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GENNADY TIMCHENKO’S CRABS HAVE VLADIMIR PUTIN’S PERMISSION NOT TO WALK STRAIGHT

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By John Helmer, Moscow
[2]  @bears_with [3]

It was Aristophanes who said you can’t teach a crab to walk straight. Lenin wasn’t talking about crabs when he recommended taking one step forward, two steps back.

This summer, when President Vladimir Putin last talked to Gennady Timchenko about his family’s crab business, he said he was revising the old Lenin tract. Two steps sideways, and one step forward, Putin advised.  By sideways he meant that investigations under way in April by the General Prosecutor’s office, the Kremlin Control Directorate, and the Accounting Chamber of the Russian Fishing Company, controlled by Timchenko’s son-in-law Gleb Frank, have been called off. The federal minister in charge, Yury Trutnev, has also been advised to move sideways until after the first government auction of crab quotas start on October 7.

On that day, Rosrybolovtsvo (Rosryb), the federal Russian Fishery Agency, which is a branch of the Ministry of Agriculture. will start auctioning catch quotas for 15-year terms in 41 lots of 1,000 tonnes each; the estimated state price will be about Rb125 billion ($1.9 billion). Bidding for the fareast crab quotas will run from October 7 to 11; the northern Barents Sea crab auction will take place on October 14-15; the official results will then be issued by Rosryb and contracts with the winning companies should be signed on October 28.

The Russian Fishing Company (RRPC) is expected to take at least a third of the offer, probably more since lack of cash and state bank financing to meet Rosryb’s terms prevent industry rivals from bidding. An additional cost requirement for the winning bidders is that they must commit to building new crabbing vessels at local shipyards. In support of its quota bid, RRPC is reported to have committed to paying $500 million for 22 vessels.

“All attempts at investigating or allowing competition in the crab business are now dead,” an industry source said last week. “This is now the fashion. Timchenko got the blessing from Putin.”

Dressed Cornish crab is delicious in Cornwall; Chesapeake Bay soft-shell crabs are best fried in Maryland. Russian crabs are a global taste.

Russia is the world’s third largest exporter of frozen fish; China leads, the US comes second.  The direction of the Russian fish trade is mainly to South Korea and China, each of which takes one-third of the catch. The Netherlands takes another 20%, followed by Japan with 6%. The first three consuming countries don’t consume as much Russian fish as they buy; mostly, they process the fish and repackage it for trade to consuming countries. The US, for example, imports less than 1% of Russian fish exported directly ($18 million in 2017 and 2018). However, the US is a big consumer of Russian fish which has been processed and re-exported from China. That’s a big bone of contention in the current trade arguments between the US and China. US fishing companies want to reduce the Chinese share of the US import market; if they succeed, that will impact Russian fish exporters, led by the crabbers.

In 2017, according to the state statistics agency Rosstat [4],  the total value of Russian fish exports was $3.29 billion. Crab (crustacean) exports comprised $949 million; that’s 27%. In 2018, the total export value dropped to $2.05 billion; the crab value went down to $551 million, still 27% of the aggregate. In other words, crabbing is the single most profitable business in the Russian fish market.

A report from the UN Food and Agriculture Organization [5] early this year, indicated that after a decline in the crab trade in 2017, “in the first half of 2018 total imports of crab (all types) increased to 185 700 tonnes, about 1.3% more than for same period in 2017. China increased imports by 7% to 39 400 tonnes, while the US decreased imports by 9.2% to 54 200 tonnes. Most of the US imports came from Canada (23 400 tonnes or 43.2% of total imports). Russian exports of crab increased marginally to 30 500 tonnes during the first six months of 2018. The main market for Russian crab was the Republic of Korea (19 100 tonnes or 62.6% of the total). Chinese crab exports increased slightly to 27 600 tonnes, around 7.4% more than during the same period in 2017. Republic of Korea was also the largest market for Chinese crab, accounting for 9 400 tonnes or 34 percent of the total crab exported from China.”

Last year, industry reports suggested [6] there was a much sharper growth of Russian king crab exports to China than the FAO figures, based on official customs data, allow.    The problem with customs statistics is that much of the catch is poached illegally – caught without licenses or above quotas — and then landed in the main markets with concealment of Russian origin. Click to read this assessment [7] of the Japanese market for Russian crab.   

Because of poaching and the over-fishing and exhaustion of crab stocks which result, there is a strong case now, as there has been for years, for a crackdown by Rosrybolovtsvo (Rosryb). President Putin endorsed this himself in 2015, leading to a reform scheme enacted the following year. Fishing industry officials say this was working reasonably well until the latest auction scheme was introduced.

On August 7, Putin is known to have put his signature to an order instructing his economic advisor, Andrei Belousov,  to “deal with the concerned agencies and report back.” What this meant was that Putin aimed to override opposition from the crabbers, end the inter-ministerial debate, and accelerate the crab quota allocations. Without Putin’s intervention last month, the opposition had been expecting to delay Rosryb’s auctions until next year.

Reducing regional corruption, poaching and tax evasion aren’t admitted publicly to be the reason for the new auction system. Nor is increasing concentration of fishing capital. In practice, industry sources concede anonymously, the Timchenko family are being given a virtual oligopoly of the crab trade; in return, Putin and Timchenko have agreed, the Russian Fishing Company (RRPC) will invest more money in the shipyards, fish more closely to the quota limits; declare the catch more accurately; and pay more tax.

