In a burst of nationalist fervour, Saskatchewan Premier Brad Wall called Potash Corp. a strategic Canadian asset and said that no promises of cash or other benefits will convince the province to back a hostile bid from Australia's BHP Billiton
Mr. Wall laid out the case for a flat rejection by Ottawa of the proposed takeover during a passionate speech in the provincial capital, saying the people of Canada and his province can't trust BHP not to break promises on such key points as job security and provincial tax revenue.
But even if there had been common ground on issues such as how to minimize lost taxes for the province, Mr. Wall said he would still say no because a company like Potash Corp. should remain based in Canada.
"We are obviously not anywhere close to having our concerns met on revenue or even on the economy, " Mr. Wall told reporters after his speech to a room packed with business leaders. Even if the province had been satisfied, "the strategic interest in this particular resources should trump any other monetary considerations, which will end over time.
"What won't end with time is this world's desire for food security and energy security and we are well positioned in the province and in Canada to be a major player."
The rhetoric from Mr. Wall is new to a negotiation between the province and BHP that until now appeared to revolve mostly around dollars and cents, though other critics, such as the federal Liberal party, had called on the sale to be blocked for national security reasons.
As recently as last weekend, BHP executives were still hopeful of convincing Saskatchewan that the takeover would not hurt the province's coffers and would in fact be a "net benefit" to Canada - the key yardstick for approval by the federal government. However, those negotiations crumbled, in large part over the issue of trust. The talks were poisoned by a series of broken pledges by other foreign mining companies that have completed large takeovers of Canadian firms in recent years.
BHP has offered unusually large financial concessions to try to make the deal palatable to Saskatchewan. BHP argued that it would stick to those undertakings, unlike companies such as Vale SA, which cut employment at nickel miner Inco Ltd. after buying it and promising to maintain jobs.
Mr. Wall said he would not accept "yes, with conditions." He said pledges are too often broken and "you can't build schools on promises."
The Saskatchewan Premier countered potential criticism that saying no would damage Canada's ability to do business internationally by pointing out that "the answer 'no' is not unprecedented." As proof, he invoked Australia's 2001 decision to block the attempted acquisition by Shell of Australian oil fields.
The call for an outright rejection comes just days after talks in which BHP was still pitching ideas in a bid to get the province onside and address the Saskatchewan government's concern that it could lose as much as $3-billion in tax revenue over the next decade as a result of a Potash Corp. takeover by BHP.
Until recently, BHP wasn't willing to negotiate based on that number. The company had been focused on trying to argue the province down and other ways to minimize the cost.
However, that tactic was going nowhere. BHP officials, including Andrew Mackenzie, the head of the division that includes BHP's potash operations, hatched a new deal structure last weekend designed to offset the potential $3-billion loss.
The BHP plan sought to largely eliminate the potential tax writeoffs that Saskatchewan was concerned about. If BHP were to buy Potash Corp., BHP could write off large sums related to development costs on a mine it's now building, as well as interest costs on the debt used to fund the deal. Saskatchewan's estimate was that together those could cost $300-million a year in lost taxes.
Mr. Mackenzie said BHP unveiled a plan to deal with the first concern by holding Potash Corp. in a separate entity from BHP's existing potash developments, so the writeoffs wouldn't be allowed.
He said BHP proposed to handle the concern about interest cost deductions by capping debt at just over one-third of the level allowable under tax rules, vastly reducing the potential tax losses for Saskatchewan. In addition, BHP proposed $370-million in infrastructure spending.
"It has to be seen as a special deal for a special situation because of the place of Potash Corp. in the hearts of Saskatchewan," Mr. Mackenzie said in an interview Thursday.
However, Saskatchewan still didn't trust BHP to stick to the agreement. It's then that the province sought a large cash payment in lieu of any promises, according to sources familiar with the situation. The size of the payment is in dispute, but some sources said it was as much as $3-billion.
BHP argued it could not make any large up-front payment because it goes against its code of conduct, which doesn't allow such cash payments to seal deals.
Negotiations ground to a halt. As of Thursday, they had not restarted. Mr. Wall indicated there is no room for the province to have any further talks with BHP.
"We are going to leave it at no," he told reporters after his speech, adding "I am not sure there needs to be any more dialogue."
BHP says it still plans to fight for approval.
"I am still determined to convince the people of Saskatchewan that this is a net benefit to them," Mr. Mackenzie said after Mr. Wall's speech.
Mr. Mackenzie said he understands the concerns the province has about broken promises, and BHP has ideas that would ensure the company would be true to its word. Those include setting up a special Saskatchewan advisory board whose prime function would be to hold BHP to account on its commitments.
The final decision on BHP, however, remains with Ottawa, which doesn't have to defer to Saskatchewan's demands. Should the federal government approve the deal over Saskatchewan's objection, Mr. Wall said that his government has other methods to ensure BHP pays what the province feels it is owed.
"If it's forced, we can use the taxation tools of the government of Saskatchewan to the tune of between $3- and $6-billion dollars - we'll have to get that right number - to make sure we are protected, that the revenue of the province is protected, and we are prepared to look at that."
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