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Friday, February 18, 2011 

Brad Wall Says 'NO' To Potash Royalty Review ... And The Ripoff Is Worse Than You Know

Saskatchewan Premier Brad Wall and Potash Corp. of Saskatchewan CEO Bill Doyle

-In 2009, (the so-called bad year for potash) PotashCorp made a profit of $988 Million (third highest in their history) and ultimately paid NO ROYALTIES! (Note: the $29 Million initially paid to the province was later calculated as an overpayment).

-In 2010, (a good year for potash) PotashCorp made a profit of $1.8 BILLION and paid $76.8 Million in royalties to the province.

So let's do the math: ($988 Million plus $1.8 Billion = $2.788 Billion clear profit). With a Royalty stipend of $76.8 Million paid. What that means is that over a two year period, the People of Saskatchewan earned 2.7 Cents on every Dollar of profit that went to PotashCorp.

Brad Wall thinks that this is 'fair'.

He is refusing to even take a look at the Royalty structure. Why? Is it simply his adherence to Right Wing ideology or are pockets being lined? ... just asking!

-Photo courtesy Richard Marjan, The StarPhoenix
-Thanks to Mr. Erin Weir for correcting my figures ...

Progressive Bloggers

Of course, I agree that royalties are way too low.

But PotashCorp did pay royalties of $29 million in 2009. See the final column on page 9.

Thank you, I have corrected my numbers. However, am I not correct is stating that $0 royalty was paid by PotashCorp to the province for 2009 in view of the fact that the Wall gov't ended up returning funds to the corporation (for 2009) in early 2010?

The difference is between calendar and fiscal years. Royalties are ultimately assessed based on potash sales and costs in a calendar year. These calendar-year totals cannot be negative.

However, the provincial budget reports royalties on a fiscal-year basis. As you note, potash royalty revenue did turn negative in the 2009-10 fiscal year.

Companies made initial royalty payments in the first three months of 2009 (before the end of the 2008-09 fiscal year) based on overly optimistic assumptions about the rest of that calendar year. Those overpayments were counted as revenue in 2008-09, but then had to be refunded in 2009-10.

Bottom line is that the people of Saskatchewan received only a pittance over those 2 years.

That’s true, but “a pittance” is not the same thing as “no royalties.”

Your post now states, “the $29 Million initially paid to the province was later calculated as an overpayment.” In fact, PotashCorp ultimately did pay $29 million for 2009. The overpayments were in excess of that amount.

To illustrate what happened, here are PotashCorp’s royalty payments in the four quarters of 2009.
Q1: +$33.0 million
Q2: -$18.1 million (rebate)
Q3: +$2.1 million
Q4: +$12.0 million
Total: +$29.0 million

In the 2009 calendar year, PotashCorp paid $29 million. However, only the last three quarters of 2009 were counted in the 2009-10 fiscal year.

I am sorry to nitpick, but since the numbers so strongly support our case for higher royalties, we should strive to get them right.

Erin .. what amount was rebated/refunded back to PotashCorp in calendar 2010 for fiscal 2009?

That is more a matter of provincial budgeting than of corporate accounting.

The explanation is on pages 3 and 4 of Saskatchewan Finance’s 3rd Quarter Report from 2009-10 (pages 5 and 6 in the PDF). As I noted above, the issue was that first-quarter payments are based not on sales and costs in that quarter alone, but on 25% of projected sales and costs for the whole calendar year.

My understanding is that PotashCorp prepaid significantly more than the $33 million. The government booked the extra money as revenue in 2008-09, but had to give it back in 2009-10.

We know that, for the entire industry, refunds exceeded royalties by $203.9 million in that fiscal year. The government does not provide breakdowns by company.

However, PotashCorp reported an “account receivable” for royalties of $234.6 million as of December 31, 2009, which was down to zero by March 31, 2010 (see page 11). So, the government must have refunded that amount to PotashCorp during the first quarter of 2010.

However, please do not conclude that PotashCorp paid “NO ROYALTIES” in 2010. It paid $76.5 million in 2010, after having paid $29.0 million in 2009. The refund just returned an excessive prepayment that PotashCorp itself did not count as 2009 royalties.

Does this include GST, PST and corporate income taxes?

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