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Potash: The Folly of Privatization

I have the following op-ed in today’s Regina Leader-Post. Below it is a table supporting my statement that “the mines that PCS owned in 1989 still account for 80 per cent of its potash production and capacity.”

Privatizing Potash was a Costly Mistake

The greatest tragedy in BHP Billiton’s $38.6-billion (U.S.) bid for the Potash Corporation of Saskatchewan (PCS) is that the Government of Saskatchewan previously sold PCS for just $630 million. This privatization was the worst fiscal decision in the province’s history and has been aggravated by subsequent royalty giveaways to private potash companies.

PCS was created in 1975 as a provincial Crown corporation. The Saskatchewan government privatized it in 1989, selling all of its shares by 1994.

Presumably, the proceeds were deducted from the provincial deficit. Borrowing $630 million at 10 per cent interest, compounded over two decades, would have added $4.2 billion of provincial debt by now.

In fact, provincial bond rates have fallen far below 10 per cent since the early 1990s. Also, had PCS shares not been sold, dividend payments to the government would have partly offset interest charges on its additional borrowing. Therefore, $4.2 billion is a very optimistic estimate of privatization’s fiscal benefit.

The fiscal cost of privatization is the amount that PCS would be worth had it remained a Crown corporation. Since privatization, PCS has acquired additional potash mines in Saskatchewan and New Brunswick, phosphate and nitrogen facilities in the U.S. and Trinidad, and shares in other fertilizer companies.

During the 1990s, Crown corporations were encouraged to invest outside the province. Therefore, PCS could have made the same acquisitions and developed along the same lines had it remained a Crown corporation. If so, the fiscal cost of privatization is at least $40 billion (the Canadian-dollar value of BHP’s offer), which is about 10 times the maximum fiscal benefit.

Of course, privatization supporters would claim that PCS has been better managed as a private company. Had it remained a Crown corporation, PCS might have lacked the initiative or financial ability to expand.

However, the mines that PCS owned in 1989 still account for 80 per cent of its potash production and capacity. Since 70 per cent of the company’s current gross margin is from potash (rather than phosphate and nitrogen), these mines still provide at least 55 per cent of overall profits today.

If PCS had simply held onto those historic assets, it would now be worth more than half of today’s value. Even assuming that PCS would have completely stagnated as a Crown corporation after 1989, the fiscal cost of privatization was still more than five times the maximum fiscal benefit.

Depending upon which assumptions one accepts, the costs of privatization exceeded the benefits by between $18 billion and $36 billion. In other words, the Saskatchewan government gave up between $17,000 and $35,000 for every man, woman and child in the province.

Saskatchewan’s potash reserves still belong to the public. Unfortunately, the provincial government has been slashing the royalties charged to PCS and other companies that mine these reserves. Saskatchewan’s misguided royalty holidays on increased potash production in 2003 and 2005 simply prompted the U.S. and New Brunswick to cut their potash royalties.

This race to the bottom has robbed Saskatchewan residents of an appropriate return on their resource. The potash industry extracted the same tonnage from Saskatchewan in 2005 and 2008. Entirely due to price increases, this output was worth $4.7 billion more in 2008 than in 2005.

Most of this gain should have accrued to the people of Saskatchewan, who own the resource. Yet provincial potash royalties rose by only $1.1 billion between the 2005 and 2008 fiscal years.

The provincial government then refunded much of this money to PCS and other potash companies following the economic crisis. As a result, royalty revenues actually turned negative in the 2009 fiscal year, even though the dollar value of potash sold from Saskatchewan remained higher than it had been in any year before 2007.

Of course, profits in excess of royalties are subject to corporate income tax. However, the Canadian government is slashing its corporate tax rate from 29 per cent in 2000 to just 15 per cent by 2012.

Between 2006 and 2008, Saskatchewan cut its rate from 17 to 12 per cent. Wholly or partially reversing these corporate tax breaks would give the public a more significant fraction of future potash profits.

The prospect of a PCS takeover underscores the folly of having privatized Saskatchewan’s crown jewel. Whether or not a takeover occurs, governments should strengthen their royalty and tax regimes to collect a fairer share of potash revenue for the public.

Erin Weir is a Saskatchewan expatriate working at the Canadian National Office of the United Steelworkers union, which represents most of Saskatchewan’s potash miners.

PCS Potash Mines (millions of KCl tons)






















































































60% Allan

































40% Allan















Patience L.















N. B.






























1989 / Total



80 %



82 %



82 %



83 %


* Operated by IMC (now Mosaic) on contract with PCS.
Note: Due to rounding, the sum of mines sometimes differs slightly from the “Sub-Total” and “Total.”

Enjoy and share:


Comment from Bill Bell
Time: August 28, 2010, 8:55 am

Although I agree with your conclusions, Dr Weir, doesn’t this just show, once again, that government business decisions stink? It was a government that took the decision to privatise. It would have been governments since then that would have had to guide toward, or permit the crown corporation to seek, success.

Is there no middle way between losing public assets to the greed of business and squandering them in the hands of government?

Comment from Michael Warhurst
Time: September 22, 2010, 9:45 am

Government made the right decision to take the potash industry public, and this was the correct decision. Privatization was done by another government which was destructive of public welfare and public finances. The forces of privatization are well funded and have used every device from public intimidation through an owned and subservient media to threats of funding opponents and other devious manipulations of public opinion to make valuable public assets available to private interests at pennies on the dollar.
Government is not the problem, bad government is the problem. It takes money to twist the media and threaten and buy off politicians. If government is corrupted it is not by workers and the poor it is by the high rolling wealthy elites that are the corrupters of government.
Understanding the issues and being involved in the political process is the only way Canadians can expect the government to always act in the interests of all Canadians. A media which is not the trollop of wealthy elites and their corporate ‘fronts’ would also be very conducive to good decisions made in the public interest by politicians.
But manipulation of the media by right agenda agents of corruption cannot be allowed to discourage the public from voting and being involved in our political process.
Right agenda politicians are fronts for very wealthy corps and individuals and have no interest in delivering good government when they form the majority – their patrons actually want no government and bad government is a major step down that road.

Comment from John Calvert
Time: October 8, 2010, 1:21 pm

Good article and good analysis, Erin

One of the unfortunate elements of the current media coverage of this issue is that there is virtually no reporting on the price received by the people of Saskatchewan for the company. Its as if the privatization never happened and Doyle and co are responsible for the dramatic increase in value and the windfall that the shareholders will now receive if it is sold to BHP or to a Chinese company. So the public gets no information about the size of their loss as a result of the policies of the Devine government.

I was curious about the original sale price, so I am glad you have provided this information.

Nice job, Erin

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