Corporate Profits By Saskatchewan's Potash Industry Argue For Higher Royalties
The citizens of Saskatchewan own the Potash reserve that sits below the surface of the province. We own it. However, we allow private companies to mine the potash. In return, the owners of the resource (the people) are receiving approximately 10 cents for every dollar of potash that the companies dig up and sell. They get about 90 cents to the dollar - the citizens get about 10 cents from a combination of royalties and taxes.
Many of us in Saskatchewan feel that we are being burned by Brad Wall's corporate world view. In Wall's world 'we all benefit when corporations make billions from our natural resources ....' or some such nonsense.
Economist Erin Weir has some thoughts on the massive give away that occurs daily in Saskatchewan:
by Erin Weir - July 17th, 2012quarterly report provides further evidence that the Government of Saskatchewan should improve its royalty and tax structure to collect a better return on the province’s non-renewable resources like potash.
Despite higher potash prices, Mosaic paid lower royalties and resource taxes to Saskatchewan last quarter than in the same quarter of last year. In the three months ended May 31, 2012, Mosaic paid $100 million in provincial resource charges from over a billion dollars ($1,037 million) of potash sales.
By comparison, in the three months ended May 31, 2011, the company paid $108 million from only $982 million of potash sales. In other words, Mosaic’s royalty and resource tax payments to Saskatchewan declined even as the value of potash sales increased.
Reductions in provincial royalties and taxes were supposed to provide incentives for increased production. However, Mosaic actually mined less potash last quarter than a year ago (1.9 million vs. 2.2 million tonnes). The increase in sales values simply reflected higher prices ($455 vs. $404 per tonne).
The annual figures confirm that provincial royalties and resource taxes amount to only one-tenth the value of potash sold. In the year ended May 31, 2012, Mosaic paid $328 million to Saskatchewan from $3.3 billion of potash sales. In the year ended May 31, 2011, it paid $294 million from $3.1 billion of potash sales.
The amount of potash mined changed little from one year to the next (7.4 million vs. 7.3 million tonnes). The higher sales value instead reflected stronger potash prices ($448 vs. $359 per tonne). Windfall gains from higher commodity prices should accrue to the people who own the resource rather than to the companies that extract it.
Mosaic reports “Canadian royalties” and “Canadian resource taxes.” Since its Canadian potash mines are in Saskatchewan, these amounts represent the provincial Crown royalty and Saskatchewan’s resource surcharge plus potash production tax. There is an interesting breakdown on the second-last slide of Mosaic’s PowerPoint presentation.
Progressive Economics Forum