Friday April 18, 2014

PotashCorp’s uneasy relationship with gov’t


The mantra from business is government has no business in business.

And few would argue with that principle — especially when it’s government competing with private business.

But can there be exceptions? Well, people in places like rural Saskatchewan would seem to have acknowledged that there is.

For example, it’s been long ago decided in this province that we need to support the perennial money-losing Saskatchewan Transportation Company — even if private parcel or private personal transportation services might be available to provide rural residents at what would be a hefty premium cost. After all, other provinces like Manitoba must heavily subsidize private bus services to rural and remote locations, anyway,

Similarly, we clearly now have enough competition in the telephone industry that one might think that a public telephone utility like SaskTel is an outdated notion. But just try getting cell coverage in most of rural Saskatchewan without SaskTel’s generous cell tower system. There seems a role.

That said, if there’s one place where government has truly no business it’s in the resource sector where there’s always been ample private investment dollars. In fact, one can rightly point to the Saskatchewan’s privatization of publicly owned natural oil, uranium and potash resource companies in the 1980s as one of the few success stories of the Grant Devine government.

The massive success of the privatized PotashCorp remains the prime example where a money-losing Crown-owned potash company turned into a massively profitable and expanding private operation.

But does that mean that government has forever forfeited any say or comment in now privately run PotashCorp’s decisions? Well, again, the answer has quickly become more complicated than one might think.

PotashCorp has decided to permanently lay off 18 per cent of its workforce — 1,045 people in all, including 440 Saskatchewan employees.

Admittedly, government should never be directly telling private business how to run its business because private business needs to be able to make its own tough decisions for its long-term interest. One of the reasons the publicly owned Potash Corporation of Saskatchewan floundered is that the previous NDP government viewed the potash mining Crown’s operation like an employment agency _ contrary to the approach of PCS as government-run operation.

That said, privately run PotashCorp has also been very successfully in lobbying for royalty holidays even as it laid off workers. It also has received massive government subsidies to relocate head office jobs to Saskatchewan.

And three years ago, it went cap-in-hand to government demanding government protection from a bid by Australian mining giant BHP Billiton to prevent a hostile takeover, which is also really just business doing business.

But despite Saskatchewan government support for this, we are now seeing massive PotashCorp layoffs not just at is Saskatoon head office but also in rural communities like Cory and Lanigan.

And while a very uncertain potash market is clearly a big factor in such decisions, this is a company that announced in its last quarter a $356-million profit and the second-highest cash flow from operating activities in company history.

Moreover, there has always been a rather uneasy relationship with government and potash companies because of their royalty structure and the role companies played in determining it.

Provincial budget projections for potash royalty revenue have been largely determined by not only the business operation decision of companies like PotashCorp but also by the information these companies provide government.

So when PotashCorp and other industry players told government prior to the 2009 budget to expect massive potash sales and price increases that year, the government budgeted accordingly for an unprecedented $2 billion in potash revenue.

The problem was, the industries projections were dead wrong and government lost a fifth of its annual revenues it needed to build roads and run hospitals and schools.

So whether it likes it or not, governments do have a vested interest in what goes on at a company like PotashCorp.

Murray Mandryk has been covering provincial politics for over 22 years.



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