE NEW TIMBER INDUSTRY

Wood chips from from timber harvested in the Matanuska-SusitnaValley are unloaded at PortMacKenzie for shipment abroad.

(907) 276-0700 March 2006 Resource Review Page 5

the Valley needed an anchortenant who could economi-cally turn low grade logs intoa marketable product.

Enter NPI, LLC, whichpartnered with the MatSuBorough to establish a newbulk commodity facility atPort MacKenzie. Having in-vested millions of dollars inthe new infrastructure, NPIis now harvesting timber,manufacturing chips and sell-ing them into overseas mar-kets. The immediate positiveeffect has been the contribu-tion of 90 new jobs to thelocal economy. But it has alsocreated controversy.

In preparation for arrival ofan anchor tenant in the Valley– an eventuality finally real-ized with the arrival of NPI– the State did its homework.Back in the early 1980s, theDivisions of Lands andForestry cooperated with theBorough and many Valleyresidents to prepare the com-prehensive Susitna Area Plan.

The process involved morethan 40 meetings and publichearings. The plan providesusage guidelines and restric-tions on more than 15.8 mil-lion acres and allows timber

harvest on less than half amillion acres. Moreover, inthe early 1990s, the plan wasfurther refined with the re-lease of the Susitna ForestryGuidelines, which put strin-gent conditions on forestmanagement activities withinthe Valley.

State owned timberlandsare clustered in a few lightlysettled areas throughout theMatSu. Residents near theseareas have had unfettered andfree use of the public spacearound their private land formany years. However, due tothe extensive public involve-ment during the planningprocess, they knew or shouldhave known that it wouldn’talways be a private play-ground.

Now that it finally has abuyer for the timber, theDivision of Forestry pro-poses to sell timber off someof its tracts designated forthat purpose. The first ofthese is the West Petersvillesale, near Trapper Creek. Thesale includes some 37 smallharvest units dispersed overapproximately 1200 acres. Itwas designed in careful com-pliance with all the provi-sions of the area plan andforestry guidelines and it hasgone through the requiredpublic notice and review.Unfortunately, a well-organ-ized, well-funded and veryvocal group of Valley resi-dents wants it scuttled.

It’s Southeast Alaska allover again, but this timewithout the federal govern-ment.

And therein lies our eco-nomic salvation. The State’sWest Petersville sale is a legit-imate use of public timber re-sources. It has been properlyprepared and it is appropri-ately designed. It will provideboth short and long-termbenefits to the general publicand to the affected land. Itsupports local jobs. It will

renew an overly mature anddecaying forest. It will im-prove moose and bird habi-tat. It will not even be noticedby tourists, except possiblythose few who wander up thePetersville Road in the coldmonths, since all the loggingon this sale will take place inthe winter. After the harvestis finished, most wouldn’teven notice it when flyingover in an airplane.

The State Division ofForestry is reviewing a num-ber of appeals on its earlierdecision to move forwardwith the sale. It expects tomake a final decision soon.Jack Phelps is a forestry specialist withthe State Dept. of Commerce.

In 2005, approximately 50 million board feet were logged off the Tongass, about a tenth the volume during the pulp millera and below World War II levels. The annual harvest ceiling set under the current forest plan is 267 million board feet.The annual harvest level originally set by the Alaska National Interest Lands Conservation Act was 450 million board feet.

MURKOWSKI TAKES

STEPS TO STABILIZE

TIMBER SUPPLY

The Murkowski Admin-istration has recently takenpositive steps to help stabi-lize the timber supply inSoutheast Alaska. Theseinclude:

• Signing a Memo-randum of Understandingwith the Forest Service es-tablishing the State as a“cooperating agency” inthe rewrite of the TongassLand Management Planordered by the 9th CircuitCourt of Appeals.

• Signing a Memo-randum of Understandingwith the Forest Serviceunder which the State willhelp design timber sales onFederal land that are eco-nomic to harvest.

