REGINA – The Saskatchewan government could be forced to sell its share of Saskferco Products Inc. to its business partner, Cargill Ltd., in three years, a legislative committee has been told.
Don Ching, president of Crown Investments Corp., recently told the standing committee on crown corporations that a clause in the 1991 deal allows Cargill, which owns 50 percent of the plant, to buy out the 49 percent owned by CIC at fair market value. There is a five-year window for the buyout – Oct. 13, 1997 to Oct. 13, 2002.
Ching told the committee there is nothing the government can do about the clause, and it does not have the reciprocal right to buy out Cargill. The province’s equity investment in the $440 million project was $68 million.
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“It’s possible that if the project is operating and operating very well, that at that particular moment Cargill has a right to take us out and in effect capture for themselves all of the upside benefit that comes from being the equity owner of this particular project,” he said.
If Cargill does not make an offer during the five-year period, CIC has the right to sell its shares but must give Cargill first right of refusal.
Millions in loan guarantees
Some committee members were upset to learn that even if Cargill does buy out CIC’s share, the province will still carry about $305 million in loan guarantees.
“I find myself feeling a tad troubled that the taxpayers are in the position to bear … a disproportionate amount of risk as compared to potential for sharing of profit and return from the venture,” said NDP MLA Glenn Hagel.
Saskferco has been a success since it opened in October 1992. Designed to produce 125,000 tonnes of ammonia and 660,000 tonnes of urea each year, the plant is operating at slightly above capacity.
Expected debt, made profit
Ching said the plant made a profit of $300,000 in its first full year of operation, although budgetary forecasts called for an $11 million loss.
For the fiscal year June 1, 1994 to May 31, 1995, the budget calls for “a fairly significant profit,” he added.
PC MLA Don Toth said Saskferco has injected approximately $90 million in salaries and taxes into the provincial economy. The plant opened during an upswing in a cyclical industry and has flourished under Cargill’s management.
Future success is dependent on the cost of natural gas and the strength of the fertilizer market, said Ching.
“Over the last four or five months there have been signs that the price of natural gas is softening. That’s a good sign from the point of view of Saskferco because that’s their major cost.
“On the other side of the ledger, all the indications that we see are that the market for nitrogen fertilizer maintains a lot of strength and we anticipate that strength continuing at least for the next year or so.”
