Saskatchewan seeks price protection in altering potash taxes

By Rod Nickel

WINNIPEG, Manitoba (Reuters) - Potash-rich Saskatchewan hopes to revise its taxes on production of the crop fertilizer to avoid big revenue drops in years when prices sag, the Canadian province's economy minister said on Friday.

Saskatchewan, home to mines operated by Potash Corp of Saskatchewan, Mosaic Co and Agrium Inc, is conducting its first full review in 10 years of its complex potash tax and royalty structure. It is currently weighted more by potash prices than output.

“We want to be assured that the taxpayers of Saskatchewan see a return on the resource even if (potash) prices are low and volumes are higher,” said Economy Minister Bill Boyd in a phone interview from Kindersley, Saskatchewan.

The government collected a record-high C$1.36 billion ($1.02 billion) in potash revenue when prices spiked in 2008/09, but its royalty program finished with a negative balance the following year when prices crashed.

Saskatchewan, which is running a deficit this year after two decades in the black, began the potash tax review in October and hopes to have recommendations by late 2016.

Boyd said the province intends to make any changes to the formula close to revenue-neutral, but he would not say if Saskatchewan's potash taxes will remain the world's highest.

“There's no pre-conceived decisions around the royalties in any way.”

Making changes that help potash miners, whose profits have fallen due to weak prices, is "an open question," Boyd said, but added that they are seeing stronger U.S. sales of late.

"We're optimistic that we've reached the point where we're seeing the market start to turn around," Boyd said.

Potash Corp and Mosaic last month said they would reduce output to support falling prices, while Brazilian miner Vale SA has put on hold a planned Saskatchewan potash mine.

However, Germany's K+S AG is continuing construction of Saskatchewan's first new potash mine in four decades and BHP Billiton Ltd is slowly developing another mine, although it has not committed most of the capital.

(Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Andrew Hay)