* Deal could reduce government tax revenues, royalties
* BHP seen getting tax writeoff for interest costs
* Other potash miners fear change to marketing system
* Saskatchewan cautious about a China bid (Adds comments on China, political scientist view, lawsuit developments)
By Euan Rocha
SASKATOON, Saskatchewan, Sept 29 (Reuters) - A takeover of fertilizer giant Potash Corp POT.TO could cut into corporate tax revenues and mining royalties, the premier of the western Canadian province of Saskatchewan warned on Wednesday.
Canada’s federal government is reviewing whether BHP Billiton’s (BHP.AX) $39 billion hostile takeover bid for Potash Corp would provide a net benefit to the country.
Ottawa will consider how such a deal could affect federal and provincial revenues, Wall told reporters in Saskatoon, Potash Corp’s home base.
Saskatchewan is specifically concerned that BHP could use the interest it is charged for borrowing money to complete the takeover to write off corporate income taxes owed to both Ottawa and Saskatchewan.
“We don’t have the final estimates yet, but there is a real risk in terms of a substantial, potential decrease in corporate income taxes,” Wall said. “We will balance the desire that we have for a positive investment climate with also the need to think long term.”
An independent report for Saskatchewan on the implications of a Potash takeover has been delayed to Monday from Thursday after its author, the Conference Board of Canada, requested more time, a spokesman for the provincial government said earlier on Wednesday.
The report is likely to influence whether BHP’s bid wins political approval and whether Canada seeks to impose conditions. [ID:nN27100437]
“Asking an outside group such as the Conference Board to look at it carries a certain amount of credibility,” said John Courtney, senior policy fellow at the University of Saskatchewan’s graduate school of public policy.
“If they are looking for some sort of weapon to bolster their case, then the report coming out next week, if it’s along the lines of (Wall’s stated concerns), would certainly do that.”
Wall has said in the past he is also concerned that a BHP takeover of Potash, the No. 1 producer of the fertilizer, could reduce royalties if the Anglo-Australian mining giant markets the crop nutrient independently, instead of through the Canpotex marketing consortium.
Such a change could weaken potash prices, which would lower provincial royalties.
Saskatchewan Energy Minister Bill Boyd said the provincial government has met with Mosaic Co (MOS.N) and Agrium Inc AGU.TO, Potash Corp’s partners in Canpotex, and both have expressed concerns about changes to the marketing regime.
Saskatchewan, which produces a quarter of the world’s potash, depends on the royalties for hundreds of millions of dollars in income each year, but received nearly C$1.4 billion ($1.35 billion) in 2008-09 after potash prices jumped.
“BHP Billiton will look after their shareholders, and they should, and I respect that,” Wall said. “Potash Corp will look after their shareholders, and they should, and I respect that.
“We will look after our shareholders, the people of the province, whose resource it is in the first place, and I know all companies will respect that as well.”
Wall also said Saskatchewan would take a careful look at any rival bid for Potash involving a Chinese sovereign fund or state-owned company. China, the world’s top potash consumer, is likely to push toward lower potash prices if it took an ownership stake in the company.
“China is a country that has done a pretty good job recently of safeguarding their own interests,” Wall said.
“It is also exactly what we are trying to do.”
Prime Minister Stephen Harper has said he will consider Saskatchewan’s concerns in deciding whether the federal government approves any takeover.
The two companies returned to a U.S. district court in Chicago on Wednesday in hearings for Potash Corp’s lawsuit aimed at fending off BHP’s takeover bid.
Lawyers argued over the documentation BHP must produce for the court’s discovery process. Potash Corp wants BHP to produce documents relating to BHP’s potash-industry investments dating back to 2001, while BHP proposes they go back only to 2008.
Judge Jeffrey Gilbert did not rule on the date range but agreed with another judge’s comment on Monday that Potash Corp’s request for documents is too broad.
$1=$1.03 Canadian Additional reporting by Rod Nickel in Winnipeg and Eric Johnson in Chicago; editing by Peter Galloway and Rob Wilson