Ex Harper adviser slams Saskatchewan 'self-interest' on Potash deal

22nd October 2010 By: Matthew Hill

TORONTO (miningweekly.com) – A former senior adviser to Canadian Prime Minister Stephen Harper, Tom Flanagan, said on Friday that Saskatchewan Premier Brad Wall's opposition to BHP Billiton's $39-billion bid for Potash Corp was "naked self-interest in the most narrowest sense", and that Harper would likely approve the deal.

“His intellectual arguments are extremely weak,” Flanagan, now a professor at University of Calgary, told Mining Weekly Online, adding “this ought to be a slam dunk for approval” at the Competition Tribunal.

However, Wall struck back saying he, and the Saskatchewan government, would act in the best interests of the people of Saskatchewan. “That's our job. So it is hardly 'naked self-interest' for the government of Saskatchewan to be concerned about the loss of investment and jobs in our province, and to take actions that protect new investment and jobs.”

“The decision was made after careful review and analysis determined that the BHP Billiton takeover bid does not provide a net benefit to Saskatchewan or Canada in three key areas: jobs and investment, Canadian control of an important Canadian resource, and provincial revenues,” Wall added.

Does Flanagan expect Harper would give BHP Billiton the green light?

“Yeah, intellectuall,y of course, he would. He would see through these bogus arguments in a minute,” Flanagan said in a telephone interview.

However, he went on to note that politics could come into play, with a backlash from the opposition Liberal Party expected were Harper to approve the bid.

“He (Harper) will sometimes do things that, as an economist, he must know do not make sense.

“The politics are a bit sticky here, but I’m hoping he can rise above that.”

Harper holds a masters degree in economics. He summed up the proposed deal this week as an Australian-controlled company –BHP Billiton – bidding for what is essentially an American-controlled company, Potash Corp.

Wall on Thursday announced he was opposed to the deal in an emotional speech to Ottawa.

He argued Potash Corp was a strategic Canadian asset, and that Saskatchewan would lose out on revenue if BHP Billiton took control of the company.

Flanagan dismissed this. “Frankly, who cares where the ownership is. Canadian companies operate mines all over the world. They own mines in Australia; this happens all the time all over the world,” he said.

A week before Wall’s speech, an Insightrix Research survey found that 55% of Saskatchewan residents were opposed to BHP Billiton buying Potash Corp.

Flanagan said this showed the Premier was playing to the populace. “That would be my guess,” he commented, saying that Wall’s opposition was incongruous with the free-market-oriented conservative Canadian politics that he was rooted in.

“I’m disappointed in Wall – though he may be playing games too, he knows it’s not really his decision. He could be hoping the federal government might enforce some additional sweeteners,” Flanagan added.

Wall said he deliberately avoided being swayed by polls.

“I made a specific decision not to do any polling on this issue while this analysis was being made as he did not want this to influence the government's final decision,” he said in emailed comments.

‘BAKSHEESH’

Flanagan went on to criticise the upfront levy of up to $1,5-billion that Wall wanted BHP Billiton to pay for potential future revenue losses.

“That strikes me as something that would happen in the third world,” he decried.

“I can’t remember anything like that. This sends such a terrible message.”

The Financial Times earlier said the levy sounded like “baksheesh” – or bribe – for regulatory approval.

Also coming under fire from Flanagan, was Wall’s desire for the potash sales and marketing cartel, Canpotex, to continue.

“Are we in favour of free trade or what? This is naked-self interest in the most narrowest sense,” he said.

Wall dismissed this.

“The potential loss of Canpotex as a result of BHP Billiton's publicly stated marketing strategy would put at risk billions of dollars of new capital expansion in Saskatchewan and thousands of jobs.

He called the labelling of the levy as ‘baksheesh’ “a gross mischaracterization of the government's efforts to protect Saskatchewan people from a massive revenue hit as a result of this takeover bid”.

"That revenue is also needed to keep our tax levels competitive for other businesses and for Saskatchewan families," Wall said.

WRITE-OFFS

Much is at stake for BHP Billiton CEO Marius Kloppers, who had already had to write-off over $500-million over the past two years for deals that failed.

In 2008, he had to write off $450-million after BHP Billiton abandoned its bid for Rio Tinto. The company then spent a further $75-million on its now-defunct iron-ore joint venture with Rio, according to the Australian Financial Review.

And, if the proposed Potash buyout  joins these in the graveyard of doomed deals, yet another  funeral bill will be arriving on Kloppers’ desk, likely running into the tens of millions of dollars.

Investment Canada's deadline to reach a decision on the bid is November 3, but this could be extended.

“There are some signs the federal government will step up to the plate and let the deal go through,” said Flanagan.