The Russian government has amended several fisheries-related regulations, including postponing for two years a vessel-construction requirement contained in its investment-quota program.
Russia has also abolished the mandatory conversion of revenue earned by exporters via foreign trade into rubles, and has allocated RUB 153 billion (USD 2.7 billion, EUR 2.5 billion) in direct aid to its agricultural and fisheries sectors to fortify them as they cope with the tightening financial vise of global sanctions put in place following the country’s February invasion of Ukraine.
Multiple rounds of economic sanctions imposed by the European Union, the U.K., and the U.S. have deeply impacted Russia’s seafood industry. The sanctions eliminated many of Russia’s biggest export markets and caused a shortage of aquafeed in Russia and a crisis situation at many of the country’s shipyards, which are largely dependent on foreign-supplied equipment and technology. Additionally, Russia’s domestic seafood market is in turmoil and one major Russian seafood company has already closed as a result of the challenging market conditions it faced.
In response, over the course of numerous meetings between Russian government officials and representatives of Russia’s seafood industry, including Russian Pollock Catchers Association (RPCA) President Alexei Buglak and All-Russian Association of Fisheries Enterprises (VARPE) President German Zverev, a slate of reform measures was put forward for consideration with the goal of easing operational pressures on the country’s seafood industry. Many of those changes were adopted by an order issued by the Russia’s Federal Agency for Fisheries (Rosrybolovstvo) issued 29 April, 2022, and published 14 June.
Among the most prominent of the changes is an alteration to the investment-quota program, which was launched in 2016 and expanded several times since. The program provides additional fishing rights to herring, pollock, haddock, and other species to companies in exchange for investments in new processing facilities or fishing vessels. Participants in the program must build the plants in Russia or vessels in Russian shipyards within specific parameters, with delays with construction or the launch of a vessel resulting in fines and a delay in accessing the additional quota.
However, due to the sanctions Russia faces, the program’s requirements have become increasingly difficult to adhere to, according to Buglak. The RPCA has backed a two-year delay to the program’s rules going to effect as well as an easing of financial requirements for loans and bank guarantees required for program participants. Those proposals were seconded by VARPE, with Zverev further requesting a moratorium on the return of the principal debt and interest payments on vessel-construction loans until the end of 2023 if shipyards suspend construction on vessels being built through the program.
Zverev warned if the changes are not adopted, the industry could face severe financial consequences, as up to 20 percent of the country’s total allowable catch for cod and haddock in the Northern Fishery Basin and for pollock and herring in Russia’s Far East have been allocated under the first phase of the program. Withholding that quota could result in a massive shortfall in catches, resulting in major losses and likely job losses, he said.
“Given the sanctions, the ban on the supply of equipment, the impossibility of attracting foreign specialists for commissioning, the question arose not about the timing and cost of construction, but about the feasibility of completing most of the planned vessels,” Buglak said, according to Fishnews.
Several of the proposals were endorsed by Russia Federal Agency for Fisheries Head Ilya Shestakov. In an interview with Fishnews, Shestakov rejected the elimination of the bank guarantee requirement but confirmed his agency will offer a 12 percent subsidy for loans awarded for the first stage of investment quotas. Shestakov acknowledged the difficulty Russian shipyards and fishing companies are facing in vessel construction as a result of the international sanctions.
“You cannot [build] a ship if there is no equipment available. But according to the law, six years are given for the implementation of the investment project. Even if we allocate investment quotas in 2023, we will have until 2029 to build the ships that are planned. We will not abandon these plans. On the contrary, together with the fishermen, we will push shipyards to ensure that import substitution on ships built at domestic shipyards takes place even more actively,” he said.
However, Shestakov said the government’s plan to continue to expand the investment-quota program will not be postponed, despite complaints from the seafood industry that it could cause catastrophic damage. The Federal Agency for Fisheries’ Public Council, which contains industry members, will formally consider the expansion at an extraordinary meeting on 20 June.
“Since the implementation of this bill is envisaged in 2023, we believe that it is premature to postpone these deadlines for the time being, and we hope that in 2023 we will be able to put all these initiatives into motion. Therefore, the draft law is moving along as usual, in the near future it will be sent to the Ministry of Justice and later to the Russian government,” Shestakov said. “We see interest from investors and from fishermen to these proposals. Not all, of course, but many are interested. I think that it is not worth slowing down the progress of the bill. We see certain risks, they are connected to a greater extent with shipbuilding. But we have a very flexible approach here. If necessary, we can shift the final deadlines for the implementation of investment projects to the right if it is not possible to complete the construction of ships or even factories within the specified timeframe.”
