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. Last Updated: 07/27/2016

Auctions Provide Incentive to Poach

MTA fishing trawler at the Novy Mir docks in the Far East. "Each fisherman has a family. They can't do anything but fish," Darkin said.
Editor's note: This is the second of two stories.

VLADIVOSTOK, Far East -- Poorly run and nontransparent, the government's auctions for fishing quotas raise several hundred million dollars in budget revenues each year but are pushing the fishing industry into debt and making poaching almost a necessity for survival.

"If the auctions are not stopped this year, in 2004 the fish industry will go bankrupt," said Vyacheslav Zilanov, chairman of the Fishing Industry Workers coordination council and a Soviet-era deputy fisheries minister.

The auctions, set up by the Economic Development and Trade Ministry in 2001, require representatives of fishing companies to come to Moscow to bid for the right to catch a set amount of fish within a given area.

But the way the auctions are configured, companies must forecast a year ahead of time what kind of catch they can expect and what kind of lending they can count on, and they then use those guesses in planning their bids. Fishing companies argue that the price they pay for quotas is often higher than the market prices at which they can sell their legal catch.

Economic Development and Trade Minister German Gref admitted in a speech to the State Duma last year that there are problems with the auctions. Those who win the legal right to catch a certain amount of fish often haul in many times more that in an attempt to boost profits. "Undoubtedly, the permit to catch fish ... is, in a way, permission to poach," he said.

Gref said Wednesday that after three years of auctions, the government is planning to back away from quota distribution by this means.

"We now think that we can switch to a historical principle of quota distribution on a long-term basis," Gref said, adding that companies that establish a track record for obeying legal limits could win quotas for five years at a time.

The Cabinet is due to discuss the fishing industry and quotas at its meeting Thursday.

As it stands, the auctions sell the rights to "fish in the water," a concept many consider to be fundamentally flawed because fishermen have no way of knowing whether fish will swim out of their assigned territory, rendering their expensive quota rights worthless.

Quota sales bring big revenues into the state budget. Yet these may be Pyrrhic victories if the burden of buying quotas bankrupts the already beleaguered fishing industry.

Primorye Governor Sergei Darkin, who previously ran Roliz, a firm that has a fishing arm, said the auctions have "negatively affected" the fishing industry and they jeopardize its long-term viability.

The auction system makes it impossible for fishing enterprises to plan their work, Darkin said, because firms do not know what a given year's quotas will cost and whether they will be worth the investment. Once those decisions are made, they must figure out how much money they can afford to borrow to purchase quotas and how they would pay off those loans if a year's catch is less than projected.

The biggest losers in all this have been traditional fishing enterprises and the communities those enterprises support, and with their survival on the line, fishermen have no other option but to poach, Darkin said.

"Imagine a small fishing village," he said in comments faxed to The Moscow Times. "A few hundred people. Two vessels, specially outfitted to catch crabs only. Auctions are announced to sell crab quotas. But there isn't any money to buy them, and even if they could, the cost of the crab quotas are higher than what crabs cost on the market. But they all need to eat and each fisherman has a family -- wife, kids, parents. They can't do anything else but fish, and there is no other work in this village anyway. So you might as well hang yourself."

"I'll give you three guesses as to what these fishermen will do," he continued. "I don't say that everyone becomes a poacher this way, but believe me, many do."

Interior Minister Boris Gryzlov has estimated that poached fish reap about $2 billion per year.

Despite this, most analysts believe that the federal government will not want to give up the mound of cash it earns at auctions.

Last year, auctions raised about 7 billion rubles ($213 million). In the first four months of 2003 alone, 16.8 billion rubles' ($511 million) worth of quotas have been purchased. Auction revenues have been significantly higher this year compared to last year because a greater number of quotas for crabs, the most lucrative sea harvest, have been put on sale.

While the federal administration pockets the bulk of this money, regional governments have felt the bite since they do not see any of proceeds from the auctions, which put a squeeze on their tax revenues by choking fishing company profits.

