August 14, 2009 / 8:32 PM / 10 years ago

Potash drop leaves hole in Saskatchewan budget

* Lower potash price costs province C$1.3 bln

* Spending cuts, reserves to maintain surplus target

* Province won’t pay down C$4.2 billion debt (In U.S. dollars unless noted)

WINNIPEG, Manitoba, Aug 14 (Reuters) - The plunging price of potash has put a C$1.3 billion ($1.2 billion) hole in the budget of the Western Canadian province of Saskatchewan, but its government announced measures on Friday to keep it on pace for a surplus.

The province is home to fertilizer giant Potash Corp of Saskatchewan POT.TO and much of the world’s reserves of potash, and collects revenues based on the production and price of the crop nutrient.

It budgeted in March for a potash price of $556 per tonne, however the price dipped in July to $460, with Russian and Canadian sales to India [ID:nBNG368711], said government spokesman Randy Burton.

Saskatchewan was expecting C$1.9 billion in potash revenue, but now projects C$637 million, Burton said.

Potash prices have tumbled as the recession cut into world grain prices and farmers put off applications of the crop nutrient

The decline in potash revenue was offset partly by higher than expected oil, tax and other revenues totaling C$668.1 million.

The provincial government said it would also defer some capital projects, leave vacant positions unfilled and and take a C$185 million dividend from the earlier sale of its stake in a fertilizer producer.

It also said it will tap into its reserves to show a year-end surplus of C$424.5 million, as budgeted. The province’s fiscal year runs April 1 to March 31.

Saskatchewan is one of only a few Canadian provinces running a surplus this year. However, because of the smaller surplus, it will not pay down its C$4.2 billion debt, as it usually would.

$1=$1.10 Canadian Reporting by Rod Nickel, editing by Rob Wilson

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