• Directing Division ofForestry staff to investigatethe potential for the Stateto purchase blocks of tim-ber which could be resoldto industry on a consistentharvest schedule.

PROFILE AVAILABLE

ON ALASKA’S

TIMBER INDUSTRY

Profiles and facts on Alaska’sbasic industries – oil and gas,mining, fishing, timber andtourism – are now available at:

http://www.akrdc.org/issues/

Tongass National Forest Timber Harvest LevelsM

MB

F

80060040020001909 1919 1929 1939 1949 1959 1969 1979 1989 1999

Year

Page 6 March 2006 Resource Review www.akrdc.org

Guest Opinion

Henri Bisson

START PLANNING ALASKA’S FUTURE TODAY

BLM-managed public lands are foundin all corners of Alaska and may vary insize from a small 10-acre parcel to thegiant 23-million-acre NationalPetroleum Reserve-Alaska. CurrentlyBLM manages 85 million of Alaska’s 365million acres or about 23 percent, mak-ing the agency the largest federal landmanager in the state. What can orshould occur on these lands is of vital in-terest to every Alaskan.

Why?Do you hunt or fish either for sport

or subsistence? We have 85 million acresof habitat. Do you drive a vehicle? Useelectricity? Use a computer? Have awarm home? Collect a PFD? BLMpublic lands contain vast deposits ofgold, silver, zinc, oil, coal, and naturalgas. Do you enjoy hiking, camping,mushing dogs, or driving a snow-machine or other off-highway vehicle?BLM public lands offer outstanding op-portunities to get away from town foran enjoyable weekend or longer.

Every day our managers must respondto requests for use of the public lands.Perhaps it is to develop a new mineraldeposit, drill for oil, build a power line,protect some vital habitat or even film amovie. How do we decide what shouldbe permitted? In general, we strive for acombination of uses that sustains thehealth, diversity and productivity of theland for the use and enjoyment of both

present and future generations. In prac-tice, there is a lot more to the story.

The key to managing our lands isfound in our planning process. Every 10or 15 years we stop and take a look atwhat issues are facing a given geographicarea, identify the resource values in thatarea, and then develop a resource man-agement plan (RMP). These plans iden-tify in advance uses to be allowed in agiven area, or, excluded to protectspecific resource values.

Our planning emphasizes a collabora-tive approach in which local, State, andNative governments, the public, usergroups, and industry work with us todevelop a blueprint for how the publiclands should be used in a given area.Before we initiate a new plan, we askeveryone to help us identify issues thatneed to be addressed.

When the plans are ready for reviewand public comment, BLM makescopies available at all field offices and onthe Internet, as well as to people who re-quest to be on our mailing lists. Finallywe analyze and respond to each com-ment before deciding on the final plan.It takes about two years for a team ofspecialists to develop a RMP.

Right now we have RMPs either re-cently completed or underway for al-most half the lands we manage for you.Important decisions regarding Alaska’sfuture are being made as we enter the

new century and prepare to celebrateAlaska’s 50th anniversary of statehoodin just three years.

A recent significant example is the re-vision of our plan for the northeast cor-ner of the National PetroleumReserve-Alaska, opening an area with anestimated 2 billion barrels of oil undercontrolled conditions designed to pro-tect important waterfowl and wildlifehabitat and subsistence values. This newplan could have profound implicationsfor the state given the economic and so-cial considerations at stake. Below is achart summarizing other planningefforts now underway.

We encourage you to get involved inour planning process to help us deter-mine how the public lands will con-tribute to Alaska’s bright future in manyways.

There are several easy ways to keepyourself informed. One is to subscribeto our free quarterly news magazine,BLM-Alaska Frontiers. It covers ourresource management planning effortsand a whole lot more. Another way is toperiodically check our website atwww.ak.blm.gov and look for links toland use plans. Each plan has its ownwebsite. Then when the time comes, letus know what you think. Your futuredepends on your interest and involve-ment today.Henri Bisson is BLM-Alaska State Director.

