The greatest tragedy in BHP Billiton's $38.6-billion (U.S.) bid for the Potash Corporation of Saskatchewan (PCS) is that the Government of Saskatchewan previously sold PCS for just $630 million. This privatization was the worst fiscal decision in the province's history and has been aggravated by subsequent royalty giveaways to private potash companies.
(T)he mines that PCS owned in 1989 still account for 80 per cent of its potash production and capacity. Since 70 per cent of the company's current gross margin is from potash (rather than phosphate and nitrogen), these mines still provide at least 55 per cent of overall profits today.
If PCS had simply held onto those historic assets, it would now be worth more than half of today's value. Even assuming that PCS would have completely stagnated as a Crown corporation after 1989, the fiscal cost of privatization was still more than five times the maximum fiscal benefit.
Depending upon which assumptions one accepts, the costs of privatization exceeded the benefits by between $18-billion and $36-billion. In other words, the Saskatchewan government gave up between $17,000 and $35,000 for every man, woman and child in the province.
Friday, August 27, 2010
The costs of privatization
While the latest story on potash involves the proposed takeover of one private company by another, Erin crunches the numbers as to what the Saskatchewan public has lost due to the privatization of the Potash Corporation of Saskatchewan in the first place: