John W. Warnock


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The Potash Industry in Saskatchewan | Foreign Ownership and Control, a Potash Cartel, and Minimal Benefits for the Province

Exploiting Potash in Saskatchewan: Who Benefits?

 

by John W. Warnock


Canadian Centre for Policy Alternatives                                       

Saskatchewan

January 27, 2011

 

In August 2010 BHP Billiton, the largest mining corporation in the world, announced that it was making a bid to buy control of the Potash Corporation of Saskatchewan. For the next three months there was a national debate on the issue. The provincial Saskatchewan Party Government took a strong stand against the takeover, as did the opposition New Democratic Party, the federal Liberal Party and various business interests. It was expected that Stephen Harper's Tory government in Ottawa would approve the takeover. The Harper government had consistently supported increased foreign investment in Canada and had opposed any government taking action in such cases.


Many across Canada expressed dismay at the prospects of another takeover of a major Canadian corporation. The provincial government went to Investment Canada asking it to rule that the foreign takeover was not of "net benefit" to Canada. Investment Canada was created by Brian Mulroney's federal Conservative government in 1985 to replace the Foreign Investment Review Board. Its goal was to promote foreign investment. Since that time it had reviewed over 1600 takeovers of Canadian corporations by foreign corporations and rejected only one!


Nevertheless, major political and business pressure was put on the Harper government. Under threat from their political allies in Saskatchewan, they caved in and blocked the takeover. But during the political discussion none of the political parties, business leaders or the mass media asked the most important questions. Who owns and controls the Potash Corporation of Saskatchewan? Is it really a Canadian corporation? Why are the royalties and taxes on the industry in Saskatchewan so very low? Why are its profits so high? Has the province in any way benefitted from the privatization of the Potash Corporation of Saskatchewan, a vibrant Crown corporation at one time? How would it be possible for the people of Saskatchewan to once again own and control this most important resource corporation?

 

These are the issues that I have addressed in this paper. It is now available on the CCPA-SK web site: https://www.policyalternatives.ca/newsroom/news-releases/saskatchewans-potash-who-really-benefits-report
   


 

CCPA-SK:

 

The Canadian Centre for Policy Alternatives, Saskatchewan Office today released Exploiting Saskatchewan’s Potash: Who Benefits? by John W. Warnock. The new report considers the history of potash exploitation in the province with an eye to answering the question of whether the people of Saskatchewan are receiving the full benefit from the exploitation of this strategic natural resource.

 

With the recent controversy over the proposed BHP Billiton takeover bid of PotashCorp, the question of ownership of Saskatchewan’s vital natural resources are again front and centre. Warnock argues that to ensure that Saskatchewan receives the full benefit of its natural endowment, we must move to a more democratic form of resource ownership and management.Some of the key questions and insights contained in this history of potash in Saskatchewan include:   

 

Public ownership of potash was largely a success, despite current accounts that argue that privatization “rescued” PCS. Between 1978 and 1981, the return on investment ranged between 21 and 34 percent. PCS “added large sums to the provincial revenues well beyond what the mines PCS purchased would have generated through provincial taxes if they had remained in the private sector.”   

 

The Devine government sabotaged the profitability of PCS, preventing the Crown from expanding its capacity and undertaking its own marketing operations.   

 

The people of Saskatchewan did not get full value for their money during the initial privatization of PCS in the 1980s, with the costs of privatization exceeding the benefits by between $18 and $36 billion. 

 

The Saskatchewan public believes PotashCorp to be a Canadian owned and controlled company. However, the Conference Board report commissioned by the Wall government concludes that PotashCorp is “substantially a U.S-based company.” They also describe it as “a North American corporation with Saskatchewan operations” (Conference Board, pp. 23-25).   

 

PotashCorp’s gross profit margin for potash in 2009 was an astonishing 60 percent. Why should the private owners be granted a return on investment that is far higher than can be found in any other industry?   

 

The average rate for royalties and taxation on potash is 10.8 percent, substantially less than the 25 percent imposed during the Blakeney era. With potash set to become an ever-more valuable resource due to growing world population and lack of arable land, it is time for the people of Saskatchewan to have a frank and open discussion on how best to manage this resource in the future so that it benefits all the people of our province.
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