The coveted pink mineral that once formed Saskatchewan's fiscal bedrock has officially become a fiscal millstone.
Potash revenues in Saskatchewan landed so far short of expectations last year that Regina will refund more than $200-million in quarterly payments it collected from the industry, Finance Minister Rod Gantefoer revealed yesterday in the province's third-quarter financial report.
The reimbursement represents a drastic change of fortune in the province where potash revenues were expected to total $1.9-billion - or roughly one of every five dollars flowing into government coffers - in last year's budget forecast.
The admission illustrates both the recent crash of potash prices and the extent to which last year's provincial revenue forecasts were overestimated.
"We actually reported more money than we probably should have in our last fiscal year and as a result we have to show a negative in this fiscal year," said Mr. Gantefoer.
Saskatchewan exports roughly 25 per cent of the world's potash - a potassium salt used in fertilizer. With prices trading at over $1,000 a tonne prior to the financial crash in late 2008, Saskatchewan was flush. Those prices have since dropped to around $350 on plummeting volumes, dropping the province in a hole that few saw coming.
"No one expected their potash revenues to be negative," said Mary Webb, senior economist with the Bank of Nova Scotia. "Fiscal 2010 hasn't been easy for any of the provinces, and particularly not Saskatchewan."
On the bright side, total revenues from oil and income tax came in nearly $1-billion higher than expected, filling much of the potash void. By shifting another $1-billion from Crown corporations and a rainy-day fund, the province anticipates it will post a $424.5-million surplus.
"They may call it a surplus, but it's an artificial balance they've maintained only by draining all resources out of Crown corporations and draining the rainy-day fund," said Trent Wotherspoon, finance critic for the opposition NDP. "And this at a time when we have relative revenue strength."
Indeed Saskatchewan's revenues have remained buoyant considering worldwide financial duress, rising to more than $9.5-billion from $7.8-billion in just two years.
Mr. Gantefoer will present next year's budget on March 24. With commodity prices fluctuating wildly, he faces a vexing task. On the one hand, he'll want to avoid the overoptimistic forecasts that cost Brad Wall's government significant political capital last year; on the other, potash prospects are actually looking positive for the first time in months.
"We have indications that potash will improve significantly in fiscal '11," Scotiabank's Ms. Webb said. "Both price and volume should recover."
Canpotex, the export marketing company for Canadian potash producers Potash Corp. of Saskatchewan Inc., Agrium Inc. and Mosaic Group Inc., recently made large sales in Indian and China.
"We did take a significant hit to the economy, but we now seem to be returning to more gradual growth in the industry," Mr. Gantefoer said. "That puts us in a pretty good position. By these numbers, it's clear that Saskatchewan's economy is coming out of the recession a little earlier than most other provinces."