Russia forced to remodel fleet renovation project due to sanctions
A month and a half after Russia invaded Ukraine, a clearer picture of the challenges the Russian seafood sector will face as a result of international sanctions is emerging.
Russia’s invasion of Ukraine immediately caused turmoil in global seafood markets, and the trade consequences have caused ripple effects that have not yet abated. Several rounds of economic sanctions imposed by the European Union, the United Kingdom and the United States have already impacted the seafood industry.
The sanctions are also impacting Russia’s fishing fleet, as the country’s maintenance and renewal efforts are hampered by a lack of equipment as suppliers are cut off from international markets.
Russia’s drive to renew its fleet began in 2014, after sanctions were imposed in response to its invasion and capture of the Crimean peninsula. In response to the sanctions, Russia banned seafood imports from countries that opposed annexation and launched a program to renew its aging fishing fleet and boost its seafood production.
In 2016, the country launched its first investment quota program, which granted additional fishing quotas to companies that built new vessels in Russian shipyards within a certain time frame.
However, even before the latest round of sanctions, delays at Russian shipyards were putting the program at risk, with the launch of new ships delayed by shipyards lacking the necessary experience or materials. Russian shipyards have relatively little experience in manufacturing fishing vessels, and the country lacks the engineering and production facilities capable of manufacturing sophisticated equipment for fishing vessels.
As a result, nearly 70% of Russian fishing vessel components are manufactured abroad. As recently as January 2022, Russian Fishery Company placed an order with Aalborg, Denmark-based seafood processing equipment manufacturer, Carsoe, for the installation of processing equipment onboard four of its new ships at a price of 500 million DKK (73 million dollars, 67.2 million euros). )
Shortly after Russia invaded Ukraine, United Shipbuilding Corporation CEO Alexey Rakhmanov warned of likely delays in the construction of fishing vessels due to a lack of critical components, such as engines, trawl traction mechanisms and fish processing and freezing equipment. Since then, the United Shipbuilding Corporation has been sanctioned by the US Treasury Department, along with 28 subsidiaries. Rakhmanov is listed as one of the company’s sanctioned board members.
“Neither the USSR nor Russia made things like propulsion systems, propellers, etc. We buy them from abroad, so they are the biggest concern,” Primorye Fisheries Association Chairman Georgiy Martynov said in an interview with the Rossiyskaya newspaper.
Sergey Nesvetov, executive director of the North West Fishery Consortium, told PortNews that his company has eight quota investment contracts, with two vessels already delivered and the remaining six under construction. The company has not yet abandoned plans to build new ships, but the company is reviewing the project as the cost of new equipment is skyrocketing, Nesvetov said.
On March 11, the Russian Federal Fisheries Agency set up a special task force to tackle the problem. Then, on April 7, the head of Russia’s Federal Fisheries Agency, Ilya Shestakov, said in a meeting with Russian Deputy Prime Minister Viktoria Abramchenko that the agency had tracked and analyzed all projects under the investment quotas and found that 7% of new ships being built will need to be redesigned to accommodate Russian-made equipment.
Under the investment quota agreement, if fishing companies fail to launch their new vessels within a certain timeframe, they risk breach of contract, leading to fines and a delay in receiving their new quotas. However, Shestakov said the government was considering delaying delivery times for the ships, with contracts being amended to give companies an additional two years to complete their construction process.
But in a sign of the additional complications facing Russia’s seafood industry, Shestakov himself was recently sanctioned by the US Treasury Department for his role as a board member of the United Shipbuilding Corporation.
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