Sharing the hunt with ANCSA Section 7(i)
Based on tradition, profit sharing ensures ANCSA corp survival Alaska Native Claims – October 12, 2021
Last updated 1/6/2022 at 2:15pm
From the wide distribution of the massive resources provided by a bowhead whale harvested in the icy waters of the Beaufort Sea to sharing the catch from successful fishing in the Gulf of Alaska, sharing the bounty nature has to offer is among the most important core values of Alaska Natives across the state.
This millennia-long tradition of sharing the hunt has been enshrined in the sections 7(i) and 7(j) provisions of the Alaska Native Claims Settlement Act.
From the early discussions about settling Alaska Native land claims, there was recognition that some regions were richer in natural resources and therefore had more potential for economic prosperity.
While this perceived natural resource disparity was partially addressed when calculating how much land was conveyed to each of the 12 regions established under ANCSA and how much of the $962.5 million in cash compensation for lost lands was distributed, various Alaska Native groups felt there needed to be an added mechanism for sharing the wealth from the harvest of natural resources.
This method came in the form of sections 7(i) and 7(j), which were amended in 1982.
ANCSA Section 7(i) requires regional corporations to contribute 70% of net revenues from resource development on ANCSA lands into a pool that is distributed among the 12 ANCSA regional corporations. In turn, Section 7(j) requires that half of the Section 7(i) payments received are distributed to the respective village corporations within each of the ANCSA regions.
The "leveling effect" of 7(i) and 7(j) creates economic activity that otherwise would not occur in recipient regions and provides village corporations with vital funding.
Regional and village ANCSA corporations use 7(i) and 7(j) revenues to fund educational programs and scholarships; programs for elders; business investments; shareholder dividends; and corporate expenses such as overhead and taxes.
Over the years, every ANCSA regional corporation has had periods when it received more 7(i) payments than it paid out, so all 12 regions and their shareholders have benefited from 7(i) and 7(j) income during slim years.
It is estimated that roughly $4 billion has been paid into the Section 7(i) pool over the years.
While the Arctic Slope Regional Corporation has been a major Section 7(i) contributor over the decades due to the rich stores of oil and gas in its region that spans Alaska's entire North Slope, the ANCSA sharing mechanism threatened to bankrupt ASRC early on.
Up until the Section 7(i) settlement agreement was amended to ANCSA, there was an ongoing dispute of how profits were to be shared.
Settling on putting 70% of revenues into a pool to be shared amongst the regional corporations put ASRC in the position of owing $7 million in back 7(i) payments, a significant amount for a corporation trying to get on its feet.
Faced with a financial crisis, the leaders of ASRC came up with an ingenious solution – trade surface estate it owned within the Gates of the Arctic National Park for subsurface mineral rights under the village of Kaktovik and within the Alaska National Wildlife Refuge (ANWR).
The Kaktovik Iñupiat Corp. (KIC), a village corporation, owns the surface rights to this 92,000-acre land package.
With the Kaktovik land exchange, ASRC was able to generate several million dollars by entering into exploratory agreements with oil companies on the new land.
This ingenious solution allowed ASRC to pay its Section 7(I) obligations and helped catapult the northernmost ANCSA regional corporation to the top of Alaska-owned businesses.
During 2019 ASRC generated $3.8 billion in revenue, enough to place it as the top Alaska company, according to Alaska Business' 2020 Top 49ers, which ranks the top Alaskan businesses by revenue.
An early 7(i) contributor
Cook Inlet Regional Corp., better known as CIRI, played a pivotal role in helping get fellow ANCSA corporations on their feet with early contributions into the Section 7(i) pool.
"We are not the biggest 7(i) distributor, but we were the earliest, and a significant contributor to allowing corporations to actually stay in existence," said Margie Brown, who worked in CIRI's land department from 1976 to 1995 and served as the corporation's president and CEO from 2005 to 2012.
The ability to flow cash into the revenue sharing pool early on was largely due to some strategic land selections in oil and gas-rich areas of Cook Inlet, along with the tenacity and savvy of CIRI's early leadership that ensured the ANCSA corporation received its fair share of royalties from oil and gas production from its lands.
"Because CIRI fought for its rightful entitlement, the company was able to select valuable lands that would, over time, bring in hundreds of millions of dollars, providing CIRI a strong financial foundation early on," said Brown,
That strong financial foundation during CIRI's early years helped to ensure the solvency of many of the other Alaska Native regional and village corporations around the state, thanks to special provisions of ANCSA known as sections 7(i) and 7(j).
In addition to giving their fellow ANCSA corporations an early financial boost, the early revenues from oil and gas fields in the Cook Inlet area provided a foundation for CIRI's success.
"Growing a company organically is a slow slog, a hard process," Brown said. "But with oil and gas revenues coming in so early, even though we were sending a lot out by way of 7(i) distributions, the amount we kept was significant, and we could use those revenues, and we did use those for other investments, whether it was into radio and T.V. stations or real estate-they provided the underpinning that allowed us to go out and do business in other arenas much earlier than others were able to do."
Significant Red Dog contributions
When it comes to 7(i) proceeds from mining, NANA Corp. has been by far the largest contributor.
Of the approximately $2.4 billion in proceeds NANA received from the Red Dog zinc mine on its lands through 2020, the Northwest Alaska Native corporation paid roughly $1.5 billion in 7(i) payments to the other ANCSA corporations.
"That means we have a significant impact on the rest of the state and the other Alaska Native communities," NANA Vice President of Lands Liz Cravalho informed Alaska lawmakers.
NANA President and CEO Wayne Westlake told Data Mine North that sharing is among the core values of the Iñupiaq people, and he is proud of NANA's ability to share the bounty from Red Dog to the other corporations.
Calista Corp., which aspires to be another major 7(i) contributor from the proceeds of mining the world-class Donlin Gold deposit on its lands in the Yukon-Kuskokwim region of Southwest Alaska, appreciates the shared bounty from Red Dog and other natural resource projects across Alaska.
"Royalty sharing has historically kept many Alaska Native corporations from going bankrupt," said Calista President and CEO Andrew Guy. "To this day, Red Dog payments are a significant source of income for regional and village corporations."
Calista hopes that mining the 39-million-ounce Donlin Gold deposit will provide jobs and economic benefits that will ensure prosperity for its shareholders while also sharing the wealth with the other ANCSA regions.
"Donlin Gold royalties would similarly be shared with other Native corporations for the benefit of their shareholders," the Calista president inked in an Oct. 17 editorial.
Calista says this sharing aligns with its core traditional value of its people to work together as a village to harvest what is needed each season.
This value of sharing the harvest is deeply ingrained in the culture of Alaska Native people across the state who have not only survived but thrived in a land that can sometimes be harsh and foreboding.
Or, as Shaun Johnson, an 11th grader from Kiana wrote, "In the past, during times of starvation, it was important that everyone work together and share limited foods. If this value wasn't held by our people, the culture would have died generations ago."
It may have been a similar story for many regional and village corporations if sections 7(i) and 7(j) sharing had not been enshrined in ANCSA.