Potash producers in the Canadian province of Saskatchewan will see 2015 profits impacted by a tax change made to compensate for an expected C$661mn ($525mn) drop in oil revenue for the 2015-16 fiscal year beginning 1 April.
The Saskatchewan government has changed the potash production tax by deferring the timing of capital spending deductions that potash producers receive to provide the province with a temporary revenue increase. Potash is projected to account for 6pc of the province's 2015-2016 revenue at C$796mn, doubling the C$397mn originally projectedin the previous budget.
The change comes amid drastically lower oil prices. But the province expects prices for potash, one of its core resources, to rebound. The budget estimates average WTI crude oil prices to drop to $53/bl in 2015 from $92.85/bl in 2014, while projecting potash prices to rise to $295.60/t in 2015 from $280.65/t in 2014. Saskatchewan expects oil revenues for 2015-16 to be C$903mn, down by C$661mn from the prior-year budget.
Leading Saskatchewan potash producer PotashCorp (PCS) said the tax change would result in a C$75mn-100mn hit to its pre-tax profits in 2015. Five of PCS' six potash mines are in Saskatchewan, with combined nameplate capacities of 13.1mn t KCl.
"PotashCorp is disappointed in the announcement today. While we understand the difficult revenue situation facing the government, we are nearing completion of a $6bn investment in Saskatchewan which was based on the existing tax structure remaining in place," PCS chief executive Jochen Tilk said. "Changing the rules midstream impacts the ability of our shareholders to earn a fair return on their capital and undermines Saskatchewan's relative competitiveness."
The government called the change an interim step while it completes a full review of the potash royalty and taxation regime.
"However, any further changes resulting from a review must balance the excellent investment and operational environment for this sector, which is so important to the provincial economy, with the need for a fair return for the owners of the resource, the people of Saskatchewan," Saskatchewan finance minister Ken Krawetz said.
Tilk stressed the need for a stable and predictable potash taxation system.
Mosaic and Agrium are the other companies that produce potash in Saskatchewan. Mosaic recently announced an added C$1.7bn in capital costs toward the expansion project at its Esterhazy mine in the province, while Agrium completed an expansion project of at its Vanscoy mine in the fourth quarter of 2014.
Germany's K+S and Australia's BHP Billiton both have greenfield mines under construction and would be subject to the changes in the potash tax program.
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