Rocking the royalty boat

The question as to whether there should be a review of the royalties paid by resource companies to the government of Saskatchewan was a hot topic during this past fall’s election between the Saskatchewan Party and the NDP. But the end of the election seemed to be the end of the issue, despite the NDP’s assertion that they would call for an independent review of the royalty structure that has only been modified three times in the past three decades, lastly in 2005.

Wanting to dodge the bullet that Alberta faced after altering its royalty structure, premier Brad Wall and the ruling Sask Party have dismissed the need for a review, despite outsiders like economist Jack Mintz from the University of Calgary calling the existing system a “mess” and “just wrong.”

Reaping the rewards of what some consider Alberta’s big mistake, Saskatchewan has for the past few years been seeing an influx of oil exploration and expedition companies fleeing from Alberta’s higher royalty structure. After all, there’s oil on both sides of the Alberta-Saskatchewan boundary. But with 46 per cent of the world’s potash located in Saskatchewan, one could argue that potash miners, unlike oil producers, can’t simply decide to go elsewhere should the province decide to review its current structure.

During his budget speech in March of 2011, finance minister Ken Krawetz said, “Our existing potash companies are expanding and we welcome new entrants into the Saskatchewan potash industry. Together, potash producers will spend almost $12 billion on their current capital expansions, and they will create thousands of new jobs. These expansions are due to a growing worldwide demand for potash ... and a stable tax and royalty structure that encourages new expansion and job creation.”

A threat to that stability, say critics, could stall economic growth, risk jobs and factor into future investments in Saskatchewan by BHP Billiton and others mining companies. Whether or not Brad Wall will rock the royalty boat, especially with BHP now opting out of the Canpotex marketing agency, is something all interested parties--political and otherwise--will be watching for this coming budget.