RFC proposes radical changes to Russia's fishery policies, prompting pushback

Published on
September 15, 2020

The Russian Fishery Company (RFC), one of the biggest players in Russia’s seafood industry, has proposed drastic changes to the management of the national fishery sector, which have been met by opposition from other fishing companies and some government officials. 

In early August, RFC sent a letter to Russian Prime Minister Mikhail Mishustin to push for an expansion of the investment quota program, which gave fishing companies additional fishing quota in exchange for building new vessels and processing plants. RFC also proposed that all vessels being built under the investment quotas program be provided enough quotas to reach a full load rate, citing the fact that many of the country's largest fishing companies did not take part in the program, Kommersant reported.

According to RFC, while the fishing sector is in sound financial shape, there are alarming trends regarding the state of the fleet. The investment quota program, which was put into place two years ago, has resulted in the construction of 90 new vessels, but this represents just 40 percent of the country’s fishing capacity, it said.

Moreover, the investment quotas for certain species – allocated to fisheries in exchange for investments into construction of new vessels at Russian shipyards – can secure only a 50-percent load-rate for these vessels. In 2018, Russian fishery authorities extended most quotas for another 15 years based on past-year catches, meaning more than half of the quotas for Russia's most-valuable species will be fished by outmoded vessels over the next 13 years. 

In its letter, RFC also called for additional investment auctions and investment quotas, including in the crab fishery, where 50 percent of the quotas are distributed through auctions and the remainder through historic principle. RFC also called for the expansion of the investment quota program to shrimp, sea urchin, and others.

Another idea proposed by RFC is to ban vessels older than 30 years from fishing in Russian waters. The ban was proposed to be implemented beginning in 2034.

According to RFC’s calculations, these measures will bring in RUB 20 billion (USD 265 million, EUR 224 million) into the construction of new fishing ships annually, totaling RUB 600 billion (USD 8 billion, EUR 6.7 billion) over a 30-year period. 

RFC's proposal sparked outrage across Russia's seafood industry, including from federal ministries which would be involved in the implementation of the new rules. Several seafood trade associations have held press conferences and private meetings with local authorities of coastal regions in Russia to ask them to take a forceful stance against the proposed measures.

Both on and off the record, rival companies to RFC said they worry that Gleb Frank, RFC’s owner, may carry enough political weight to get buy-in from Russia’s leadership, and that RFC's argument that its proposal will result in additional revenues to government coffers, might create enough of an opening to result in the proposal being implemented in full or in part.

RFC was allegedly behind the idea of the investment auctions for crab quotas (though RFC denied its involvement in a direct comment to SeafoodSource), which ended up partly realized. As a result, Frank’s crab-fishing companies won nearly one-third of the crab quotas sold through the auctions. 

The Ministry of Agriculture, of which Russia’s Federal Agency for Fisheries is a part, has filed an official report voicing its opposition to the initiative, arguing it would create unequal competition. It said the load rate of 50 percent granted via the investment quotas is enough for the profitable operation of vessels. And it said companies that didn't take part in the program might have if its conditions had been full-quota allocation from the start. The ministry said the expansion of the investment quota system to additional species might be considered in the future, but only upon the completion of the vessels currently under construction as part of the program. Such a consideration should also be based on the needs of the Far Eastern Fishery basin for new ships, as the current program will renew the Northern basin’s fleet by 80 percent, but the Far Eastern basin’s by 40 just percent, according to the ministry. 

Maxim Kozlov, chairman of the Association of Sakhalin Region Fisheries, said at a press conference that the RFC’s initiative is an attempt to redistribute quotas in favor of the company. Kozlov said his organization opposes the move, as it had already suffered due to introduction of the crab auctions earlier this year. The sale of 50 percent of crab quotas resulted in the loss of 10,000 MT of quota which had been used by local fisheries, he said. Should the RFC’s vision be approved, the Sakhalin region will lose another 300,000 MT of quota for other species, and nearly 5,000 jobs will be eliminated, Kozlov claimed.

North Fishermen Union Chairman Vladimir Grigoryev said the total allowable catch for the Barents Sea – including shrimp, crab, and groundfish – is almost always caught to its full extent. So any increase in investment quotas can be made only at the expense of other quotas allocated to fisheries in 2018 on the historic principle. Such a move will  negatively impact the profitability of many companies, Grigoryev said. Grigoryev also opposes the idea of limiting the service-life of fishing ships to 30 years.

“Sometimes a vessel must be scrapped after 20 years of service, sometimes you can use it after 30 years,” he said.

Grigoryev also criticized the program's requirement that all new fishing vessels be built in Russia, citing the fact that Russian shipyards are having difficulty fulfilling new-build orders. During a meeting with Murmansk Regional Governor Andrey Chibis, NFU’s representative said some shipyards are already six months behind schedule. 

In an interviewed with Fishnews media agency, Far East Crab Fisheries Association President Alexander Duplyakov also harshly criticized the proposal to sell additional crab quotas through auctions, saying there was no evidence that the auctions that took place last year did any good to the industry. The first contracts between fishing companies and shipyards for new crab-fishing vessels were signed just three to four months ago, making any analysis of the program's impact premature. The money earned by the state from the auctions has nothing to do with the industry’s development, as it has gone to the federal budget and will not return to the seafood sector, Duplyakov said.

The companies that had taken part in the sale had had to borrow heavily from banks to buy their lots and fund vessel construction, Duplyakov added, saying it’s only the high profitability of the crab fishing market that still keeps its participants afloat. The COVID-19 pandemic has also radically transformed the seafood industry and the economy as a whole, he said. The current economic downturn in Russia is not the right situation during which to implement drastic changes, which may force a lot of companies into bankruptcy, he said.

“Many fisheries ... will have to cease operations if the quotas they use are auctioned off,” he said.

The only possible supporter of RFC’s proposal could be the Russian Anti-Trust Service (RAS), which has consistently advocated in favor auctions for the seafood sector. But even the RAS called for implementation of any changes or additions to the program only after the current 15-year contracts expire in 2033. And if changes are made, they must be announced in advance so that businesses have enough time to prepare, RAS Deputy Head Mikhail Evraev told Fishnews.

For now, RFC is the lone voice in favor of further industry reform, but Russian politics are often opaque. The Russian government's previous willingness to push for changes to the country's fishing industry could signal RFC's proposal might have more of a chance to succeed than its opponents are comfortable with.

Photo by Chris Chase/SeafoodSource

Reporting from Saint Petersburg, Russia

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