March 18, 2015 / 8:19 PM / 3 years ago

REFILE-UPDATE 2-Saskatchewan sees slim 2015-16 surplus, hikes potash taxes

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By Rod Nickel

WINNIPEG, Manitoba, March 18 (Reuters) - The Western Canadian province of Saskatchewan expects to post a slim budget surplus in the 2015-16 fiscal year, helped by changes in how it taxes potash mining companies, the government said on Wednesday.

Premier Brad Wall’s right-leaning Saskatchewan Party government raised spending 1.2 percent to C$14.17 billion ($11.10 billion) for the year starting April 1, leaving a forecast C$107 million surplus in Canada’s biggest wheat-producing province.

Saskatchewan has remained in the black for two decades, even as most provinces ran deficits when their economies slowed in recent years.

In the year ahead, however, the province expects to receive C$661 million less revenue from the crude oil industry than budgeted last year due to plunging prices.

Saskatchewan estimates the price of West Texas Intermediate oil to average $57.15 per barrel in 2015-16, while oil production slips nearly 5 percent to 178.7 million barrels.

To help offset a drop in oil revenue, Saskatchewan Finance Minister Ken Krawetz said the province will require potash mining companies to take tax deductions based on their capital spending over a longer period of time, boosting revenue by C$150 million.

The change is an interim step to be followed by a broad review of Saskatchewan’s potash tax and royalty system.

The province is home to mines owned by Potash Corporation of Saskatchewan, Mosaic Co and Agrium Inc . Germany’s K+S AG and Anglo-Australian miner BHP Billiton PLC are building mines.

The Saskatchewan government’s 2015-16 budget is expected to hurt PotashCorp’s 2015 pre-tax earnings by C$75 million-C$100 million, the company said on Wednesday.

Chief Executive Jochen Tilk said he was “disappointed” with the announcement, as the company was nearing completion of a $6 billion investment in Saskatchewan based on the existing tax structure.

“Changing the rules midstream... undermines Saskatchewan’s relative competitiveness,” he said.

The province sees potash prices averaging $297 per tonne in 2015-16, up from $284.

The government said it expects the 2014-15 year, which ends March 31, to finish with a smaller than expected C$40.5 million surplus.

Saskatchewan expects its total public debt to rise by C$1.5 billion to C$13.3 billion by March 31, 2016, the end of the next fiscal year, including C$700 million in borrowing to build schools, roads and other infrastructure. Its operational debt, which excludes debt held by government-owned corporations, health authorities and school divisions, is expected to remain at C$3.8 billion. (Additional reporting by Anet Josline Pinto in Bengaluru; Editing by Diane Craft)

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