PPllaannEast Alaska

PPuubblliicc LLaannddss7.6 million acres

LLooccaattiioonnCopper River Valley

IIssssuueessMineral development, sub-

SSttaattuussFinal RMP due in late

Kobuk-SewardPeninsula RMP

13 million acres Northwest Alaska Mineral withdrawals, access, caribou habitat andmigration routes

Draft RMP due in lateMarch 2006

Ring of Fire RMP 1.3 million acres Aleutian Islands, MatValley and SoutheastAlaska

Land ownership, Wild &Scenic River designations,ATV use, fuel management,minerals

Final RMP due in lateMay 2006

The Bay RMP 3.6 million acres Bristol Bay andGoodnews Bay

Mineral exploration, accessand habitat

Draft RMP due inSeptember 2006

South NationalPetroleum Reserve -Alaska

9.2 million acres National PetroleumReserve - Alaska

Natural gas, hardrock min-erals, caribou habitat, Wild& Scenic River designations

Draft plan due in summer2008

(907) 276-0700 March 2006 Resource Review Page 7

Propelled by strong de-mand and relatively high nat-ural resource prices, Alaska’sworldwide exports reached$3.6 billion in 2005, an in-crease of 14% over the previ-ous year. This represents thethird consecutive year ofdouble-digit export growthas the state’s natural resourceindustries continue to benefitfrom the global boom incommodity prices.

Seafood has been and re-mains the state’s major exportcommodity. 2005 was an-other strong year for theseafood sector as exports rose16% over the previous yearto reach $2 billion. Totaling$510 million, minerals (pri-marily zinc and lead) werethe second largest export cat-egory followed by energy(LNG and coal) at $335million.

Fertilizer shipments wereup 19% at $275 million andforest product exports(mostly whole logs) increasedby 27% to reach $132 millionfor the year. The other sizable

export category, preciousmetals (gold and silver), to-taled $84 million in 2005.

The increase in export val-ues is attributable to a num-ber of factors, includingincreased seafood sales andthe higher prices being real-ized for a number of thestate’s export commodities.Multi-year record, or, insome cases, all-time highprices for zinc, lead, gold, sil-ver, coal and natural gas,helped to boost the state’s ex-port performance in 2005.Zinc, the state’s largest min-eral export by value, is a goodexample: the price doubledfrom approximately 52 centsper pound in 2004 to morethan $1 dollar per pound lastyear.

At nearly $1.2 billion,Japan, Alaska’s long-timenumber one trading partner,maintained its ranking in2005, as did Korea, tradition-ally the state’s second largestexport market. Exports toKorea grew by 18% andreached a record $683 million

last year. The big news for 2005,

however, was China. For thefirst time in state history,China became Alaska’s thirdlargest export destination, aposition held for manydecades by our next doorneighbor, Canada. In 2005,Alaska’s exports to Chinarose 40% over the previousyear to total $337 million.Canada was the state’s fourthlargest market at $221 millionand Germany, at $180 mil-lion, rounded out the state’stop five trade partners.

Exports to China, whichhovered in the $100 millionrange per year during the1990s and up to 2001, havebeen on a rapid growth tra-jectory in recent years: $148million in 2002, $154 millionin 2003, and $242 million in2004. An increase of morethan 200% in just four years,which is truly remarkablegrowth in a short period oftime.

Another highlight in 2005was the strong surge in ex-port shipments to Mexico. At$165 million last year, Mexicois the state’s sixth largesttrade partner and one of thefastest growing markets forAlaskan exports. Led by re-fined fuel products and fertil-izer shipments, exports toMexico grew 54% in 2005compared with 2004.

Sustained high resourceprices create something of avirtuous circle for Alaska.High commodity price anddemand leads to expandedexploration, explorationleads to project developmentand increased production, ex-

panded production leads tomore exports. We are seeingthis throughout Alaska now,especially in the minerals andmetals sectors.

