Sterkoders: provide benefit or “mill” quotas?

G. Grigoryev, reporter from Rybak Sakhalina, interviews the Chairman of SORKS (the Sakhalin Association of Fishing Collective farms) Mr. Yarygin about current situation with the project and its future.

— It started in a trivial way: the Russian fishermen had no money to build new boats, and the state was in no financial condition to allow a credit. Meanwhile the problem of fleet renewal was severe even in the early 1990s.

The public Russian-British company Rybcomflot that developed a fiscal scheme and prepared legislative basis began working over realization of the project FBS-419 in 1991. Later the project passed to the Sakhalin Association of Fishing Collective farms according to quadripartite innovative agreement after executing the loan contract (signed in April 1992), expenses, guarantees and the shipbuilding contract. The agreement was signed by the Cyprian company Bering Trawlers, one of the biggest Germany banks — KFW, Rybcomflot and the SORKS in April 1994. Simultaneously the shares of Bering Trawlers were given form the River Shipping Corporation (it's probably a fellow subsidiary of Rybcomflot) to the SORKS. Since then the sole debtor of 240 million dollars for the building of sterkoders has been our Association.

— I understand what you are asking about. The international leasing of funds is carried out through Cyprus. Moreover we received a unique — Mortgage credit, i.e. on the security of the boats built. It can be realized in Cyprus only, we don't even have such mechanisms.

— That is. Neither Germany nor Russia joined the international leasing convention then. They haven't probably joined it yet, as other projects on leasing Russian shipbuilding industry offered by foreigners had similar German scheme: through a Cyprian company, with Mortgage credit, etc.

As for the funds settled on accounts of Bering Trawlers in Cyprus, neither management of the Association nor the State Fisheries Committee were aware of it. But we know for sure Bering Trawlers is not engaged in business, its role is confined to legal mediation. The company is run by the Board of Directors operating in England, and I being the Chairman of the SORKS have powers to act on behalf of Bering Trawlers; of course, it doesn't suit me and the Association either.

— The question about Russia's losses from the project is not indisputable. In any case neither the government nor the State Fisheries Committee have paid a kopeck (pfenning) on their securities. A complicated economic situation in Sakhalin collective farms is a result of a crisis in the economy. For example, “Druzhba” and “Sakhalin” collective farms operating sterkoders are profitable, but farms that have never had them are experiencing financial difficulties. It would not be correct to cast in lot of the Russian shipbuilding industry with the international leasing, for Russian fish producers resort to it after collapse of the industry but not vice-versa. And also because of lack of funds in this country to renew the fleet, but I have already told about it. The similar situation we have in the Sakhalin shelf. We have no money to develop it therefore foreigners invest in us.

— In 1994-1995 we got all fifteen trawlers from the project and the SORKS distributed them among collective farms, acting as a lender. It concurred with poor fishing, plummeting of prices for Alaska pollock fillet and its roe, which provide ground for well being of such boats. Consequently the fishermen were unable to pay in full the loan contract stipulated. Later we found out that farms used money raised by sterkoders to improve situation in other activities instead of repaying the credit. The German party discovered it almost instantly, though the farmers with their simplicity never concealed it.

All this finished in putting in strict claims to the Sakhalin Association of Fishing Collective farms by the lending bank. Firstly, to give all vessels to affiliates set up to operate sterkoders. Secondly, to ensure account transparency and economic activities as well; for this purpose the fleet was run completely by foreign managers approved by the lender. In the beginning it hurt us but later we understood that Germans were right and did it to rescue the project.

A manager is surely not a “welcome wagon” for us, as we for instance have to bear extra expenses. On the other hand, it is useful as it provides floating assets, lets us act under its trademark, assures mass commodity positioning on European markets. To sell one or two tons of pollock fillet is one thing and to sell 30-40 tons is a different thing. Besides we have double entry: we have our own account of the fish caught and sold, the manager has his own, and once a quarter we bring them together. It reduces the possibility of misappropriation with twin check under supervision of two production engineers. It lets us work legally.

