Exclusive: Canada's Saskatchewan may scrap potash royalty review - minister

(Reuters) - Saskatchewan is considering whether to end a review of its potash royalty system, the economy minister of the Canadian province said, as producers of the crop nutrient struggle with low prices.

Slideshow ( 3 images )

The province had said any changes would be revenue-neutral to its treasury, but Potash Corp of Saskatchewan POT.TO raised concerns last year when the cash-strapped government took an interim step to boost its revenues.

“Part of the discussion is whether or not we do anything at the moment or whether we hold off on any kind of further discussion,” said Economy Minister Bill Boyd, in a phone interview from Regina on Thursday, adding that the government would probably decide within a week or two whether to end the process.

Saskatchewan is home to 45 percent of global potash reserves and charges the highest royalties in the world to miners Potash Corp, Mosaic Co MOS.N and Agrium Inc AGU.TO.

The review comes as potash miners struggle with sharply lower profits due to the weakest potash prices in nearly a decade. A surplus of mining capacity and weak currencies in consuming countries such as Brazil have extended the industry’s slump.

The companies have not urged the government to drop the review, but even so it wants to ensure it does not add to pressure on the industry, Boyd said.

“It’s important to note that certainly markets are soft and that there’s increased production from competitors around the world, so we have to be careful,” he said.

The government collected a record-high C$1.36 billion ($1.05 billion) in potash revenue when prices spiked in 2008/09, but its royalty program finished with a negative balance the following year when prices crashed. This year, it expects to collect C$420.4 million, a 36 percent drop from last year.

The complicated formula is currently weighted more by prices than output, and Saskatchewan’s aim, if the review continues, would be to calculate payments with more emphasis on production, Boyd said.

Germany's K&S AG SDFGn.DE expects to open Saskatchewan's first new potash mine in four decades this year and BHP Billiton Ltd BLT.L has started building another mine, although it has not committed most of the capital.

Saskatchewan expects to run a C$434 million deficit in 2016-17.

Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Andrew Hay