An upcoming decision on how to handle expiring crab quota contracts by Russian President Vladimir Putin has the potential to make or break the industry.
Since 2004, Russia has allocated its crab quotas through 15-year contracts based on a company’s historical catch. The first of these contracts are set to expire in 2019, and rumors swirling in the industry have some Russian crab company executives concerned that Putin may opt to return the industry’s quota distribution to an open-auction format.
The move could be disastrous, according to executives quoted in Russian media. Far East Crab Fisheries Association President Alexander Duplyakov said in an interview with Kommersant that the reform will likely cause the bankruptcy of at least 60 companies, leaving 3,000 fishermen jobless.
Currently, Russia is the top exporter of crab in the world – in 2016, Russia caught 74,000 metric tons (MT) of crab in 2016, and exported 52,000 MT worth USD 580 million (472 million). Preliminary figures for 2017 show an expected catch of 95,000 MT, with exports expected to land at around 55,000 to 57,000 MT, which would be a new record, especially as the value of Russian crab continues to rise, with one ton of crab receiving USD 10,000 to 30,000 (EUR 8,300 to 24,900), depending on whether the crab is boiled or fresh.
But that could change with the reversion back to the auction system, which was used prior to 2004, Duplyakov said. The effects will be hardest felt in the country’s Far East, where approximately 75 percent of Russia’s crab is caught.
Debate begins
In late November 2017, Kommersant, a leading Russian business newspaper, reported that Russian president Vladimir Putin was contacted by a group of lobbyists proposing to reform the country’s crab quota distribution system and remove crab from the system of investment quotas that had been in place since 2004. The newspaper did not reveal the names of the petitioners, and their names have not been yet released publicly by the government.
The lobbyists said in their letter to Putin that crab quota distribution should be reverted back to an auction-sale process, which they said offers a better deal to the government. Since 2004, quotas have been handed out partially in exchange for private investments into the development of domestic processing facilities or the construction of fishing vessels at Russian shipyards. But with Russian crabbers setting catch and export records annually, the petitioners argued the industry doesn’t need as much support as it did, and called for the government to sell the quotas coming available in 2019 via auction, which would open the industry to greater levels of competition and raise more funds for the government.
Putin’s reaction, the Kommersant reported, wasn’t negative, though it was not immediately positive either. He ordered government bodies involved in the issue to consider the proposals and give feedback. The names of these bodies were not revealed, though it is likely being investigated by Russia’s Federal Agency for Fisheries, which is part of the Ministry of Agriculture.
A few days later after the Kommersant’s publication, Russia’s Minister of Agriculture Alexander Tkachev confirmed that the proposal really existed and voiced his approval for it. In an interview with news agency RIA Novosti, he said that the idea of the reform emerged “after talks with industry’s representatives,” though he did not reveal the names of these representatives.
Crab fishing companies are in good financial shape to be able to buy the quotas in a competitive auction, Tkachev said. He referenced a May 2017 limited-scale auction for the quota of a company that had failed to meet the demands of its contract that raised RUR 24.8 billion (USD 421 million, EUR 347 million) – a sum higher than the industry paid in taxes in 2016.
Tkachev also criticized the fact that crab companies are making record profits but not reinvesting in their fleet, as the average age of crab fishing vessels in Russia is above 30 years old. Furthermore, he said that quotas should be awarded for a period of 10 years instead of the current term of 15 years.
Crab fishing sector fires back
After news of the possible amendments to the current quotas distribution system became public, it caused outrage across the industry.
Many crab fishermen in Russia believe that a return to auctions will significantly weaken their business, returning to the brink of bankruptcy, as it was in the early 2000s. Auctions held from 2001 to 2003 led to the reduction of the investments by fisheries by two-thirds, while their profitability fell from eight percent to negative levels, the industry pointed out in its rebuttal. Furthermore, a 2017 government report claimed that auctions could reduce the industry’s cumulative profit ninefold.
The auction held in May, which is being used as an example of how lucrative an open bidding process could be, is not a good sample to look at, industry representatives have told Russian media. The companies that took part in it were acting with an understanding that they could rely on the historical rates of quota distribution, pushing bids much higher than they would have gone if the entirety of Russia’s crab quota system were opened to public bidding.
Changing quota allocation rules will also result into cancellation of orders for 10 ships currently being built at Russian shipyards, the Russian Union of Industrialists and Entrepreneurs (RUIE), the biggest nation’s business organization, has claimed. RUIE also calculated that the reform will reduce the total amount of investments by fisheries sixfold, from RUR 180 billion (USD 3.15 billion, EUR 2.64 billion) to RUR 30 billion (USD 1 billion, EUR 900 million).
German Gref, the CEO of the state-owned Sberbank, which has backed most of the loans recently given to fisheries, has said that the return to auctions “will make the fleet renovation program slow down.”
What’s next
At a press conference on 26 December, 2017, Ilya Shestakov , the chairman of Russia’s Agency for Fisheries, said that he hasn’t still received instructions from Putin ordering him to consider the amendments in question. As a result, Shestakov declined to discuss the details of the state of decision-making on the future of the country’s crab quotas.
But commenting on the subject in the abstract, he said that the possible return to auctions poses some risks, as fishing executives had previously proceeded on the assumption that the system, including 15-year quotas, would stay in place.
In any case, even should the amendments be accepted and implemented, a compromise solution will be found, he said.
