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Investment Projects in the Fishing Industry

September 06, 22:51 UTC+3
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Key conclusions

The fishing industry can be high-yield for business and government

“The fishing sector has already become an efficient area of investment for both strategic and financial investors. <…> The margin at the deep processing stage is many times higher than the catch margin. <…> I believe the industry’s capitalization should grow by no less than 25% in the next 10-15 years,” said Ilya Shestakov, Deputy Minister of Agriculture of the Russian Federation and Head of the Federal Agency for Fisheries (Rosrybolovstvo).

“We will build over 100 new vessels. We expect to have 20 onshore processing plants with different capacities. About 50 applications from investors from the Far East and the north are in the final stages of consideration. Implementing these projects will pave the way to raising the industry’s annual contribution to the national GDP by more than 50 bln rubles annually, which is equivalent to 25% growth versus the 2016 year level,” Ilya Shestakov noted.

Challenges

Wear and tear of facilities

“Fleet reduction has already been fairly visible over the last five years and its wear and tear is actually more than 80%. The average vessel age is over 25 years,” said Yermolai Solzhenitsyn, Senior Partner, McKinsey & Company.

Investors doubt the efficiency of building a new fleet

“The main task relates to the construction of a new fleet and uncertainty currently present on the market. I have had 3 or 4 meetings with the largest banks today and all of them pose a question from the standpoint of the efficiency of building such a fleet. <…> Certainly, we would like to avoid losing the shipbuilding base and future ship repair accordingly, so that it is linked to the Far East’s fishing areas. Building ships in Western shipyards is probably far simpler than constructing vessels in the Far East. This is a new challenge we need to respond to,” noted Sergey Darkin, President, Pacific Investment Group (TIGR) PJSC.

Flawed regulatory and legislative base

“Uncertainty regarding the regulatory and legislative base is one more point present on the market and this starts making things uneasy. <…> Uncertainty in the distribution of investment quotas. Administrative procedures pop up and the time to get extra permits grows,” Sergey Darkin added.

Lack of completed projects

“The very process of project development is rather lengthy and takes from 12 to 18 months. We would prefer not to waste time. Given the construction in the Far East, certainly, shipyards capable of doing that are present here but again, they have no projects. Furthermore, we do not know how quickly they will develop these projects,” said Sergey Sklyar, Vice President of the Antey Group.

Nonconformity to regulations and international standards

“We face a challenge when entering the international market. That is the sub-standard status of our domestic fishing certification under international environmental safety standards. <…> It is impossible to enter these markets merely by demonstrating that our fish are the tastiest and freshest,” said Alexey Baygushin, Co-owner, Interrybflot LLC.

The industry’s HR challenge

“The fishing sector has a negative image and this affects us. Besides impacting us, it also impacts sales on international markets. This is also a major headache for human resources. People do not want to go out to sea to work. <…> We are speaking about building new vessels now, that is, these vessels will be automated. At the same time, we do not have even a single operator of automated ships,” Alexey Baygushin added.

Lack of power generating capacities

“As a rule, the territories close to aquatic and biological resources are remote from utilities. Power supply will be the primary question that will arise among absolutely all of them. Nobody will have it. Any one of these plants will require from 2 to 4 MW of electric power in addition… such a reserve is not available on the outskirts of the area. Power plants should also be built, meaning money as well and a different sphere of activity,” noted Konstantin Korobkov, Chief Executive Officer, "Yuzhno-Kyrilsky Fish Factory" LTD (YKRK).

 

Solutions

 

Government subsidies

 

“The proposal we put forward at our fisheries commission meeting was to subsidize the fleet construction by the government, these sources would come from the extra revenues the government earned through sales quotas, particularly on crab <...> We suggested subsidies at the rate of 20 kopecks per ruble,” Sergey Darkin said.

 

State insured credit via EXIAR

 

“One of proposals is to engage EXIAR [Russian Agency for Export Credit and Investment Insurance] as much as possible. <…> Parallel projects are in place – a major and well-known Yamal LNG project. <…> EXIAR insured the construction of a company that will do the exporting, rather than the Russian export in that project. Here we definitely have an export-oriented industry. That is why we along with EXIAR have already started looking into an opportunity to increase the debt capacity of just the shipyards,” said Aleksey Belous, First Vice President and Head of Project and Structured Financing Department at Gazprombank.

 

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