BHP takeover could cost Saskatchewan heavily: Wall

October 1, 2010

Saskatchewan stands to lose tens of millions of dollars in corporate income tax if Potash Corp. is taken over by mining giant BHP Billiton Ltd., a negative outcome that will weigh heavily on the province's decision whether to support the bid.

Premier Brad Wall said preliminary estimates show the province could lose up to $100-million a year in corporate income tax, or about 1 per cent of provincial revenue, if BHP writes off interest associated with its fully financed $38.6-billion (U.S.) bid against income.

"For us, it is a big deal, potentially," Mr. Wall said in an interview with The Globe and Mail on Thursday.

It's another major issue for the province as it considers whether to recommend BHP's bid to Ottawa, which must decide whether the transaction will be of "net benefit" to Canada.

The province is also worried about a drop in royalties if BHP bows out of the Canpotex marketing arm as planned and operates its mines at full capacity, which would result in lower potash prices.

BHP has said the Canpotex cartel-style system of matching supply with demand is becoming outdated, and believes potash sales will move toward market pricing, as have other commodities it produces, such as coal and iron ore.

However, Mr. Wall believes potash is a much different market, and Saskatchewan needs to be wary given that it holds about 50 per cent of the world's potash resources.

"I respect the fact that this is a very successful mining company, but the fact is they haven't sold any potash yet," Mr. Wall said.

"[Potash]is an industry where they sell into small co-ops ... . It's not an iron ore big-business to big-business thing."

Saskatchewan is expected to earn $221-million in potash royalties this year from all three companies involved in Canpotex: Potash Corp., Calgary-based Agrium Inc. and Minnesota-based Mosaic Co.

Potash Corp. is the largest player of the three, and any drop in royalties would be "significant," Mr. Wall said.

Suggestions that the government should simply change its royalty structure to bump up revenue is easier said than done, Mr. Wall said, given there are other players in the industry. He also pointed to problems Alberta had when it raised its oil and gas royalties and had to back down after widespread industry opposition.

What's more, the Premier believes Canpotex works. "I don't know how we are served by breaking apart a very successful marketing link," he said. "I've seen more evidence based on history of the opposite of what is being claimed, that a different model would serve everybody better."

The Premier's comments come days ahead of the release of a Conference Board of Canada report the province commissioned to study the risks and rewards of a takeover of Potash Corp., one of its largest taxpayers.

BHP said Thursday that the provincial taxes paid will not change substantially if its bid for Potash Corp. is approved.

"We expect to pay substantial taxes in Canada while we are investing significantly in growth," a BHP spokesman said.

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