There is one more objective thing. Since 1996 our performance has been racing up. In the beginning we had losses, now the profit received from sterkoders allows us to pay taxes and gradually redeem the credit. In 1999 we paid about two million dollars for these sterkoders to the creditor.

— I don't say everything is OK. But the Germans understand our problems and are ready to negotiate about restructuring of debts. We convinced our German partners in profitability of this project for them even in case they receive not all money. Germany has had relatively cheap fish products for several years, all funds flow through it, additional jobs have appeared there, German companies, including shipbuilding facilities realized much profit. It means the German party is gradually recovering expenditures connected with the credit to Russia. The German insurer “Hermes” in its turn (it insures against all financial risks including those on the German credits to Russia) could consider circumstances accounting for partial repayment to the bank as force majeure.

— It may seem strange enough but it is Russia's position. We have to prove now that the project is beneficial for Russia! We've got 2000 jobs (with reserves) — highly skilled, high-paid. People who contracted bring the earned money to the province (for many fishermen's families it's the only means of subsistence). What about high technologies facilitating production of up to the world standard export produce? What about specialists training? There will be time when similar boats are built here. Where will we look for people with such professional skills? The Naval College will never graduate young specialists enough. Finally, they accustomed us to German accuracy — have a look at fillet and roe packages. Now they have one claim only: the Russian fishermen are hired not by us but some offshore companies. But, first, it is within the law; secondly, other big companies including those in Sakhalin do the same. You can ruin the project if you pay all they demand. We act within the Russian laws and make a matter of conscience — we pay as much as we can and discharge liabilities before the creditors as best we can.

— Unfortunately we can't say the same about the State Fisheries Committee. The simplest things the Committee assumed — allocation of quotas — has never been fulfilled. But remember that quotas for sterkoders were taken from collective farms, which removed 66 boats from the Sea of Okhotsk (either by writing them off, selling or reconstructing). Now after the quotas have been severely pruned we can't even speak about normal fishing. It also threatens the project.

— Some state officials suggest giving the boats back to the Germans. This private approach surprises me. Others think after nationalizing they should pass to a unitary public enterprise (Vladivostok is rumor to have done it). They call specific names though I'll refrain from telling them because the information is not official. It strikes at fish industry in Sakhalin. We can't allow it.

— The Fisheries Department, the Economic Committee and the governor support us. They understand the province not only acquires fleet but also benefits exploiting it, we don't “mill” quotas. Let's say the boats will leave for Primorye or somewhere else, they will leave with quotas — the federal property.

— What do the executives of the State Fisheries Committee think about sterkoders? Have you discussed this issue with them?

— I've been there recently and spoke to A. Chistyakov, the Committee Vice-Chairman and the curator of this problem. I described three ways of the situation development and possible outcomes; I also shared my ideas with him. I believe it would be most rationally to do our utmost to execute the loan contract and at the same time to reach an agreement on lessening the project price at 50 per cent minimum. It suggests trade-off relations between the partners, careful exploitation of vessels with frequent repairs, reservation of privileges, allocation of considerable amount of quotas, showing loyalty. In response we could raise a question about debt restructuring or its writing-down, taking into consideration mediate insurance indemnity to Germany. And now about quotas. It's a matter of wish, they can always find them. Take quotas, for example, from “dead souls” that get limits without fleet and resell them. There are also inter-governmental agreements where quotas disappear. We, for instance, were driven out of the Bering Sea in October the year before last, and later 35 tons of Alaska pollock were found out to have been underharvested. I've told about it to the Committee.

I'll am going to meet the new Chairman of the State Fisheries Committee Mr. Sinelnik. I wished it were not a mere discussion but enlarged debate with all parties concerned to exchange facts, to determine what we have got and lost, what we want. The loan contract expires in more than four years and we have time to negotiate with the German partners and to take constructive decisions profitable for the both parties.

We must do everything to keep the boats in Russia. I should add: in Sakhalin to be operated by Sakhalin fishermen.