Potash ownership and extraction: Between a rock and a hard place in Saskatchewan

It is difficult for almost all governments to combine efficient non-renewable natural resource production with effective capture of the resource rents. Governments must navigate between a “rock” of public sector extraction using relatively inefficient state-owned enterprises with considerable attendant rent dissipation and a “hard place” of private sector extraction with potential rent transfer or dissipation. We use the privatization of Potash Corporation of Saskatchewan (PCS) to illustrate this trade-off. We employ a “pre-post privatization” performance comparison to show that privatization did result in considerably improved PCS productive efficiency. We show, however, that Saskatchewan governments have been less successful at capturing significant resource rents following privatization. We consider some political economy explanations, including industry influence and an opaque rent tax regime that minimizes any negative electoral consequences of low rent appropriation. We discuss ways of increasing public rent capture: a more efficient and transparent rent tax regime, some share acquisition in potash firms (or specific projects) in order to provide a more accurate cost window on the industry, or some combination of a better tax regime and ownership.