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Left: celebrating at a recent sports match, left to right: Defence Minister Sergei Shoigu; Gennady Timchenko; Gleb Frank; and behind them, Igor Sechin, head of Rosneft, appears to be embracing Andrei Belousov. Right: Ilya Shestakov, head of Rosrybolovtsvo, unmasked.

This, at least, is the theory. The industry press, encouraged by the competing crabbers, have reacted by mocking the practice. “What were the ordinary fishermen afraid of?” asked Sergei Obolensky, writing in Sobesednik.ru [9] last week. The story headline reads: “Catching crab behind ‘closed doors’.”

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Source: https://sobesednik.ru/ [9]

The new system “will allocate half of the crab catch quotas at auction;  that means the quotas for the catch will be received, not by those fishermen who have been conscientiously engaged in the industry for  decades, but instead by those who have big money and powerful relationships. In other words, everything will go to the Russian Fishing Company (RRPC), owned by Gleb Frank, the son of the former head of the Board of Directors of the United Shipbuilding Corporation Sergei Frank and son-in-law of billionaire Gennady Timchenko. This decision was made on the sly, so as not to outrage the public with such blatant robbery.”

Obolensky also reported that “the legislation remains unchanged for several well-known companies, which for some reason have retained their quotas. They are LLC Voskhod,  JSC Nakhodka Active Marine Fishery Base (NBAMR) and OAO TURNIF. What is remarkable about the enterprises which will keep their quotas? LLC Voskhod is controlled by Nikita Kozhemyako, the son of the Governor of Primorsky Krai.  PJSC NBAMR is a key asset of the family of the former Governor of Primorye, Sergei Darkin.” TURNIF is part of the Timchenko group.

Oleg Kozhemyako is the new governor of the fareastern Maritime (Primorye) region; he was elected [11] last December after the Kremlin disposed of the front-running candidate of the Communist Party,  Andrei Ischenko.   Kozhemyako is a long-time hatchet man for the Kremlin. Between 2015 and 2018, he was the governor of Sakhalin replacing a figure who had been arrested for corruption. Before Sakhalin, Kozhemyako had been governor of Amur and Koryak.

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Left image: President Putin with then-Sakhalin governor Oleg Kozhemyako in 2017. Right: Sergei Darkin. 

Kozhemyako’s main line in fishing has been pollock, not crab; pollock has been dropping in value in recent years. Voskhod, a 3-year old company controlled by the governor’s 28-year old son Nikita, is primarily a snow crabber; its expansion at the Vladivostok Freeport is based on state bank VTB financing and Kohzemyako’s guarantees. For a detailed analysis of the Kozhemyako family’s businesses, and the reorganization of their capital now under way, read this [13]

Darkin, a local stevedore, fisherman turned banker before he was governor of Primorsky Krai between 2001 and 2012, was also Putin’s candidate to replace a corrupt governor; Darkin’s rule  then drew similar allegations [14]. At an industry briefing last week during the Eastern Economic Forum in Vladivostok, Darkin said his concern was “stability” in the industry; he didn’t make clear what he meant [15]

“It is obvious that only businessmen who have the opportunity to receive multibillion-dollar bank loans will be able to apply for participation in the auctions,” reported Irek Murtazin in a September 5 report by Novaya Gazeta. [16] “But no bank will risk issuing such loans to a beginner who does not know the specifics and features of the fishing industry. And, therefore, there can be no question of the arrival of new participants in the fishing industry, although this argument was the main one for lobbyists to change the rules of the industry, which were adopted quite recently — in 2016.”

In the spring, internet media reported that a combination of government officials and industry competitors had persuaded the General Prosecutor’s office in Moscow to open an investigation of the Timchenko-Frank combination, as well as fishing company operations at Vladivostok.  The Minister of Agriculture, Dmitry Patrushev (son of Nikolai Patrushev, head of the Security Council) , and Yury Trutnev, a deputy prime minister and the Kremlin’s representative in the fareast, were said to be backing the move. Also participating in the checks were the Control Directorate of the Kremlin and the Accounting Chamber. 

There has been no independent confirmation of the details; a spokesman for the Accounting Chamber referred questions to the Agriculture Ministry and Rosryb.  Patrushev junior met with Putin last week at the Kremlin; there is no mention of crabs in the Kremlin communiqué [17]. Speaking for the established quota holders, a source said that Putin’s order of August 7 put a stop to the investigations. 

The Federal Anti-Monopoly Service (FAS) is defending the new auctions against the charge that they will result in an oligopoly. “What kind of competitiveness can we talk about,” responded [18] Artur Melkonyan in Novaya Gazeta last month,  “if, as reported by market participants, the regulator’s ideas for the auction scheduled for August 27, 2019 on the distribution of shares of mackerel and sardine production quotas…in the Sea of Japan failed;  applications for half of the lots were not submitted. At the same time, two lots received only one application so the auction for them was declared invalid. That’s the competition… With such an approach to the organization of fisheries, fishermen’s trust in the regulators has completely disappeared, because all their investments in shipbuilding, infrastructure and personnel have become meaningless.”

A source at the All-Russian Association of Fishing Enterprises, Entrepreneurs and Exporters (VARPE) said it is not yet known how many of the established crabbers will participate in next month’s bidding; fareastern reporters [19] suggest that up to 80% are dropping out.  That will leave Gleb Frank, followed by Nikita Kozhemyako. “We have decided to take a time-out to see what will happen to the legislative plan and after the auctions, in the market,” Dmitry Pashov, a leading Sakhalin fisherman was reported as telling Fishnews.ru [15] a week ago.