Shestakov said Rosrybolovstvo will continue evaluate the situation facing Russia’s seafood industry and is open to revisions in the future, but at this time, it is sticking with its plan to expand the investment-quota program and auctions in 2023.
“In itself, the adoption of the law will not lead to an immediate redistribution of quotas for fishing – first it will be necessary to build ships and factories. I consider it wrong to stop the modernization of the industry, but we will work out the terms of the actual execution of investment contracts with fishermen, shipyards and builders of coastal plants. So far, we see no reason to suspend this process. Some decisions can probably be made, but not now,” Shestakov said. "In the future, we will see what dynamics will be with the liquidity of the companies. This is the most important factor –the availability of funds, including credit, so that the widest possible range of companies can take part in the auctions and the federal budget receives the maximum income from the sale of quotas. Therefore, the question of postponement will depend on the situation in 2023. I think that the Russian economy will be able to adapt to the changed conditions in a year and we will have the opportunity to hold auctions, as I said, for the benefit of the state.”
The proposal, which could expand the investment-quota program to cover 100 percent of the total allowable catch of some species in Russia, and includes a conversion of half of the total TAC for crab in Russia’s North and Far East fishing areas to an auction system, has been pilloried by some industry leaders, who have argued the first round of the investment-quota program has still not been studied enough to determine its effectiveness.
”The situation can be compared with the explosion of a building. Nothing happens for a certain time, and then the whole structure collapses. The same can happen in the fishing industry. The first stage has not even ended yet, it has not been analyzed,” Association of Fishing Enterprises of the Khabarovsk Territory (APROHK) President Sergey Ryabchenko said, according to Fishnews. “After a new portion of changes, small- and medium-sized businesses will simply collapse. The volumes of catch by major players will be developed, but what awaits the territories, including remote ones?”
Russian Association of Crab Producers President Alexander Duplyakov said declining total allowable catch for several crab species, including a 45 percent TAC decline for king crab in the Kamchatka-Kuril subarea, a 25 percent drop in the TAC for blue crab in the West Kamchatka subarea, and a 10 percent decline in the TAC for red crab and snow crab in the North Sea of Okhotsk subzone, also throw into doubt the financial feasibility of the crab quota auctions. Combined with difficulties exporting to foreign markets, including the United States, many crab-fishing companies are struggling financially, Duplyakov said.
However, Shestakov said the government is still planning to push ahead with the investment-quota program. Rosrybolovstvo previously said it expected to realize the construction of 30 new fishing vessels, 35 crabbing vessels, and 10 shore-based processing plants collectively valued at RUB 300 billion (USD 3.7 billion, EUR 3.4 billion) as a result of the expansion of the program.
To further encourage the renewal of the domestic fleet, the government has upped the subsidy rate for the construction of crab boats that are now being manufactured at shipyards in Russia’s Far East from 20 percent to 28 percent of the cost of a boat. Sixteen crabbers have already been built under the investment-quota program and Shestakov said he hopes to eventually see the construction of 41 crab-fishing vessels. The maximum amount of the subsidy was also increased from RUB 340 million (USD 6 million, EUR 5.6 million) to RUB 560 million (USD 9.8 million, EUR 9.2 million) in order to account for rising costs. The average cost for constructing a new crabber increased 13 percent in 2021 to an average of RUB 2 billion (USD 35 million, EUR 32.8 million), which forced Rosrybolovstvo to revise the amount of the subsidy upward.
Russian Prime Minister Mikhail Mishustin recently said said a portion of the RUB 153 billion (USD 2.7 billion, EUR 2.5 billion) in direct aid recently approved for Russia’s agriculture and seafood sector will be directed to subsidize 19,000 individual bank loans for 15-year terms at a reduced rate of 5 percent, with the goal of making it easier for fishing companies to finance their expenses for vessel-repair abroad and pay for equipment and bunkering expenses.
“The measures will help businesses develop and secure deliveries of foods of high quality for consumers,” Mishustin said.
Additionally, the lower chamber of the Russian parliament recently approved several amendments to the country’s fishing laws designed to reduce bureaucratic hurdles faced by the seafood industry. And Russia’s Ministry of Agriculture has introduced a decree that will reduce the maximum length of time it takes to issue a certificate for export of live seafood from 15 days to three to five days.
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