GARDINER — City councilors have signaled initial support of a tax break for a proposed $85 million natural gas pipeline project, but they stipulated that Kennebec Valley Gas Co. must build a distribution line to the city’s business park.

The Portland-based firm is seeking tax breaks from 12 communities in central Maine for the 56-mile pipeline that’s scheduled to be complete in 2013. The gas company estimates the Gardiner portion of the project will cost roughly $8.5 million.

At its meeting Wednesday, the City Council approved the first reading of a tax increment financing agreement, the initial step in creating a TIF district in parts of Gardiner where the gas company will have the option of placing a main line and distribution pipe.

Councilors also agreed to some form of a tax break through a credit enhancement agreement if certain conditions are met, including a distribution line being built to Libby Hill Business Park. Two more votes are required to finalize the tax break.

“What’s tricky about this TIF district is that there’s a lot still up in the air,” said councilor Patricia Hart.

City Manager Scott Morelli gave company officials a stark choice: If there is no gas line to connected to the business park, then there will be no tax break.

“There will be other conditions that the city wants to see before we approve a credit enhancement agreement as well, such as running gas lines to our high school and middle school if the schools choose to utilize natural gas,” Morelli said. “In general, we’ve already come to an informal agreement on those other conditions.”

Morelli said the natural gas option is critical to helping the city attract new business to Libby Hill. Natural gas service can potentially lower the energy costs for companies in the park, which is located at the junction of Interstate 295 and Interstate 95.

“As we all know, energy costs are very high in this region and can be a barrier to business,” Morelli said. “If our business park cannot get natural gas either because KV Gas chooses not to run pipe through Gardiner, or they are not given a tax break and therefore won’t run (a gas line) to Libby Hill, we put our community at a severe disadvantage.”

Richard Silkman, a partner of the Kennebec Valley Gas Co., said he is pleased the council voted to support the pipeline and that he hopes to provide natural gas service to the business park.

“But right now there aren’t that many businesses in the park; therefore, the amount of gas demand in the park is low,” Silkman said. “We’re very interested in growing with the city; the challenge is to figure out how to get a pipe out there economically, and that’s one of the things we’re going to work on.”

Now, the park has five tenants, including EJ Prescott, Inc. and Pine State Trading Co.’s beverage division. It still has 12 lots available in the second phase of its expansion.

Even though councilors still must vote on the proposed tax break during second and third readings, Silkman said he’s optimistic the request will ultimately pass.

“We’ll put our minds together to figure out how we can do this,” he said.

Councilor Philip Hart — no relation to councilor Patricia Hart — said the natural gas line is an economic tool that the business park needs.

“I just hope the public keeps an open mind as we go through this process to give our business park more advantage,” Hart said.

Morelli said it will be much more difficult for the city to bring businesses into the park if surrounding communities have access to natural gas and Gardiner does not.

“If we can tell potential businesses that they have the option of natural gas at our business park, that could be the tipping point in a sale,” he said.

Silkman said his company also would like to supply natural gas to the schools in Gardiner. Eric Jermyn, school board member and finance chairman, said the school district needs to find ways to lower its fuel costs, and the best alternative to heating oil is natural gas.

“We would definitely be interested in having a pipeline come to the high school,” Jermyn said at the meeting. “If it’s available, natural gas is a welcome alternative for us.”

Silkman said Gardiner schools are close to downtown, which will likely be connected to the pipeline, so it will be easier to serve them.

Morelli said it is important for residents to understand that the city is not going to raise their taxes to pay for a tax break. The gas company will pay property taxes and the city will then reimburse the company a percentage of those taxes, he said.

“We are closer to getting natural gas at Libby Hill, but the devil is in the details, so there is still quite a bit of work to do,” he said.

Mechele Cooper — 621-5663

mcooper@centralmaine.com