The People of Saskatchewan vs. PCS

The United Steelworkers union has been on strike at three Potash Corporation of Saskatchewan mines since August 7. This labour dispute raises much broader questions about the distribution of resource rents. The following op-ed, printed in today’s Regina Leader-Post, updates the op-ed printed in the Saskatoon StarPheonix before the strike.

Workers, citizens miss potash profits
The Leader-Post (Regina)
Thursday, August 21, 2008
Page: B6
Section: Viewpoints
Byline: Ken Neumann

The strike by members of the United Steelworkers union (USW) at three Potash Corporation of Saskatchewan (PCS) mines should prompt all Saskatchewan residents to ask whether they have received a fair share of the windfall profits created by soaring potash prices.

The Globe and Mail recently reported that the company has given its Chicago-based CEO, William Doyle, $553 million in stock options.

According to The Globe, “Mr. Doyle’s options — rights to buy stock at a predetermined price — now dwarf those held by any other executives in Canada, from the red-hot oil patch to the highly-compensated financial services sector.”

In fact, stock options held by top PCS executives are worth more than the wages paid to all PCS employees and royalties paid to the Government of Saskatchewan last year.

PCS was established as a Crown corporation in 1975. The Conservative government of Grant Devine privatized it in 1989 and immediately sold more than a third of company shares for $230 million. Between then and 1994, the provincial government sold its remaining shares for about $400 million.

Today, the company is worth about $60 billion. Privatizing PCS was one of the worst financial decisions in Saskatchewan history.

Despite that, potash remains a Crown-owned resource that belongs to the people of Saskatchewan. PCS and other companies must pay royalties on their mining profits to the provincial government.

In 1998, PCS reported a gross profit margin of $316 million from its potash mines and paid $80 million in royalties. For just the second quarter of 2008, it reported a gross margin of $886 million from its potash mines and paid $163 million in royalties. While potash profits nearly tripled, provincial potash revenue only doubled.

Why did provincial royalties fail to keep pace with company profits? Saskatchewan’s potash royalties consist of a base payment and a profit tax on each tonne sold. However, the provincial government allows potash companies to pay no profit tax on sales beyond the average tonnage sold in 2001 and 2002. Sales have exceeded this average in every year since then. Even base payments are not required on potash from mine expansions since 2005.

In calculating profit taxes, potash companies may deduct 120 per cent of capital investment beyond the low point reached in 2002. In other words, the provincial government lets companies immediately write off more than the total cost of their long-term investments.

Current and forecast potash prices make these incentives costly and unnecessary. The Government of Saskatchewan should revise its royalty regime to ensure that companies pay the province a fair price for every tonne of potash extracted.

Rising potash prices and continuing provincial giveaways allowed PCS to collect record after-tax profits this year of $566 million in the first quarter and $905 million in the second quarter. These figures amount to nearly $300,000 for each of the company’s approximately 5,000 employees in only six months.

Although PCS is receiving far more profit per worker than most mining companies, it pays wages lower than many other major Canadian mining operations.

The glaring inequity between what PCS management pays itself and what it pays potash miners led USW members to take strike action after having worked without a collective agreement for three months. Over the last month of the strike, the company has refused to move from its “final” offer. This offer would raise the base wages of production workers by annual percentages smaller than the increase in Saskatchewan’s average hourly wage over the last year.

The workers who mine potash and the citizens who own it deserve better.

– Neumann is national director for Canada of the United Steelworkers union, which represents 280,000 Canadian workers including potash miners. He was born and raised in Saskatchewan.