The Pogo Mine near DeltaJunction recently began goldproduction and theKensington Gold Mine proj-ect near Juneau is advancing.Also, the Pebble projectbeing pursued by NorthernDynasty Minerals is esti-mated to be the largest goldand second largest copper de-posit in North America.

A variety of other ‘greenfield’ resource projects in thestate are gaining attentionand now have a greater likeli-hood to “pencil out” andmove to the developmentstage as a result of the newsupply and demand funda-mentals.

While commodity pricesare currently high, Alaskansknow all too well that theseprices can quickly swing inthe other direction, creating anegative impact on the econ-omy. At this stage, however,most analysts agree that com-modity prices will remain atrelatively high levels.

Growing demand, espe-cially from Asian marketswhere Alaska does most of itsexport business, combinedwith higher than customaryprices, bodes well for thestate’s export industries andthe broader Alaska economythat gains from the jobs, rev-enues and other benefits thatflow from the developmentand export of these resources.

Greg Wolf is Executive Director ofWorld Trade Center Alaska.

Guest OpinionGreg Wolf

Natural resource products such as fish and minerals accounted for 95 percent ofAlaska’s international exports. Of $3.6 billion in exports, seafoods accounted for$2 billion. Minerals and metals totaled nearly $600 million. Liquified naturalgas, petrochemicals and coal totaled $335 million.

ALASKA EXPORTS CONTINUE TO SURGE

Page 8 March 2006 Resource Review www.akrdc.org

The January Conference of YoungAlaskans was formed by the “CreatingAlaska Project” to commemorate the50th anniversary of the state’sConstitutional Convention. Plannersreceived over 400 self-nominations fromAlaskans under the age of 26.

The conference was designed to tacklefive key challenges facing our state: pro-viding quality education, creating lead-ers for Alaska, healthy communities andfamilies, reviving the Alaska Dream, andresponsibly developing our resources.Fifty-five delegates would be chosen todevelop policy statements and goals inthese challenge areas over four days.

Once selected as a delegate, I wasplaced in the Natural Resources Groupand given ample study materials to pre-pare for the conference. Upon arrivingin Fairbanks, I was instantly impressed

by the diversity of our group: five of uswere female and six were male. Fivewere in high school and six representedthe workforce. We came from Bethel,Dillingham, Hydaburg, Sitka, Juneau,Fairbanks, and Anchorage.

Even more diverse were the issues webrought to the table to incorporate intoour goals and final “action items” to bevoted on as an entire delegation at theconclusion of the conference.

The resolution delivered by our groupto the delegation for final approval con-tained various development and conser-vation issues, including renewableenergy research, a university outreachprogram to recruit natural resource sci-entists, a streamlined permittingprocess, exploration in ANWR andconstruction of the natural gas pipeline,the Fire Island wind project, a statewiderecycling program, protection of subsis-

tence lifestyles, and a mixing zone per-mit system. ANWR and the gas pipelinewere heavily debated and ultimately re-tained in the resolution.

This conference was a unique experi-ence that cannot be duplicated. In noother setting will such a dynamic groupof Alaskans represent such diverse per-spectives.

While I’ll admit that at times we werefrustrated and struggled to reach com-mon ground on some very controversialissues, the end result was nothing shortof fantastic. I’m proud that when givena chance to represent the finest place inthe world, we produced a solid state-ment of diverse goals and dreams to en-sure Alaskans will continue to enjoy thequality of life this great state provides.

Deantha Crockett is Director of Finance-Membership at RDC.

A LOOK BACK AT THE CONFERENCE OF YOUNG ALASKANS

By Deantha Crockett

MMS SEEKING COMMENTS ON OFFSHORE LEASING

The U.S. Minerals Management Service is seeking public com-ments up to April 11th on the development of a five-year plan thatwill determine where and how often offshore oil and gas lease saleswill occur during the period 2007-2012. Alaska's offshore waterscontain U.S. reserves estimated at 27 billion barrels of oil and 132trillion cubic feet of natural gas.

RDC supports leasing of additional acreage for oil and gas inAlaska offshore waters, including portions of the Beaufort Sea, theChuckchi Sea and Bristol Bay, with provisions to avoid conflictswith other resource users and subsistence lifestyles. See RDC’sAction Alert at: www.akrdc.org.

MINING, ALASKA ECONOMY STRONG & GROWING

In 2005, the cumulative value of Alaska’s mining industry wasapproximately $1.9 billion, topping the previous high of $1.6 billionin 2004. Both numbers include the gross value of mineral productsproduced, as well as exploration and development investments bythe mining industry.

The industry spent an estimated $96 million on exploration last

year with the Pebble and Donlin Creek projects leading the way.The industry invested $300 million in development efforts as bigprojects like Pogo and Kensington moved forward.

An economic profile prepared by the McDowell Group notedthat in 2004 there were 5,100 jobs attributed to the sector.

High oil and commodity prices propelled Alaska’s Gross StateProduct (GSP) to $38.7 billion in 2005. That figure is likely to top$40 billion this year. Meanwhile, more than $6.5 billion in construc-tion spending is anticipated this year, up 13 percent from 2005. Sixtypercent is coming from the private sector. Oil and gas constructionis the biggest portion of private spending at $2 billion, up 11 percent.

ALASKA WOMEN IN RESOURCES MEET IN JUNEAU

The 2nd annual reception of the Women of the RDC Board ofDirectors was held in Juneau last month. Approximately 30 biparti-

san legislators, administration offi-cials and board members enjoyed acasual and relaxing atmosphere atAlaska’s Capital Inn. Lt. GovernorLoren Leman made a surpriseappearance at the event.

RDC NEWS DIGEST

RDC board member Jeanine St. John visits withLiz Arnold and Rep. Nancy Dahlstrom. In theinset, Rep. Beth Kerttula and RDC board mem-ber Marilyn Crockett enjoy the event.

(907) 276-0700 March 2006 Resource Review Page 9

seven broad issues which we are moni-toring. They are: 1) CommunityImpacts; 2) Environmental and Habitat,Subsistence, Commercial and Recrea-tional Fishing and Hunting Impacts;3) Transportation Systems Impacts;4) Workforce Development andEmployment; 5) Energy Opportunities;6) Tax Structure; and 7) PermitProcesses.

We intend to develop, over time,more detailed position statements onthese issues as additional informationbecomes available.

The Assembly and I believe that envi-ronmental protection and economic de-velopment can coexist. They are notmutually exclusive. Our region has aunique opportunity to balance concernsfor both of these objectives to sustain

and perhaps even enhance the lifestylewe all enjoy. We will not be persuadedby misleading rhetoric for or against thisor other projects. The Borough assem-bly feels strongly that we have an obli-gation to the region to objectivelyreview the proposed Pebble project asdetailed, site specific, accurate projectinformation is provided. Rest as-sured, the Lake and Peninsula Boroughwill not trade our pristine environmentor our fish for a mine. If the project is

not shown to be environmentally safe,we will oppose it.

The borough believes the acceptanceor rejection of any project within ourborough boundaries is a decision thatshould be carefully examined and de-cided upon locally. We strongly believeour well-being should neither be pre-determined by self-interest groups norby outsiders in Anchorage, Juneau orWashington D.C. Glen Alsworth Sr, is the mayor of the Lake andPeninsula Borough

PEBBLEBOROUGH STRIVES TO BALANCE ECONOMIC OPPORTUNITIES AND ENVIRONMENTAL CONCERNS

(Continued from Page 1) “The Assembly and I believe that environmental protec-tion and economic development can coexist. They are notmutually exclusive. Our region has a unique opportunityto balance concerns for both of these objectives to sustainand perhaps even enhance the lifestyle we all enjoy.”

A resolution before the Alaska Legislature asking the stateto create a special management plan for the Pebble areawithin the existing Bristol Bay area plan is stalled in Juneauand has been rejected by the regional government.

