Winnipeg | Reuters — Resource-rich Saskatchewan wants to change the taxes it charges on production of potash, to better reflect output and lessen the influence of potash prices, the province’s economy minister said Thursday.
Potash prices have weakened since 2012 as capacity has increased. Competition has also sharpened since the 2013 breakup of Belarusian Potash Co., which was one of the world’s biggest traders.
Saskatoon-based PotashCorp and Calgary-based Agrium are wrapping up expansions of their potash mines in Saskatchewan, while Mosaic Co. is also increasing capacity.
Those additions, along with ongoing construction of new mines by K+S AG and BHP Billiton PLC, stand to dramatically boost production in the province, home to nearly half of the world’s known potash reserves.
“One of the things we’re concerned about is if we saw a significant or even a modest drop in potash prices, that we could see large exports of potash with not much royalties being paid,” the province’s economy minister, Bill Boyd, told Reuters.
Saskatchewan, where political risks are lower than in potash producers Russia and Belarus, already has the world’s highest potash taxes.
The government’s first full review of the system in 10 years will start soon and may take 18 months, Boyd said.
He said the new system will be simpler and fairer to all players. Currently, high-volume producers are treated more favourably than new entrants that start at lower output levels.
Saskatchewan has not decided if its review will lead to collecting more or less government revenue, Boyd said, although on Wednesday it made an interim move that will increase revenue this year to plug a budget shortfall.
Producing companies currently pay no potash production tax on 120 per cent of the value of their capital and maintenance spending. With the move on Wednesday, the companies must now take those tax deductions over two years, rather than one.
Potash Corp said it was disappointed with the interim change, which it said will chop $75 million to $100 million from its 2015 pretax earnings.
Mosaic spokeswoman Sarah Fedorchuk said the company was still assessing the impact of the change, and Agrium spokesman Todd Coakwell said it would have no significant impact on near-term earnings.
— Rod Nickel is a Reuters correspondent covering the agriculture and mining sectors from Winnipeg.