Saskatchewan surplus to shrink as potash, oil revenues sag

Tue Nov 27, 2012 12:20pm EST

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* 2012-13 budget surplus estimate cut to C$12.4 mln

* C$95 mln surplus was forecast in government's March budget

* New estimate lowers potash, oil price assumptions

By Rod Nickel

Nov 27 (Reuters) - The Western Canadian province of Saskatchewan stuck with a lowered forecast for its 2012-13 budget surplus on Tuesday due to falling revenues from potash and crude oil production.

Saskatchewan's rich resources of the fertilizer potash and crude oil have helped it mark up stronger economic growth than most of Canada's provinces, swelling the government's coffers and giving it the second-lowest unemployment rate in the country after Alberta.

But the government said falling resource prices this year have cut its revenue, and now it expects to post a C$12.4 million surplus for the 2012-13 fiscal year, just 0.1 percent of its C$11.2 billion ($11.3 billion) budget.

The surplus would continue a nearly two-decade-long string of balanced books, but it is below the C$95 million surplus budgeted for in March, although slightly above an August government projection.

Saskatchewan, the world's biggest potash-producing region with more than 40 percent of global reserves, is home to mines operated by Potash Corp Saskatchewan, Mosaic Co and Agrium Inc.

Offshore sales of potash, used to boost crop yields, have slumped in the second half of 2012 as supply contracts lapsed with top consumers China and India, pushing producers to idle mines at times to support prices.

Weaker than expected potash prices and sales have slashed Saskatchewan's projected potash revenues to C$465.4 million, down C$239.8 million from the budget figure.

The provincial government now expects potash prices to average US$448 per tonne in 2012 and US$440.11 in 2013, down from its budget assumptions of US$460.17 and US$477.11 respectively.

Saskatchewan, also a significant crude oil producer, lowered its assumption of the average price of West Texas Intermediate oil (WTI) to US$95 per barrel in 2012 from its budgeted figure of US$100, noting the effect of the Euro zone debt crisis and fears of a slowdown in China.

Government revenue from crude oil is expected to total C$1.4 billion, down by C$164.6 million from the budget estimate.

Saskatchewan's debt remains at the March 2012 level of C$3.8 billion.

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