The Lake and Peninsula Borough voted down the resolu-tion in a 7-0 vote when it came before its borough assemblylast month. The resolution would create an additional layer ofgovernment planning and regulation in an area designated formining in the Bristol Bay plan.

Dick Mylius, acting director of the Division of Mining,Land and Water, said development of a special managementplan for the Pebble area could be done, but that the state’s ex-isting large mine permitting process is extremely thoroughand would accomplish many of the same goals of the resolu-tion, HCR29.

In comments submitted in opposition to the resolution,RDC Executive Director Tadd Owens noted “HCR29 seemsto question the state’s permitting process, or worse add an ad-ditional layer of regulatory oversight to an already thoroughand time-tested system.” Owens explained that the resolu-tion focuses on a single project that to date has not advancedto the point of being reviewable by regulators or other stake-holders in any meaningful sense.

“At best HCR29 is unnecessary. At worst it is an addedregulatory burden that has not been applied to other largeprojects in the state and will send a confusing message tocompanies looking to invest in Alaskan resource projects,”Owens said.

Alaska boasts one of the most thorough and rigorous plan-ning and permitting processes in the world. This process in-corporates massive public involvement, scientific analysis andsocial and cultural sensitivities into a framework for makinga final decision on any given project.

In the case of a major resource development project, a fed-eral environmental impact statement will be required and theprocess outlined by the National Environmental Policy Actfollowed. Through the NEPA process the views of the pub-lic, local governments, Native and tribal organizations andfederal agencies will play prominent roles in any permittingdecision.

“Alaska has a track record of success in permitting compli-cated projects in sensitive environments,” noted Owens. “Wehave demonstrated an ability to do things right. The trackrecord is something we can all be proud of and it should givethe legislature confidence in Alaska’s ability to make soundpermitting decisions in the future.”

INDUSTRY WARNS PEBBLE RESOLUTION WOULD

SEND NEGATIVE SIGNAL TO NEW INVESTORS

Page 10 March 2006 Resource Review www.akrdc.org

In my last column I discussed the desirability of having ourstate’s political leaders find a way to save some of the windfallsurplus we Alaskans are blessed with as a result of continuinghigh oil prices. Thus far it is not clear that the legislature andthe governor will heed what many of us in the business com-munity consider to be sage advice.

However, I am used to being ignored. When I was com-missioner working with a legislature that purported to favor asmaller government, I had an idea for them. I suggested that,rather than passing about 100 new laws every session, theymight consider repealing some old ones.

I thought then, and I think now, that such a strategy wouldhelp bring down the cost of government. In those days, thelegislature decided it was either easier or better to concentrateon reducing spending while passing dozens of new laws re-quiring government to carry out dozens of new responsibili-ties. To be fair, the legislature has adopted some laws to helpmake government more efficient, but, for the most part, newlaws make for bigger government.

But that was then and this is now. Some things don’tchange. The legislature still adopts about 100 bills every year.I believe last year’s harvest was about 110 new laws.

What has changed since I was commissioner is that the stateis amassing unexpected wealth. Now, I am not naive enoughto think all of the surplus will all be saved.

Clearly there are some legitimate reasons (besides the 100or so new laws adopted each year) to increase the level ofspending. High energy prices contribute to this situation asthey increase the cost of state government, as well as bringingfinancial pressures on those of our citizens and local govern-ments who least can afford it. Education, the university,Medicare, the state’s pension programs, deferred mainte-nance, as well as many other programs can make genuineclaims on the surplus funds.

How big is the sur-plus? Well no one re-ally knows, but hereare some estimates.There may be as muchas a $1.5 billion sur-plus in the fiscal yearthat ends this year. Ifthe legislature were topass a budget for FY2007 similar to the FY2006 budget, we willmost likely receive an-

other billion or so dollars more than we need.In addition, as I write this column, the legislature is con-

ducting hearings on the governor’s newly-proposedpetroleum profits tax which would net the state treasuryabout $1 billion more each fiscal year at today’s high oilprices. Taken all together, these figures represent an incredi-ble amount of money, but even a billion dollars can disappearpretty quickly, as we have seen with the governor’s proposedbudget.

