JSC Fishing collective farm “Vostok-1” has chosen an unusual direction for itself — fishing for deep-sea species — and has accumulated considerable experience in it. Why was it decided to follow this way? What period in the Russian fish industry does the management of an enterprise with a thirty-year history suppose the most effective for development? Valery SHEGNAGAEV, Chairman of the Board of Directors of “Vostok-1” told about that.

“Vostok-1” is known for the development of deep-sea fishing. Why this direction was selected? What way did the company have to go before the fishery technologies were honed?

– The idea of deep-sea fishing was not born randomly; it has its own history and realization. 

“Vostok-1” was established in 1991 from scratch, without privatization and other use of state property and without any participation of the state.

In the early years, the company operated only on leased ships. Since 1992, opportunities appeared to purchase own fishing and transport fleet.

Nikolai Isaakovich KOTLYAR, Minister of Fisheries of the USSR between 1987 and 1991, a native of Primorsky Krai, considered deep-sea fishing to be one of the most promising areas for the development of the domestic fishing industry.  

At the turn of the XX and XXI centuries, as a member of the Board of Directors of “Vostok-1”, he managed to realize the idea of developing deep-sea fishing. 

Having preliminary scientific data on colossal reserves at depth, Nikolai Isaakovich convinced the Board of Directors to accept deep-sea fishing as the main long-term target of the enterprise. 

Already at the end of the 1990s, “Vostok-1” became a pioneer of deep-sea fishing and still remains so. The first species of development was black halibut in the Sea of Okhotsk. In those days, it was considered to be a deep-sea fish, living at depths of up to 800 meters. At that time the fishing community was extremely skeptical about these endeavors of the JSC Fishing collective farm “Vostok-1”

But we achieved success and for several years were the only ones who systematically fished for black halibut, until other enterprises also began to fish it, borrowing the tactics and practices of “Vostok-1”.

Fishing at great depths has always been difficult. Therefore, the development of deep-sea fishing in the Russian fishing industry is selective, costly and slow. 

By the early 2000s, “Vostok-1”, having saved the necessary funds, fulfilling the behests of Nikolai Isaakovich Kotlyar, moved to a qualitatively new level of work. We have started a practical study of technologies for a completely new direction for Russia – deep-sea snow crab fishing. At the same time, we continued to study and improve the fishery for black halibut and deep-sea grenadier.

Years of work have provided invaluable experience. The most important factor in the success of experimentation in this area was scientific support from the branch institute – TINRO-Center (Pacific branch of the Federal State Budget Scientific Institution “Russian Federal Research Institute of Fisheries and oceanography”). 

The research materials based on the results of cooperation with the TINRO-Center and our own preliminary developments confirmed the assumptions about the great potential of deep-sea fishing and formed the basis for the company's preparation of new technologies for the fishing of deep-sea snow crabs and grenadiers at depths of up to 1,2 km.

With the introduction of the auction system for quotas allocation in 2001-2003, in an incredibly difficult and costly battle, we purchased shares of quotas for deep-sea species, shouldering more than $ 12 million loans. 

Despite the huge financial investments at the auction, it was possible to purchase only 20% of the quotas for deep-sea snow crab fishing – red snow (japonicus) and angulatus.

The remaining 80% of the shares were divided between another 80 enterprises. In some cases, the share turned out to be so small that it was economically impractical to purchase it. Therefore, among these users there were many unscrupulous enterprises, which that way obtained the right to take vessels to the fishery, but in the end, they did not catch deep-sea crabs, but expensive king ones. Eventually, the activities of such poaching companies were stopped.

The next four years for “Vostok-1” passed in the battle for survival. Despite the debt bondage, the company was able to carry out the first large-scale modernization of vessels in order to start working efficiently at deep-sea species.

We approached the first allocation of resources on a historical basis in 2004 with confidence, despite huge debts – $ 16 million. There were vessels prepared for deep-sea fishing: three crabbers and two longliners. The total catch of deep-sea species exceeded 5 thousand tons per year, and most importantly, the company has gained invaluable experience in working at great depths.

