U.S. tax break for plant could hit $100M

By Collin Gallant on March 3, 2018.

cgallant@medicinehatnews.com @CollinGallant

Premier Rachel Notley said this week her government won’t let the U.S. Gulf Coast “eat our lunch” when it comes to luring new petrochemical plants to the province.

New documents presented to a Louisiana school board however, give an idea the tab might be US$100 million in foregone property tax or other grants for a single plant.

Vancouver-based Methanex Corp. operates in both Alberta and Louisiana, and is currently deciding on which operation could see billion-dollar plant expansions.

It told school officials in Ascension Parrish (the county where its Geismar plants are located), that a proposed third plant would bring up to US$1.6 billion in construction by 2023 and 25 good-paying, permanent jobs to the area.

However, a go-ahead could hinge on the state’s Industrial Tax Exemption Program, known as ITEP, which sees new facilities complete property tax exemptions for five years, then a greatly reduced rate for another three.

Each local taxing authority, including the municipality and sheriff departments, must approve the exemption that would cost the school board alone between US$53-$83 million over eight years.

After that, the company states, it would pay up to US$5 million annually in school taxes for the following 23 years, for a total of US$66 million. Considering county and law enforcement, the number could easily be double. The presentation was for information only and no action was taken.

In Medicine Hat, where Methanex first proposed twinning its methanol plant in 2013, city councillor Jamie McIntosh said the numbers presented are “massive.”

“We’ve spent time talking about what types of incentives or subsidization we could look at,” said McIntosh, referring to electricity rates for large industry with a new plant or significant expansion.

“This sort of tax relief is way beyond anything we’ve discussed or would be capable of doing.”

All is not gloom for Medicine Hat however.

The presentation states Methanex is still weighing many factors in siting the plant that could break ground in 2019.

The natural gas price in Alberta is about half the cost of feedstock in Louisiana, where there is easy access to shipping ports. Production from either plant would fill growing demand in Asia. The company has said negotiating a rail contract to Vancouver is a critical component of the local proposal.

“We are still in the early stages of project evaluation,” reads a statement from the company, noting that delays are typical. “There remain a number of factors that would have to be overcome before any final investment decision could be made, and any new potential investment decision would be weighed against other uses for the cash.”

See Methanex, Page A2

It also lauded recent action by Alberta to study investment climate and grow the sector as recommended by the Energy Diversification Advisory Committee.

“We provided input into the extensive EDAC consultation process, which has resulted in meaningful recommendations,” the statement reads.

Alberta politicians have long complained that a raft of incentive measures in Louisiana give an unfair advantage when it comes to new investment.

Province responds

On Monday Notley and Energy Minister Margaret McCuaig-Boyd publicly endorsed the report that says the province should work to make investment in the sector more attractive.

It makes no mention of direct monetary support or tax exemptions, but rather working to ensure supply and export capacity to counteract construction costs can be as much as 15 per cent higher. It names Medicine Hat among several locations as potential petrochemical hubs.

“We believe Medicine Hat has great potential for further downstream development and value-added processing jobs,” said McCuaig-Boyd in a statement to the News on Friday. “Upgrading our raw resources into higher-value products will open new markets, create jobs and ensure Albertans get top dollar for our resources.”

More specific energy diversification initiatives could be announced in the coming weeks, said McCuaig-Boyd.

The province offered C$500 million in royalty credits in 2016, which manufacturers could trade with petroleum suppliers.

Two polyethylene plants divided that grant award and work, valued together at C$6 billion, is underway near Edmonton.

That same sort of incitement should be considered, said McIntosh, though he admits the issue is very complex.

“The province would have to be involved in a big, big way,” he said.

In 2013, Methanex announced it was exploring the idea of twinning its restarted methanol facility in Medicine Hat, but the proposed US$1.3 billion project is still in the feasibility stage.

Major shareholders have also lobbied the board to halt expansion spending to return more profit to investors.

The company responded by concentrating new capital spending toward less expensive projects in Chile.

The recent presentation in Louisiana states it could move ahead with a North American expansion — either in Medicine Hat or Geismar — and break ground in mid-2019.

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