During last November’s provincial election, the NDP proposed reviewing potash royalty rates to ensure that Saskatchewan was receiving a fair return on a valuable resource that has been dubbed “pink gold” because of the vital role it plays in helping farmers boost yields to feed our ever-increasing human population.
The Sask. Party promptly shit all over that proposal, saying that introducing the spectre of a royalty review at this crucial juncture in the province’s history would be tanamount to economic suicide.
Well, according to a column by Murray Mandryk in today’s Leader-Post Saskatchewan premier Brad Wall (pictured) appears to be rethinking that stance.
First off, while Saskatchewan does have a vast reserve of potash, with supplies estimated in the 200-300 year range, it is a non-renewable resource, so it makes sense for the province to maximize the long-term benefit to Saskatchewan citizens. Second, with all the talk about new potash mines and expanded production at existing mines, the possibility exists (or, at least, it did until some of those projects were put on hold) of the market being flooded with potash. Sales volumes might remain high, but prices would be relatively low.
My understanding of the current potash royalty regime is that it’s pretty price sensitive. When prices are high, as they were in 2008, when potash was in the $800 a tonne range, the province rakes in money hand over fist. But when prices drop to the $300-$400 a tonne range, the take shrinks considerably. Based on 2008 market performance, for example, Saskatchewan Finance Minister Rod Gantefoer forecast $2 billion in potash royalties in his March 2009 budget. The global economic downturn was still gathering steam then, and the potash market ended up crashing, so the province received no potash royalties that year.
Long-term, Saskatchewan’s resource wealth is a definite plus. But in any resource economy there will inevitably be cycles of boom and bust. Having a sensible royalty structure that ensures that benefits continue to flow to the province during periods of high sales volumes and low prices would seem to be prudent. So hopefully the government follows through on the trial balloon that Wall floated the other day.