The same cannot be said about other enterprises. High production costs for expensive equipment, sophisticated fishing technology at great depths, and others led to the fact that many companies stopped fishing deep-sea crab, most of them went bankrupt. Even the leading and richest enterprises of the industry for that time, such as “Dalryba” and “Preobrazhenskaya BTF”, voluntarily refused to fish deep-sea crab.

Huge debts, little publicity and low prices for the products of deep-sea species held back the active development of the enterprise. In the next five years, the main efforts of the company were aimed at further scientific research of deep-sea fishing objects and honing the practice of their fishing. In this way, with the same vessel amount, the total catch of deep-sea species was increased 1.5 times – up to 7 thousand tons per year.

The allocation of quotas according to the historical principle was based on the share of the actual catch of the enterprise for the previous years, and since “Vostok-1” was almost the only enterprise purposefully engaged in the researching and development of deep-sea fishing, so with the next allocation of quotas in 2008 share of deep-sea crab for “Vostok-1” increased significantly.

Thus, the share of the quota for angulatus increased from 20% to 39%, for japonicus – from 20% to 65%. The number of companies with quota shares for deep-sea crab has decreased from 81 to 37, and most of the remaining enterprises have stopped such kind of fishing.

A great prospect for further development opened up and there was an obligation to use 50% of the provided quotas, which was extremely difficult with an almost threefold increase in the volume of resources. 

Believing in the deal started and its prospects, despite the remaining large debts, “Vostok-1” started a large-scale program to purchase additional vessels and its second modernization. The target was to begin sustainable fishing at depths of up to 1500 meters.

Over the next years, the fishing fleet of the enterprise was expanded with 12 vessels: six crabbers and six longliners. All the vessels were deeply modernized and began to specialize on deep-sea fishing. 

In this way, the total catch of deep-sea species reached 25 thousand tons: more than 8 thousand tons of crab and over 16 thousand tons of grenadier per year.

It should be noted that the development of the deep-sea grenadier fishery for a long time was an unprofitable direction and was subsidized by the deep-sea crab fishery, which nevertheless gave a stable profit. Only in 2015, after the introduction of grenadier products to the market, after the formation of stable demand for it and the start of price growing, this object entered the profitable zone. Currently, there are a stable demand and a profitable price for grenadier. 

After more than ten years, “Vostok-1” has developed the grenadier market; other companies have actively started fishing for this fish, and at present the grenadier catch volume in the Far East basin is approaching the total allowable catch.

In 2016, “Vostok-1” finally paid off all the debts that had hung on it since the first auctions in 2002-2003. 

By that time, understanding came and the need for another large-scale modernization of the fishing fleet was appeared to organize sustainable fishing at depths of up to 2500 meters.

However, in order to reach 2.5 km, the vessels need new modernization and even more powerful fishing gears. “Vostok-1” has developed a project for re-equipment of the fleet for deep-sea fishing: the cost of the program is 400 million rubles for 15 vessels. At the same time, the payback period is set at eight years. The company tried to go according to the accelerated option by applying for the status of a resident of the special port economic zone in Primorsky Krai. Several types of benefits could seriously help in the realization of this program and reduce the payback period, but the company was denied the status of a resident of the free port of Vladivostok. 

Despite this, during 2017-2018, the modernization program was fully completed by the own force of enterprise.

After the allocation of quotas shares on a historical basis in 2018 – already for 15 years – “Vostok-1” held all own shares for deep-sea species. And over the past ten years since the previous allocation, “Vostok-1” even increased them a bit: the enterprise participated in common auctions for the sale of shares of quotas withdrew from companies for non-harvesting. 

The number of companies with shares of quotas for deep-sea crabs has decreased to 16. Only 6-7 companies of them actually fish deep-sea crab. The undisputed leader among them is “Vostok-1”. This is proved by both the volume of the catch and the efficiency of the fishery.

