If ever there was a fall when Saskatchewan, especially rural Saskatchewan, could use some good economic news, it's this fall.
Bad weather appears to be translating into a 28-per-cent reduction in the volume of the wheat crop and a 27-per-cent reduction of canola. Add to that bad weather a significant downgrade in quality and it's simply not going to be a good year on the farm.
Things are much better in the oil patch where a barrel is going for something north of $75 US (although, that's about half of what oil was trading for two years ago).
Really, the good economic news this year was supposed to the economic recovery of potash that was supposed to bounce back from the dismal sales of 2009.
Certainly, the $38.6-billion bid by BHP Billiton to takeover PotashCorp. has been good news for potash shareholders. But with the release of the Saskatchewan Party government's report from the Conference Board of Canada on the impact of this takeover bid, it's increasingly questionable whether this is really good news for Saskatchewan people.
At issue is the province's quirky potash royalty structure that would see provincial taxpayers lose $200 million a year or $2 billion in the next decade in royalties if BHP Billiton takes over potash mining company. It's all because of the tax incentives offered on new or "Greenfield" mines like the one BHP Billiton is proposing for the Jansen area northwest of Saskatoon.
As a new player building a new mine, BHP Billiton would be expected to pay specific royalties for this new development. However, established companies aren't required to pay these specific royalties on new mines, so if BHP Billiton buys PotashCorp. taxpayers are out the $200 million a year it would be playing.
There's a couple more catches, though. One is that taxpayers would like re-coup the money in the following decade when the Jansen mine is up and running. The other is that we can't even count on this money because, it will only happen if BHP Billiton goes ahead with the Jansen mine.
Of course, the world's largest mining giant says it's going ahead with the Jansen mine (which, incidentally, would be the world's biggest potash mine), whether or not it's successful in its bid to buy PotashCorp. But or as adamant as BHP Billiton has been in this position, there is a lot of scepticism.
For one thing, BHP Billiton has made it known that its corporate philosophy is to let the market decide price and has shown little interest in being party of the joint Canadian marketing agency known as Canpotex. This has many to believe that it would run the PotashCorp. flat-out, overproduce and lower prices, something the government feels would be bad for potash royalties.
Interestingly, that wasn't a concern held by the Conference Board of Canada in its report commissioned by the Sask. Party government. It noted that BHP Billiton isn't in the habit of losing money. That said, there's nothing more costly to shareholders than building a brand new $12-billion potash mine from scratch, so one might think that a BHP Billiton takeover of PotashCorp. could potentially delay construction of Jansen at least for a while.
That, in turn, would cost the government both royalty revenue and taxes resulting from the economic activity generated by such a large project.
The bottomline here is that there is a lot of uncertainty in the potash sector that was supposed to be seeing a massive recovery in 2010.
And when added to the other economic woes out there, it makes for a lot of instability in the Saskatchewan economy.
