Sask. potash revenue a wayward windfall

Hey there, time traveller!
This article was published 23/03/2024 (536 days ago), so information in it may no longer be current.

Eric Cline tells us that Saskatchewan’s potash deposits are rich and vast but buried very deep underground, with layers of water between them and the surface.

Cline — who was in the Saskatchewan NDP government from 1991 to 2007, mostly in senior cabinet positions including industry and resources and was, afterwards, employed as a corporate executive in the private mining sector for 11 years — might be describing his own book. Buried under layers of dull, repetitive prose lies an important account of how various Saskatchewan governments betrayed the public trust in favour of corporate profits.

In Canada, private landowners do not own undersurface minerals. They are held by the provincial governments in trust for the actual owners: the people of the respective provinces.

In Saskatchewan, the potash mining companies own the mines and mills which extract and refine the ore, but the potash in the ground is owned by the province. The province permits companies to extract the potash in return for royalties and taxes. When the mines are owned by the private sector, the responsibility of government should be to ensure their people receive fair compensation for their resources while allowing the companies to receive a fair return on their investments.

Notwithstanding the reference to Canada in the subtitle, Cline’s book is an unapologetic polemic aimed at the people of Saskatchewan. His purpose is to convince them that changes are needed in the province’s taxation regime to ensure government is not gratuitously giving revenue away to the private sector that could be used to mitigate the social ills that plague the province. As a result, he takes for granted a familiarity with Saskatchewan’s political economy that may be outside the experience of the general reader.

In 1975, nine multinational corporations were operating potash mines in Saskatchewan. After these companies refused to cooperate when Allan Blakeney’s NDP government attempted to negotiate a taxation regime more favourable to the province, Blakeney expropriated four mining companies to form a new crown corporation, the Potash Corporation of Saskatchewan (PCS). At one stroke, PCS became the largest potash mining company in the world, controlling 40 per cent of Saskatchewan’s potash.

Despite the traditional instability of mineral prices, over its lifetime PCS generated revenue for the provincial government well beyond what the expropriated mines would have generated had they remained in the private sector.

In 1989, at a time when potash prices were low, the Progressive Conservative government that replaced the NDP sold PCS to private investors for $630 million. From then on, whatever profits PCS made would generally accrue not to the Saskatchewan government, but to investors living outside the province — and, indeed, outside Canada. Cline quotes one economist’s estimate that between 1989 and 2011 alone, the loss to the people of Saskatchewan in foregone revenue could have been as much as $36 billion.

In 2010, the Australian mining giant BHP Billiton attempted a hostile takeover of PCS, offering $39 billion. The Saskatchewan and federal governments blocked the sale under the federal Investment Canada Act, opening the way for a takeover, for about half the BHP offer, by Calgary-based fertilizer company Agrium. The merged companies were renamed Nutrien. The Potash Corporation of Saskatchewan was no more.

A resource that should be used to maximize benefit for the people of the province through revenue, jobs and economic development had been effectively turned over to the world’s largest fertilizer company to be used to maximize corporate advantage to the detriment of the province’s interests.

In 2022, the potash industry in Saskatchewan, boosted by the consequences of Russia’s invasion of Ukraine, earned profits of $12 billion. Government revenue from potash was $3 billion. The government seemed content to see 85 per cent of the proceeds from the people’s resource flowing to investment funds outside the province.

Cline is not against companies making profits. He simply wants a major share of those profits to go to the owners of the potash.

Winnipegger John K. Collins finds it touching that so many people trust that corporations have their interests at heart.