Summing up the results for the period up to 2020, we note the following. In 2002, 81 companies initially had the possibility to fish deep-sea crab; only 16 companies remained in 2019, and only “Vostok-1” went all this way completely. 

During this time, despite all the difficulties, our company has almost tripled the number of fishing vessels. We have created a modern, highly efficient, specialized fleet for fishing at depths of up to 2500 meters, which has no analogues in the world. 

The total catch of deep-sea species increased 5 times – from 5 to more than 25 thousand tons.

The company currently employs almost 1 000 people. The practice and experience of “Vostok-1” in the development of deep-sea fishing were borrowed by other companies in Russia. This also allowed them to start fishing deep-sea species. Our developments also have been applied in the fishing of traditional species, increasing its efficiency. Due to “Vostok-1” deep-sea fishing has established itself as an independent and very promising direction in the fishing industry, which brings great benefits and opens up great prospects for the development of the resources of the World Ocean.

– The company has faced with various periods in the history of the Russian fisheries industry. With different principles of industry management. What stage do you consider the most favorable for development and why?

– Legislative regulation has developed from the distribution principle and free access to aquatic biological resources through the auction sale to the historical principle of allocation. Several stages can be pointed.

The first stage (until 2000) is the distribution principle. From 1992 until the early 2000s, quotas were allocated chaotically. 

The right to catch biological resources was mainly controlled by the regional authorities, which often used so-called “gray schemes” of quotas allocating, as a result nepotism and poaching flourished. The system was complex and excessively corrupt. In addition, a huge role played the administrative resource of the governors and the lobbying opportunities of enterprises.

Since the middle of the 1990s, significant resources have been allocated by the state for research and development in the shape of hidden funding for fisheries science. Researches using scientific quotas were carried out on fishing vessels with industrial scale catching and production.

The second stage (from 2000 to 2003) is the sale of quotas at auctions. In 1998, the conversion to payment for aquatic biological resources began. Until 2001, this process of hidden commercialization of aquatic biological resources was carried out through the sale of quotas to Russian and foreign enterprises in a non-public form.

Then the state decided to put in order and take control of the situation, and industrial quotas began to be allocated on an auction basis. 

The obligation to permanently participate in auctions made the business nervous and reduced the economic opportunities of enterprises: the quotas available to companies today could go to competitors tomorrow. Acting in the short term, users often took profit from the business, preferring bankruptcy to unobvious prospects for repaying the loans received.

The system of allocating of industrial quotas exclusively on an auction basis existed for two fishing years. 

Among the positive results of this system, the transparency of the allocating mechanism and increase in the profitability for the federal budget can be noted.

However, this system also had a number of disadvantages. The growth of financial dependence from credit institutions, including foreign ones, gave rise to fishing instability and excluded socio-economic incentives for enterprises of the industry, and stimulated IUU fishing. The inconsistency of the state policy regarding the allocating of aquatic biological resources led in 2003-2004 to a crisis in the fishing industry: more than 200 enterprises ceased to exist as a result of the introduction of the auction system.

The crisis was aggravated not only due to economic reasons common to the country (infrastructure decline, lack of available credit funds, general criminalization of society), but also due to the sharply increased fishing load on the population of aquatic biological resources in the jurisdictional area of the Russian Federation.

After the collapse of the USSR, fishing outside Russian waters, actually subsidized and organized at the state level, became excessively risky. 

As a result, most of the Russian fishing fleet, which previously operated in various areas of the World Ocean, moved to the EEZ of the Russian Federation. In addition, at first, masked as joint ventures, and then through companies controlled by foreign legal entities and individuals, high-performance foreign-built vessels were injected into the jurisdiction of the Russian Federation. 

The excess of the fishing fleet's ability over the raw material base, weak control in the fishing grounds, as well as the need for a quick payback of quotas purchased at auctions have led to a sharp increase in the fishing press and population decline of the most important types of biological resources.

