Potash, Workers and the Public Interest
As has been widely reported in the business press, members of the United Steelworkers union employed at the Potash Corporation of Saskatchewanâ€™s Allan, Cory and Patience Lake mines voted 96% on Monday night for a strike mandate. The three locals served strike notice on Wednesday, which will put them in a legal strike position tomorrow. The company responded by serving them with lock-out notices.
Today, PCS reported after-tax profits of $905 million for the second-quarter of 2008. In the first six months of this year, the company has collected after-tax profits of $1.5 billion, or nearly $300,000 for each of its approximately 5,000 employees.
Also today, the Saskatoon StarPhoenix printed the following op-ed, which was written before the strike vote and the companyâ€™s second-quarter report. It advocates a more equitable distribution of the windfall profits created by soaring potash prices.
Miners, citizens owed bigger cut of potash wealth
Thursday, July 24, 2008
Byline: Ken NeumannÂ
When the Potash Corporation of Saskatchewan (PCS) reports its second-quarter earnings today, Saskatchewan residents should ask whether they have received a fair share of the potash boom. The company has given its Chicago-based CEO, William Doyle, $600 million of stock options.
In May, The Globe and Mail reported: “Mr. Doyle’s options — rights to buy stock at a predetermined price — now dwarf those held by any other executive in Canada, from the red-hot oil patch to the highly compensated financial services sector.” This vast personal fortune exceeds what PCS paid to all of its workers, and to the provincial government in royalties, last year.
PCS was established as a Crown corporation in 1975. The Conservative government of Grant Devine opted to privatize it in 1989 for the firesale price of $300 million. PCS is worth about $65 billion today. Privatizing PCS was one of the worst financial decisions in Saskatchewan history.
Despite this decision, potash remains a Crown-owned resource that belongs to the people of Saskatchewan. PCS and other companies must pay royalties to the provincial government for the potash that they mine. In 1997, these companies sold $1.5 billion of Saskatchewan potash and paid $190 million in royalties. A decade later, in 2006, they sold $2.4 billion of Saskatchewan potash and paid $161 million in royalties. In other words, provincial revenue fell to seven per cent of sales from 13 per cent.
Why did the value of royalties fall as the value of sales rose? Potash royalties consist of a base payment and a profit tax on each tonne sold. However, the provincial government allows potash companies to pay no profit tax on sales beyond the average tonnage sold in 2001 and 2002. Sales have exceeded this average in every year since then. Even base payments are not required on potash from mine expansions since 2005.
In calculating profit taxes, potash companies may deduct 120 per cent of capital investment beyond the low-point reached in 2002. In other words, the provincial government lets companies immediately write off more than the total cost of their long-term investments.
Current and forecast potash prices make these incentives costly and unnecessary. The Saskatchewan government should revise its royalty regime to ensure that companies pay the province a fair price for every tonne of potash extracted.
Record potash prices and continuing provincial giveaways allowed PCS to collect an after-tax profit of $566 million in the first three months of 2008.
This quarterly profit amounts to well over $100,000 for each of the company’s 5,000 employees. Although PCS is receiving far more profit per worker than most mining companies, it pays wages lower than many other major Canadian mining operations.
If the windfall gains created by soaring potash prices have not been shared with Saskatchewan citizens and workers, where have they gone?
PCS pays its executives very generously. Doyle received $17.2 million of compensation in 2007 alone. Four other top executives received between $2.6 million and $4.7 million each. The total compensation paid to these five men equalled the total wages paid to the 450 members of the United Steelworkers union employed at the Allan, Cory and Patience Lake mines in 2007.
The workers who mine potash and the citizens who own it deserve better.