Despite some of the needs mentioned above and the incli-nation of politicians to spend in an election year, there is stillan opportunity to begin to develop a sound fiscal strategy toguide the state in the future. What would such a plan looklike? There are numerous possibilities, but I want to discussone that some of us in the business community have beenpromoting. It builds on concepts RDC and other businessorganizations have promoted in past years.

It is a relatively simple plan. The first step would be for thelegislature to adopt a statute that would use the Percent ofMarket Value (POMV) approach for making distributionsfrom the Permanent Fund. (Yeah, I know – another new law,but this one would require the repeal of the law defining thecurrent distribution methodology, so we would be even.)

As proposed by the Permanent Fund trustees, such a sys-tem would allow 5% of the total value of the Fund to be dis-tributed each year, about $1.65 billion at the fund’s currentvalue of $33 billion. That amount would then be divided be-tween the state’s general fund and the dividend program.That allocation will be the subject of some debate in the leg-islature, but a 50/50 split seems reasonable to me. This planwould allow for a dividend a little larger than the one peoplereceived this year.

One major flaw in this plan is that it would seem to give thegovernment another $800 million or so to spend, when we al-ready have a surplus. The solution to that problem is to haveany surplus appropriated back into the undistributed incomeaccount of the Permanent Fund. Such a plan would grow thePermanent Fund so that the distributions for government arelarger when we may need them in the future. To help out ourpolitical leaders, such a policy would also grow the dividend.

Similar proposals in the past have also suggested that wewould need a statewide sales tax or personal income tax inorder to assure a balanced budget. It may still be necessaryfor Alaskans to pay something for the services they receivefrom the state, but that debate can be saved for another day.

It is a simple plan that is easy to implement, even from apolitical perspective. All that is needed is some leadership.

A MESSAGE FROM THE PRESIDENT

JOHN SHIVELY

“It is a simple plan

that is easy to

implement, even from a

political perspective.

All that is needed is

some leadership.”

SOUND FISCAL STRATEGY MAY ONLY REQUIRE ASIMPLE PLAN TO GUIDE ALASKA INTO FUTURE

(907) 276-0700 March 2006 Resource Review Page 11

POLAR BEAR PETITION GAINS MOMENTUM

The U.S. Fish & Wildlife Service says that a petition to list thepolar bear as threatened under the Endangered Species Act presentssubstantial scientific and commercial information indicating a listingmay be warranted. As a result, the agency is initiating a status reviewof the polar bear to determine if the species should be proposed forlisting and opening a 60-day public comment period.

In February 2005, the agency was petitioned to list the polar bearas threatened and to designate critical habitat. A listing of the polarbear could pose significant ramifications for oil and gas explorationand development efforts across the North Slope, as well as offshoreareas of the Beaufort and Chukchi seas.

At the conclusion of the agency’s status review, a 12-month find-ing will be published, announcing the Service’s determination. If thelisting is believed warranted, the Service will publish a proposed ruleto list the species.

RDC SUPPORTS NEW CRUISE SHIP QUOTA

RDC is supporting a proposal by the National Park Service to in-crease the number of cruise ships visiting Glacier Bay during thesummer by 10 percent, beginning in 2007. The current limit is a sea-sonal quota of 139 visits. The proposal would increase the quota to153. The daily maximum of two ships per day remains in effectunder the proposal, meaning that only 14 additional visits will bepermitted over the entire June-August season.

Two cruise ships have already been entering Glacier Bay on 47 ofthe 92-day peak season. Research and monitoring have not revealedunacceptable impacts to park resources and values from the visits. Inno case will there be more than two ships allowed in the park on anyone day.

The Park Service decision authorizing the incremental increase intraffic was based on an exhaustive public planning effort and scien-tific studies indicating that the proposed action would not result inunacceptable impacts to the park.

