Brian Zinchuk is editor and owner of Pipeline Online
Eric Cline, holding his book, Squandered: Canada’s Potash Legacy. Photo by Brian Zinchuk
In late March, 2024, Eric Cline released his book Squandered: Canada’s Potash Legacy. It’s not often that former Saskatchewan resource ministers write books about royalties, so Pipeline Online is dedicating a lot of space to it.
Squandered is published by University of Regina Press. It is available on Amazon.ca here.
Cline, a lawyer, was Minister of Finance and then Minister of Industry and Resources in the Roy Romanow and Lorne Calvert NDP governments. He also held several other portfolios. After retiring from politics, he spent six years as a vice president with K+S Potash Canada, and currently has an arbitration firm.
He is still spoken of reverently within the Saskatchewan oilpatch by people who run oil companies and you wouldn’t expect to vote NDP if a gun was held to their child’s head.
And more importantly, the oil royalty structure Cline established as Minister of Industry and Resources has remained almost entirely unchanged since his time in office, with the only significant change being a new multilateral well incentive announced in the 2024 budget. Indeed, when long-time Saskatchewan Party Minister of Energy and Resources Bill Boyd gave speeches, throughout his tenure, pretty much every speech said to the effect, “When it comes to royalties, we’re not touching a thing,” with regards to oil.
Pipeline Online had a two-hour interview with Cline in Regina on April 4, and has read the entire book. There’s a lot to say, between the book review, presented here, and the podcast.
It’s a lot, but this is something that rarely gets this sort of attention.
But this book is about potash, exclusively, with oil mentioned only a few times. So why such attention?
For one, neither oil nor potash have had major changes to their royalty structures since beginning of the century (the multilateral program is a substantial change, but not of the scale of what the Ed Stelmach government in Alberta was considering around 2009). There was a minor change in potash royalties in 2019.
Secondly, Saskatchewan is in the early stages of a burgeoning lithium industry, based entirely on the oil industry. But the royalty structure is largely based on potash, with similarly low royalty levels. In this Jan. 24 story, the Ministry of Energy and Resources told Pipeline Online, “The Ministry of Energy and Resources currently specifies a Crown royalty in leases for brine lithium production of three per cent of the value of sales, with a two-year holiday for new capacity. This rate was chosen to be consistent with Crown royalties for potash, salt, and sodium sulphate, while the holiday seeks to reduce risk for new investment in this sector.”
Thirdly, as Cline noted both in the book and in the interview, there’s often lots of people talking about needing more money for health care and education, but not as many people talking about how to pay for these things. And this was a key point in the recent provincial election.
As the last two decades have show, get resource royalties right, and you can get things like the Bakken Boom. But mess with them in a way that industry hates, such as Alberta Premier Ed Stelmach did, and you can get capital fleeing next door (which fueled Saskatchewan’s Bakken Boom in 2009.)
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Poignant title
It is clear throughout the book that Cline’s choice of the title, Squandered, has meaning throughout the history of Saskatchewan’s potash industry, in particular with its relationship with the provincial government and finances.
He frequently makes reference to Saudi Arabia and Norway, both of which have nationalized oil companies. Cline writes about how Saskatchewan is effectively the Saudi Arabia of potash, moreso, in fact, as its percentage of global potash production is much higher than Saudi Arabia’s for oil. And in contrast, Norway has a much smaller percentage of global oil production, and yet through Statoil/Equinor controlling most of its oil production, it has become wealthy as a result.
But Saskatchewan, not so much, according to Cline.
The early part of the book explains how the potash industry came to be in the 1960s with 10 mines owned by nine companies largely during the Liberal Ross Thatcher years. But the NDP butted heads with the industry, which, according to Cline, was not transparent in its production numbers. While the government wanted the potash miners to expand, they didn’t want to under an NDP government. The relationship got to the point where potash producers were withholding taxes due. So in 1975 the Saskatchewan government bought several of the mines at fair market value through a nationalization scheme and ended up with 40 per cent of Saskatchewan production, in turn creating one of the largest potash mining companies in the world.
Cline writes about the significance of having the Potash Corporation of Saskatchewan headquarters in Saskatoon, within this province, and that other operations were “branch plants.” He speaks about how its dividends, in addition to taxes and royalties, were lucrative to the provincial purse in the first five years after PCS got up and running.
While he speaks strictly of potash in this reference, the thinking could clearly be applied to the oil industry. Cline writes, “Saskatchewan people may have different points of view on various subjects, but one thing they would agree on is that they want to be proud of who they are and where they are. They want head offices of companies to be in Saskatchewan, where their business derives its success. They want good jobs in the province. This is especially true in the case of resource companies where the resource belongs to the public. They have the right to feel that if they are good enough to permit the extraction of the resources, they should be good enough for corporate executives to want to live among them. They don’t want to be thought of as Hicksville, Nowhere.”
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PCS Sale
He laments how the Grant Devine-led Progressive Conservative government was doggedly determined to privatize PCS as a matter of principle, which it did in 1989 after seven years in office. This happened to coincide with several down years during the 80s in the potash industry, when potash miners weren’t making money. Effectively, Cline explains the PC government sold low.
“In its first five years in operation, PCS made a profit of $413 million after paying approximately $520 million for its five mines acquired between 1976 and 1978. In addition, it paid $270 million in taxes and royalties,” he wrote.
“In 1989, a public corporation, which included mining assets with a replacement cost in the billions of dollars, was sold by the Saskatchewan government for approximately $630 million. Eight years later, in 1998, its market cap was US$4.5 billion, or C$6.2 billion – close to a tenfold increase in value. That’s a remarkable return on investment, which would have been realized by all the other potash companies, which held onto their assets.
“In 2010, twenty-one years after privatization, BHP offered US$38.6 billion (About C$40 billion at the time) in a hostile takeover bid for PCS. That is about forty-three times as much as PCS was sold for in 1989 in real dollar terms.”
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Cline added, “Erin Weir, then an economist working for the United Steelworkers union, estimated that, as of 2011, some twenty-two years after privatization, the loss to the people of Saskatchewan in foregone revenue was between $18 and $36 billion. That is a staggering amount for a province of about 1.3 million people. It seems unbelievable. Weir is looking al all profits PCS earned as a private corporation, not just profits from potash operations, as this book does. Weir’s approach is not unreasonable; PCS could have been just as diversified as a Crown corporation as it continued to become over the years as a privately owned company. In fact, it was underway. This book takes a very conservative approach and only looks at profits derived from potash by PCS and other potash companies. It is not unreasonable, however, to consider, as Weir does, the complete profitability of PCS.”
Cline notes that the “the profits from potash mining are huge.” He adds, “Weir argues the 1989 sale of PCS ‘was the worst fiscal decision in the province’s history.’”
Later on, he writes, “It is not unreasonable to conclude that this was a decision driven more by ideology that business considerations or basic common sense.”
In an anecdote about being sore that Cameco chose to not locate uranium processing in this province, despite his going to bat for them within government, Cline writes, “… if resource companies want favourable treatment from the government, they should be sensitive to the aspirations of the local people and their government. One of those aspirations is to be not simply a provider of raw materials. Government should not take a hands-off approach. It should pursue maximum return for the people of the province in terms of revenue and economic development in return for extracting the province’s revenues.”
“Regardless of political beliefs, people in Saskatchewan would agree that the public is entitled to a reasonable share of profits from resources extraction. What is reasonable should be determined according to a reasonable return for the potash mining companies, entities that are no longer seen as part of the family any longer. It should be okay to insist that excessive profits should belong to the public, not to the companies,” Cline writes.
NEXT: in Part 2, About that royalty review …
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