Royalty review would put jobs, mines at risk

Saskatchewan’s energy minister says changing the province’s royalty regime would put prosperity at risk.

REGINA — Saskatchewan’s energy minister says changing the province’s royalty regime would put prosperity at risk.

In an open letter to media Wednesday, Bill Boyd fired back at critics and observers who have said it’s time to review how companies such as Potash Corp. (TSX:POT) pay the province for the right to develop resources.

Boyd said it’s important to consider what would be jeopardized if the province embarked on a full-scale review of potash royalties.

“Current plans for billions of dollars in mine expansion and new mine construction, plus thousands of new jobs in Saskatchewan, would be put at risk,” he wrote.

“The path outlined by (Opposition NDP Leader Dwain) Lingenfelter and others will clearly take Saskatchewan backwards. It would kill jobs, reduce prosperity and take us all back to a time when we were a have-not province.”

Lingenfelter said last week that the province isn’t getting its fair share.

Last month, Potash Corp. posted $1.8 billion in annual profits for 2010. Lingenfelter said the company paid $76.5 million in royalties.

“Last fall, the people of Saskatchewan stood up for the Potash Corporation and this is how they repay us? I think it’s time to review our relationship with the Potash Corporation and all these huge potash companies,” he said in a news release.

“It’s time they displayed real commitment to Saskatchewan and started paying their fair share for the right to develop Saskatchewan potash.”

Saskatoon-based Potash Corp. fought a bitter takeover fight with Australian mining giant BHP Billiton last fall. The province stood by the company and Premier Brad Wall said he was dead set against the deal.

Wall argued that Saskatchewan could lose billions in revenue from taxes and royalties if BHP’s bid were successful. The premier also said Canada’s strategic interests would be at risk if it sold most of its potash industry to an international company.

The federal government ultimately rejected the BHP offer as unlikely to be of net benefit to Canada.

But that decision doesn’t mean potash companies have now turned their backs on Saskatchewan, Boyd said.

He pointed out that potash companies will invest more than $12 billion in the next decade and increase provincial capacity by roughly 65 per cent. About 19,000 person-years of employment will be created through construction, along with a permanent increase of 30 per cent in jobs, he said.

Boyd added that a royalty review could create uncertainty in the resource sector. He noted the impact of a 2007 royalty and tax study in Alberta by an independent panel.

The government decided it would increase the money it took from energy companies by as much as 20 per cent. That would have potentially brought an additional $1.4 billion into provincial coffers.

But energy companies threatened to take their business elsewhere and the province ultimately backtracked.

Boyd suggested the current royalty regime in Saskatchewan is largely the work of the previous NDP government. He also said Saskatchewan’s royalties are twice as high as any other jurisdiction in the world when expressed as a percentage of net revenue.

He predicted potential fallout if the province decided to go for more cash.

“I caution those who believe this province can charge whatever it wants for potash, given its abundant supply. They should remember that Saskatchewan has roughly half of the world’s potash. That means half is somewhere else,” he said.

“Potash companies could take their expansion plans elsewhere, if Saskatchewan fails to remain competitive.”

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