BHP Billiton's proposed takeover of PotashCorp could reduce Saskatchewan government revenues by at least $2 billion over the next 10 years, the Conference Board of Canada says.
The impact would be more drastic if Billiton or any new owner adopted a "high production" strategy, the think-tank said in a report released Monday.
Under that scenario, potash prices would tumble and corporate taxes and royalties could be reduced by $5.7 billion over a decade.
It's a strategy that Australian-based BHP is unlikely to pursue, but it's more likely if China's state-owned Sinochem Corp. buys the Saskatchewan-based fertilizer company, the report said.
"Sinochem has a strong incentive to lead the world marketplace toward price competition, which would hurt all Saskatchewan producers and, indeed, global producers of potash," the report said.
The Saskatchewan government commissioned the report by the Conference Board after BHP launched a hostile takeover bid for PotashCorp.
Few other negatives
The report notes that the Saskatchewan government is still in a "very strong position" as any potential sale unfolds because it controls over half the world's potash, a major component of fertilizer.
It also said that apart from lost provincial revenue, there are "few negative takeover effects" from a BHP bid.
"The ownership would change from a widely held North American company to a widely held global company," the report said.
The report also noted that BHP has made a public commitment to locate the company's global potash headquarters in Saskatchewan and move head-office jobs that are currently in Chicago to Saskatoon.
Still, under the most optimistic scenario where PotashCorp is bought by BHP, the sale would trigger tax changes that would mean about $200 million less for the treasury annually for a decade.
The reason: BHP has launched its Jansen Lake potash mine, a project that could cost $12 billion. If the PotashCorp sale proceeds, it could write off its capital costs to minimize corporate taxes.
The report also looks at various scenarios for job growth. It found that if BHP gets PotashCorp, the sector would account for 11,800 direct and indirect jobs in Saskatchewan by 2020, up from 8,200 now.
Under a high-production scenario, where Sinochem or another company makes the purchase, there could be 14,000 direct and indirect jobs in the sector, an improvement of 2,200.
In response to the report, Saskatchewan Industry Minister Bill Boyd said the prospect of the province losing billions of dollars is "worrisome."
The province uses potash revenues for health care, highways, education and other services, Boyd said.
The projected $200-million-a-year loss would represent about two per cent of Saskatchewan government revenues.
Asked whether Saskatchewan could raise royalty rates to compensate for losses, Boyd said that might mean raising royalties for all potash companies, so it would not be a simple solution.
The government will study the report for the next few weeks before deciding what to do, Boyd said.
Meanwhile, federal Industry Minister Tony Clement said he wants to take an extra 30 days to study BHP's bid.
"I have extended the timeline for making my determination of BHP Billiton’s proposed acquisition of PotashCorp," Clement said in a release."I will take the time necessary to do a thorough review of this investment proposal."