By Chester Dawson
The Western Canadian province of Saskatchewan said Wednesday it
would seek to make up for a budgetary shortfall by offsetting
declining oil royalty revenue with accelerated taxes on producers
of potash, a key ingredient in fertilizer.
The move, which was strongly criticized by the world's biggest
potash miner by production capacity, reflects the growing pressure
local governments in oil producing regions face as crude prices
have fallen more than 50% from mid-2014 levels down to six-year
lows.
The government of Saskatchewan said it revised the province's
Potash Production Tax to make up for a 661 million Canadian dollar
($525.7 million) drop in revenue from lower oil prices. It will do
that by forcing potash producers to spread out tax deductions on
capital spending over a longer time frame.
The chief executive of Saskatoon-based Potash Corp. of
Saskatchewan, the world's top producer of the potassium-based
fertilizer ingredient, said he was "disappointed" by the
government's shift in tax policy, which he said would cost the
company C$75 million to C$100 million in pretax earnings.
"Changing the rules midstream impacts the ability of our
shareholders to earn a fair return on their capital and undermines
Saskatchewan's relative competitiveness," CEO Jochen Tilk said in a
statement.
Saskatchewan is the largest potash producer in the world, with
about 30% of total production volumes and nearly half of global
reserves.
Provincial Finance Minister Ken Krawetz, who announced the
change as part of a new budget, justified the action by stating the
potash industry has benefited from an "excellent investment and
operational environment."
"This change was made following consultation with the potash
industry, which continues to show tremendous confidence in
Saskatchewan through major capital expansions," Mr. Krawetz said in
a statement.
The finance minister noted in a speech to the province's
legislative assembly that Plymouth, Minnesota-based Mosaic Co.
announced plans last week to invest C$1.7 billion at its K3 potash
mine in Saskatchewan, which is the world's biggest potash mine.
Representatives for Mosaic weren't available for immediate
comment on the tax policy change.
Saskatchewan estimates its share of oil royalties will fall to
C$903 million based on an estimated average price for benchmark
West Texas Intermediate crude of $57.15 per barrel. A year ago, the
province projected its oil royalty take at C$1.6 billion based on
an expected WTI average of $94.25 a barrel.
At the same time, the provincial government projects C$796
million in potash royalties this year based on an average potash
price of $297 per ton. That is more than double the C$397 million
forecast a year ago for its potash royalties based on an estimated
average potash price of $274 per ton.
The policy revision will allow Saskatchewan to balance its
provincial budget, sparing municipalities from cuts in revenue
sharing and keeping tax rates steady.
The budget calls for spending C$14.28 billion, up 1.2% over
2014, and spending C$14.17 billion, also an increase of 1.2% over
last year.
Write to Chester Dawson at chester.dawson@wsj.com
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