The case against selling Saskatchewan's Potash Corp.

Don Newman on the strategic importance of Saskatchewan's Potash Corp.

Saskatchewan Premier Brad Wall has asked the Conference Board of Canada to assess the potential sale of the Potash Corp. of Saskatchewan to the giant Australian mining company BHP Billiton.

He says he needs the outside input before he can decide whether his government should recommend the sale be approved by Ottawa.

But why the premier would need the report isn't entirely clear. Especially because he has already predicted that if the sale goes through, the Saskatchewan government would lose about $100 million annually in corporate tax revenues. And that could be just the beginning.

Dave Carter, production supervisor at the Potash Corp. mill in Rocanville, Sask., samples the product in September 2010. (David Stobbe/Reuters) ((David Stobbe/Reuters))

Saskatchewan also collects royalties from the abundant potash mines in its province and Potash Corp. contributes the lion's share of that revenue.

Royalty revenues are based on potash prices and, in Saskatchewan, potash prices are propped up by an organization called Canpotex, which markets the production of the three companies mining potash in the province — Potash Corp., Agrium Inc. and Mosaic Co.

Saskatchewan produces about half the world's identified potash. But should BHP Billiton take over Potash Corp., it might break up that marketing monopoly. It is considering abandoning Canpotex, running its mines full tilt and selling the production itself on the open market.

That could have the same impact on potash prices as Saudi Arabia leaving OPEC would have on the value of oil: Prices would fall and so would the royalties collected by the Saskatchewan government.

Political cover

So why then is Premier Wall waiting on some outside report before he tips his hand?

Perhaps he is looking for political cover to turn down the Billiton bid, something that would anger the hard-core free marketers among his supporters but would be widely approved by most of his constituents.

Or maybe he is using the time to negotiate with the Harper government in Ottawa. It, too, has a free market bent, witness its decision last year to override a CRTC ruling and open up the cellphone market to foreign-controlled Globealive, which owns the Wind Mobile brand.

In fairness, both Ottawa and the province have to be concerned at what blocking the sale of Potash Corp. would say to the international investment community.

If we appear "closed for business," that could slow the flow of investment money into Canada, money that contributes to future development and growth.

The pool of Canadian investment capital is too small to satisfy the needs of a growing economy. And in a period of slow international growth, the competition for worldwide capital will be intense.

Strategic sectors

Still, there is an overriding issue at play here.

There are industries we have that are not like all the others as they speak directly to the ongoing economic health of specific regions and to the nature of the country itself. Potash Corp is one of them.

Saskatchewan Premier Brad Wall, speaking here at the Mosaic Potash HQ in Regina in August 2010, wants an outside report on whether the province should go along with the potential sale of its biggest producer. (Troy Fleece/Canadian Press)

As such it should be treated differently, not just to protect the revenues of the Saskatchewan government, but because, if Canada is to be an important country in the decades ahead, it should have important companies in some of the world's key strategic sectors.

Think of the fates of Inco and Falconbridge, once big players in the international nickel market, now foreign owned. The same with aluminum maker Alcan.

Why is Canada letting these companies slip from our hands? Sometimes into the hands of buyers like Vale, the purchaser of Inco, which the government of Brazil would never allow to be foreign owned.

Why, too, you might ask, can't Canadian businessmen be the acquirers, not the sellers.

Sometimes, it seems, and this may be more prevalent in the oil patch and mining sector than elsewhere, the business plan for Canadian entrepreneurs is to develop companies to a certain critical size, and then sell them off to foreign buyers.

The argument that is often made here is that it will make these Canadian entities more competitive. And in some sectors that is probably true.

But in fields like energy and certainly agriculture, if the resources are there almost anyone can raise the capital to develop them. Encouraging foreign ownership is more important when you want to open up fields, like telecom, to enhanced competition.

In 2008, the Harper government rejected the sale of satellite operator MacDonald Dettwiler, partly because the B.C.-based company operated a satellite with unique mapping technology exclusive to it, and partly because the technology had been developed with significant amounts of taxpayers' money.

Well, as far as we know, Potash Corp. does not have any exclusive technology to get the potash out of the ground. But it began life as a Saskatchewan Crown corporation and it certainly would not be the company it is today without the province's taxpayers having built it up.

The executives at Potash Corp., who will benefit from a huge payout if the company is sold, are reportedly trying to organize a rival bid involving a Chinese government-owned company to drive up the sale price.

But ultimate ownership by a company from China, which is one of the biggest buyers of Saskatchewan potash, would have even greater implications for the value of the product than a sale to BHP Billiton.

So, regardless of who makes the stronger bid, the answer from both Ottawa and Saskatchewan should be the same: "Sorry. No sale."