Potash royalty review
A few things to remember in all of this; commodity prices go up and down – a lot, companies need to retain some cash in the good times to get through the bad times, companies need to remain competitive on a global basis, companies need to plan for decades at a time so change or even talk of it is disturbing, what is good for our mining sector is generally good for Saskatchewan, some decisions by companies outside of Canada directly impact us and these decisions can be made on things not affiliated with ‘business’ . . . .
2 Jun 2016
Potash royalty review to continue
The provincial government is forging ahead with its potash royalty review, despite extremely weak prices creating a $375.6 million shortfall from the royalty revenues projected in last year’s budget. “We’re going to review all of our revenue sources,” Finance Minister Kevin Doherty told reporters Wednesday. “There is a royalty review going on as we speak with respect to the potash industry. All of those things are on the table with respect to the sources of revenue.’’
The government expects to collect $420.4 million in potash royalty revenue this fiscal year, according to Doherty’s first budget as finance minister, which he presented Wednesday afternoon. Last March, it projected 2015-16 royalty revenues of $796 million.
Former finance minister Ken Krawetz announced the potash royalty review in last year’s budget, which also included a change to the potash production tax that was expected to offset declining oil revenues by about $150 million.
Under the current regime, the provincial government takes two cuts of potash revenue: a Crown royalty on potash mined on Crown lands and a production tax on all potash extracted in the province.
In early 2016, a Ministry of Economy spokesman said the government hoped to have a proposal in place by the end of the year. That remains the objective, a spokesman said Wednesday.
Potash prices have fallen sharply since they peaked at about US$900 per tonne in 2008. The 2016-17 budget said the government expects the average realized price to fall from US$274.85 per tonne in 2015 to US$205.10 in 2016.
Given the current state of the province’s potash industry, it would be prudent for the government to delay implementing any changes until the “fragile” global potash market rebounds, according to a University of Saskatchewan political studies professor. “You understand the pressure for government to look at sources of revenue … but also you’ve got to look at how you create an investment environment where there’s a high degree of predictability and stability,” Greg Poelzer said.
While 2016 may have seemed like the right time to review the province’s potash royalty scheme, changing circumstances mean keeping to the original timeline would be an “unhelpful signal” to send to the industry, Poelzer added.
However, Doherty said the government expects prices to make a modest recovery over the next several years, with the average realized potash price climbing to about US$220 over the next four years.
Potash Corp. of Saskatchewan president and CEO Jochen Tilk was unavailable for comment. He previously told the Saskatoon StarPhoenix that he hoped the review would not be a priority for the government.