19 April 2011 15:29 [Source: ICIS news]
By: Lauren Williamson
“We’re seeing windfall profits that nobody expected to be in place and it should be shared with the public,” Dwain Lingenfelter, leader of the New Democratic Party (NDP), said. He has made conducting a review of the royalties a top campaign issue ahead of the 7 November provincial elections.
In the lead up to the recession, potash prices climbed to above $980/tonne (€686/tonne) FOB (free on board)
Prices then fell dramatically following the 2008 slump, finally stabilising around $320/tonne FOB
Global potash producer Potash Corporation of Saskatchewan (PCS) has its primary base in
Recent spot deals in
Recent increases are attributed to high crop prices, boosted biofuel usage and short supplies on the producers’ side. Higher costs have also prompted many officials in India to temporarily halt potash imports.
“All of the profits [from potash] are going to the foreign shareholders and none of that is going to the owners of the resource – the people of
Of PCS’s 2010 profits, which totalled $1.8bn, the royalties and taxes paid out totalled about $77m. That figure has not increased in recent years because PCS’s massive capital expansion programmes, totalling $7bn ($5.3bn of which is in
Premier Brad Wall, of the Saskatchewan Party, has publicly stated that reviewing the royalty system and capturing more rents could hinder planned expansion efforts. His party’s website further described a potential royalty increase as “job killing” and said it could impact the commodity price and, in turn, hurt local farmers.
Expansion projects are still set to be rewarded with huge profit returns and are not likely to be stalled or stopped due to a royalty review.
“PCS’s expansion plans were committed to a number of years ago – around six years ago – and that was when prices were less than half what they are today,” Lingenfelter said.
In addition, because potash resource deposits are located in specific geographical regions, relocating production facilities is not a viable option for companies. The PCS spokesman said the company would not change any of its expansion plans, even if a royalty review was conducted. Other producers ICIS contacted did not comment.
However, due to the fact
PCS was formerly owned by the government of
The recent attempted takeover of PCS by Australia-based BHP Billiton was thwarted by the government because of fears it would decrease the province’s tax revenues. This marked a break from previous government policy, which supported free enterprise and fair competition.
PCS is currently the world’s largest potash producer. Its brownfield expansion and debottlenecking projects should allow the company to produce 17.1m tonnes/year by 2015, a figure equivalent to more than 50% of total global production for 2010.
Any potential royalty changes, according to Lingenfelter’s plans, would ensure PCS maintains its profitability and attractiveness for investors. Lingenfelter said the new government funds would go towards boosting the local labour pool and strengthening provincial infrastructure, both of which would ultimately support potash-producing operations.
Lingenfelter, who was the province’s deputy premier from 1991 to 2000 and spent more than a decade working for private energy companies, said a balance should be struck between the private and public sectors. Whether he wins the November election or not, he wants the next government to conduct a full review of the royalty system.
Lingenfelter said he has made contact with the major potash producers in the region and is hoping to speak to them individually, though dates have yet to be set. The latest public opinion poll, posted by Election Almanac, indicates the incumbent party is still favoured among voters, with the NDP trailing by 30 percentage points.
“It can be a win-win situation,” Lingenfelter said, while noting that this type of political interest in natural resources is likely to be a global trend as commodity prices rise. “I don’t see
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