RDC QUESTIONS RIGHT WHALE PROPOSED RULE

In a letter to the National Marine Fisheries Service (NMFS) inJanuary, RDC questioned the designation of critical habitat (CH)for the Right Whale.

In February 2002, NMFS decided against the designation of CHin the North Pacific for the right whale, citing insufficient informa-tion on the essential biological requirements of the population.

Designation of CH requires the identification of at least one pri-mary constituent element (PCE). With regard to the right whale,NMFS has stated very little is known about the PCEs which mightbe necessary for the whale’s conservation. Ultimately, NMFS settledon metabolic necessity as the reason for designation of CH.

RDC noted the current justification for CH fails to identify, withcertainty, specific areas used for meeting the metabolic needs of theright whale. In addition, RDC commented “specific CH designationmust be scientifically confirmed and deemed truly essential to theconservation of the species and not just presumed to be.”

RDC SUPPORTS FORESTRY LEGISLATION

RDC has expressed its support for SB 262, which amends theAlaska Forest Resources and Practices Act (FRPA) to update statestandards for forestry activities in riparian areas. The bill is the prod-uct of a two-year consensus process managed by the Board ofForestry and it completes a statewide review of the FRPA riparianstandards that began in 1996.

The bill creates standards for forestry activities in riparian areas ofSouthcentral Alaska. The bill incorporates the best available scienceand maintains the state’s compliance with relevant federal statutes. Ithas been reviewed by government, university and private sector sci-entists, as well as affected stakeholders, including local and stategovernments, forest owners, industry, and environmental groups.

SB 262 assigns distinct riparian standards for four different typesof water bodies with anadromous or high-value resident fish. Theno-cut buffers defined for Southcentral differ from other regions inthat they are wider on large rivers and narrower on small streams.There are a number of reasons for these differences, including thefact that within the region, there are significantly more large riversthat overlap with areas where harvesting is likely to take place.

BLM AMENDS NPR-A PLAN

The U.S. Bureau of Land Management (BLM) has approved aplan amendment for the Northeast corner of the NationalPetroleum Reserve-Alaska (NPR-A). The amendment will guideleasing, exploration and development in the area, using lease stipula-tions and required operating procedures similar to those adopted forthe adjacent Northwest area of the reserve.

The amendment opens approximately 389,000 acres of the mostpromising oil and gas areas of NPR-A to leasing while expanding“No Surface Occupancy” restrictions to protect sensitive habitatareas north, south and east of Teshekpuk Lake.

The BLM amendment caps the area disturbed by roads, gravelpads and production facilities at 2,100 acres, about half of one per-cent of the new area opened to leasing.

The amendment requires a minimum three-year study on pro-tecting molting geese that utilize the lakes north of Teshekpuk Lakeand defers leasing of the Colville River Special Area until a rivermanagement plan is completed. Other provisions of the plan, suchas deferring leasing on Teshekpuk Lake, remain unchanged.

The BLM estimates that the Northeast area of the reserve maycontain as much as two billion barrels of economically-recoverableoil. The decision opens the way for an additional oil and gas leasesale in the fall of 2006.

Governor Frank Murkowski applauded the BLM decision, not-ing, “it is consistent with my administration’s recommendations,and reinforces the fact that Alaska’s abundant energy resources areabsolutely critical to meeting our nation’s energy needs.”

The North Slope Borough was not happy with BLM’s amend-ment as it strongly preferred lands north of Teshekpuk Lake remainoff-limits to leasing. Mayor Edward Itta and other borough resi-dents have used the wide expanse of tundra around Teshekpuk Lakefor recreation and subsistence purposes. They fear oil and gas activ-ity may impact traditional subsistence activities, either by wildlifeavoiding the area or by hunting closures once production begins.

“It is a crucial part of the subsistence lifestyle, and to degrade it,even for a worthy purpose, would be wrong,” Itta said.

RDC NEWS DIGEST

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