Zilanov of the fishing industry union estimated the losses to regions caused by the auctions in 2001 at about $214 million, which includes the estimated $50 million cost to consumers, who overpay because auction prices inflate the market value of fish.

He expected that losses in 2002 will be shown to be even higher when they are eventually consolidated and released.

"The Murmansk region loses up to 400 million rubles a year in taxes and Primorye loses as much as 700 million," Zilanov said. Such numbers are equivalent to just over 5 percent of the regions' total budgets.

"This is not small change for cash-strapped districts," he said.

Meanwhile, the Economic Development and Trade Ministry's web site defends the auctions, saying analyses of last December's auctions "demonstrate that ... auctions are a normal market tool that allows fishermen of the Far East to work more effectively."

Yury Kokorev, first deputy director of the All-Russia Research and Design Institute for Economics, Information and Automated Management Systems of Fisheries, or VNIERKh, said in a telephone interview that the burden of buying quotas was driving fishing enterprises into increasingly deeper debt, which threatens not only their own commercial viability but the future of the villages that depend on their business.

Last year seafood sales officially totaled 67 billion rubles, while operating expenses were 59.5 billion rubles. Without quotas, this would represent profits of 7.5 billion rubles, or almost $250 million. But because 11 billion rubles were spent purchasing quotas, the industry was 4.6 billion rubles in the red.

On top of that, fishing companies' debts have skyrocketed, reaching 43 billion rubles in 2001, according to the Second Congress of Fishermen. In 2002, debt stayed at about the same level, Zilanov said.

At 30 billion rubles in the first quarter of 2003 alone, the debt owed by fishing firms amounted to almost half of the 67 billion ruble total value of the country's legitimate catch, Zilanov said.

In this light, the economic incentive of poaching is clear.

"If it weren't for poaching, the fishing industry would be dead already," VNIERKh's Kokorev said.

According to the State Customs Committee, $1.7 billion worth of poached seafood was exported to Japanese ports alone in 2000-01.

About 80 percent of exported seafood is illegal, according to an audit conducted by the presidential administration's chief audit department in 2002.

Kokorev said that no company in its right mind would abide by its quota restrictions if respecting those caps on its fish or crab catches would incur a loss to the company. "Of course," he said, in that case, "they will simply catch three times more crabs at least and it will all go off the books."

The Economic Development and Trade Ministry's agro-industrial department has countered these implications, saying that in no single auction did the price for crab quotas exceed market prices.

Alexander Moiseyev was appointed head of the State Fisheries Committee this year after the controversial former governor of Primorye, Yevgeny Nazdratenko, was fired amid a bureaucratic scuffle over the way regional administrations distribute their batch of cost-free local fishing quotas.

At the end of May, Agriculture Minister Alexei Gordeyev, who oversees fisheries, told a government meeting that auctions must be canceled and replaced with "some other sort of system in which sea resources would be paid for."

Darkin, for his part, is lobbying for the cancelation of auctions involving the most popular types of sea life.

"A clearly outlined distribution of quotas, which would be approved by the government for a period of at least 10 years, must be introduced," he said. "All biological resources must be sold at fixed rates equal to between 3 percent and 5 percent of the [market] cost of the produce."

Moiseyev last month proposed replacing auctions and the free quotas with three-year quotas issued by his agency, Vedomosti reported. The quotas would be calculated on each company's share in the total official catch averaged over five years.

Moiseyev's agency is working with ministries and other government bodies to develop its new system, but there are no promises that it will improve the situation.

A number of government officials have criticized this plan, saying is not likely to be more transparent or more fair than the current system.

In any case, the State Fisheries Committee cannot initiate the legislation that would be needed to rework the system.

Instead, the Economic Development and Trade Ministry has that prerogative. Ministry spokeswoman Galina Bronnikova said the ministry is promoting its own reform in the government, but she declined to give any details of the proposal.

It is not clear how the two plans differ, if they differ at all.

"Our experts are there at the State Fisheries Committee working on it day and night," Bronnikova said. "But it is still not definite that the auctions will be canceled."