Could Glenfarne claim a state tax break is 'value' it added to company for buyback?
The confidential 2025 document about the AGDC deal with Glenfarne appears to be in wide circulation, as noted in the Alaska Beacon coverage Thursday.
Every member of the Legislature should be required to read this important document and understand it before casting another vote.
And every member of the Legislature should be asking themselves what they didn’t know when the “Build the Line!” political propaganda campaign created the act-now-or-you-will-kill-the-gasline panic.
What members of the Legislature still don’t know is whether Glenfarne can count the value of any tax break it gets as “value” that it has added to the project for buyback purposes.
The document includes milestones that Glenfarne is supposed to be meet, including a June 1 deadline to have had a binding contract by now to sell 1 million tons of LNG a year and letters of intent with firm pricing from natural gas suppliers on the North Slope.
Their agreement follows Delware law and AGDC waived the right to a jury trials for disputes. If there are disputes, Glenfarne and AGDC will go to binding arbitration.
It does appear that if AGDC determines that Glenfarne has not met key milestones, then AGDC can start a process to buy out Glenfarne. AGDC doesn’t have to buy out the company. All of this would be secret for a couple of years.
The amount that AGDC would have to pay Glenfarne would be based on how much “value” Glenfarne has added to the company. So exactly how would that value be calculated?
Glenfarne would propose a price and AGDC could accept it or make a counter-offer.
If the two sides disagree, an “independent investment bank” will be called upon to decide how much money Glenfarne will get. You can take it to the nearest independent investment bank that the two sides will not agree.
The question remains: Exactly how is “value” added to the pipeline project? Do state concessions add value to the project that Glenfarne would want to benefit from? The answer has to be yes from the Glenfarne point of view.
The state should make it clear that concessions can’t be turned into cash at a later date.. One of the amendments that the Senate added to its version of the gasline bill dealt with this.
There is no commercial reason why the general outline of the buyback plan had to be kept secret.
It was kept secret for political reasons. It’s best to get it out in the open right now.
In a June 16 hearing before the Senate Finance Committee, Matt Kissinger, a private consultant who works with AGDC and Adam Prestidge of Glenfarne failed to tell the whole truth in that they didn’t mention the existence of the clawback provisions. Their comments were incomplete and misleading at times.
“There is no scenario in which we would ask the state for money,” said Prestidge. He will argue, no doubt, that he was talking about what would happen if the project goes forward and that the buyback provision would not be a matter of asking the state for money, but asking to be compensated for “value” that Glenfarne brought to the company.
Kissinger and Prestidge were saying this to senators who knew what was in the confidential documents and the senators knew they were not getting the complete story. They were being misled.
Sen. Jesse Kiehl asked about what would happen about ownership of assets if the project doesn’t go forward. Kissinger said Glenfarne would be out, but he failed to mention that Glenfarne, as the developer, would get paid for leaving the 8 Star LLC.
“You’d have a withdrawal from 8 Star by the developer and AGDC would become the 100 percent owner of 8 Star again, as we were. And all that would reside with 8 Star exactly as it did before Glenfarne came into the project,” Kissinger said.
“Is there a provision for compensation for those at the withdrawal of one party?” Kiehl asked.
“No there is not,” said Kissinger.
(The confidential document some legislators had already scene said that Glenfarne would get compensation for whatever ‘value’ it had added. Kissinger should have said that there is a provision for compensation.)
Kiehl asked if legislators could get a copy of that part of the agreement with Glenfarne.
“Please allow us to discuss that in terms of our confidentiality and what each party’s willing to waive,” said Kissinger.
Sen. Bert Stedman said that failure of the project is not in anyone’s best interest, but he said that if Glenfarne exits the scene, “Is there going to be a request back to the state to have to buy that data back?”
Kissinger again did not address the clawback provision, but said that existing information held by the holding company would remain with the holding company, which would be 100 percent owned by AGDC if Glenfarne decided to terminate its relationship. No money would change hands.
That was a misleading and incomplete statement, however.
“Was there preliminary discussions when all this came together about any exit strategies and purchases, buybacks, any of that stuff? It just seems kind of odd to me,” asked Stedman, referring to the 2025 confidential document that Kissinger didn’t know legislators had seen.
“There is a different provision around making the developer leave, which would require a payment, but as far as the developer quitting themselves and no longer pursuing diligent development efforts, no. There was never even a discussion of a payment in regards to that. Them leaving,” said Kissinger.
Kissinger said Glenfarne would have to continue spending large sums of money to qualify as “diligent.” He didn’t admit that there is a provision to buy out Glenfarne, however.
Asked how the value to buy out Glenfarne would be set, Kissinger said “it would be the value that was brought to the project from their involvement. So you sort of take the current value of it and subtract the value of the project when they started. And that difference would be the payment. But again that’s only in case of divorce. There are confidential mechanisms that would trigger that right," Kissinger said.
The triggering events would be Glenfarne missing milestones.
“Who sets that value?” asked Stedman.
An independent third party would set the value to buy out Glenfarne, said Kissinger.
Stedman asked if state incentives and concessions would be defined as value enhancements.
Kissinger said, “I may need to refresh my memory, but as I recollect, it would be based on the value that they bring to it. And so I would argue during that arbitration process that they didn’t bring that particular value that was associated with any state support.”
“So who's bringing the value of the tax change to the table and who benefits from it financially? Stedman asked.
“I’m not sure that I can answer that question to be honest I think that’s a nuance that would be worked out through the arbitration process,” he said. “That’s not laid out in the agreement.”
(This should be laid out in the state gasline bill.)
Prestidge chimed in at that point to say, “This is a scenario that we’re describing where Glenfarne would be in breach of contract of its obligation to continue to develop the project. And so as Mr. Kissinger has stated, Glenfarne is under an ongoing obligation to continue to develop the project. We bear that obligation to do that at our own cost, at our own risk. So this is kind of an outside scenario” if the whole thing falls apart and the state decides to take action to protect its interests.
Prestidge said that if Glenfarne abandoned the project “we wouldn’t have any way to seek any recourse or any reimbursement for what we have done.” What he didn’t say is that if Glenfarne did not meet major milestones, AGDC would have to buy out the company if the state wanted to pursue the project.
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