The third stage (from 2003 to 2004) is the emergence of the historical principle of quotas allocating for a long-term period. As a result of the inconsistent state policy of allocating of aquatic biological resources by 2003-2004, negative trends and significant threats to the country's security were formed in the fishing industry:

- a low level of capitalization of the fishing industry and a sharp increase in the influence of foreign capital in the fishing of aquatic biological resources; 

- an excess fleet focused on catching of traditional mass species, the fishing ability of which exceeded the total allowable catch by three times, that contributed to the irrational removal of aquatic biological resources, including the result of poaching; 

- reduction in investment in the industry; 

- widespread use of so-called “gray schemes” in product sales in the foreign and domestic markets; 

- distrust of domestic banks in the fishing industry due to the lack of transparency in its financial flows, which froze the industry's credit support; 

- poaching has become a mass phenomenon.

According to the calculations of the RSPP (Russian Union of Industrialists and Entrepreneurs), during the period of annual auctions, the volume of investments in fixed assets of the fishing industry decreased by almost three times compared to 2000. 

In 2003, the approach to the allocating of aquatic biological resources was changed. A new system has emerged for granting fishing enterprises the right to use aquatic biological resources, based on the long-term assignment of rights to traditional users. That way, a “historical principle” was introduced, which corresponds to world practice and is used in one form or another in all the leading countries of world fishing.

Thus, agreements were concluded with fishing companies on providing shares of quotas for five years (for 2004-2008) based on the results of the history (work) over the previous three years: during two of them fishing was carried out on the basis of auctions and one year preceded them.

The historical principle, which the fishermen themselves compare with a progressive revolutionary leap in the industry, made it possible to significantly expand the planning horizon; companies began to independently make well-founded decisions on the volume and objects of investment.

Fourth stage (2004–2018). The Federal Law № 166 “About fishing and preservation of aquatic bioresources” adopted in December 2004 created a unified basis for the legal regulation of relations in the field of fishing of aquatic biological resources.With the Fisheries Law adopted, the historical principle of providing the long-term right to catch for economic entities began to be used. It follows from the historical principle that a company that fishes honesty will receive priority right to quotas in a new allocation. In fact, it automatically prolongs the quota, which means that a long-term development perspective can be built.

At the same time, the auctions remained, quotas of aquatic biological resources were supplied for it, quotas which users voluntarily refused or which were forcibly confiscated due to non-harvesting or poaching. This preserved the possibility of obtaining quotas for new market participants, and also made it possible for existing enterprises to purchase additional resources.

In the period 2004-2008 the right to catch was fixed for five years. In 2008, a conceptual change was made to the Federal Law № 166. As a result, for the subsequent period (for 2009-2018), users were provided with quotas for 10 years. This gave the fishery industry confidence in business development and stimulated further modernization and renewal of the fleet and processing facilities.

The historical principle of providing the long-term right to catch allowed economic entities to build their work for the long term, plan financial and economic activities for a long time, during which additional opportunities opened up for investment both in the development of coastal processing and in the construction and (or) modernization of fishing fleet.

The new mechanism of the industry's operation has made it possible to significantly increase the catch volume: for the period from 2004 to 2014 catches increased by 46.3% (by 1341,1 thousand tons) and amounted to 4 235,1 thousand tons at the end of 2014 for all types of fishing. 

The last year of the historical principle underlying the industry – 2018 – became the crown of the era of stable and progressive development of the industry. Russian fishermen have caught a record 5 million tons for their history. And right in 2018, the historical principle was significantly shortened and actually destroyed.

The preservation of the historical principle of providing the shares of quotas on a long-term basis should remain the basic approach in determining the future fate of the industry.The historical principle of allocating quotas helped to change for the better the critical situation in the relationship between fishermen and banks. 

In its turn, the state, offering fishermen to develop within the framework of the historical principle, received an advantage in the form of market transparency and a sharp increase in profitability – from negative values in the first half of the 2000s (which was just statistical nonsense) to 40-60% now.

Fifth stage (2018 – present). In 2016, a system of investment quotas was introduced, which meant withdrawal of 20% of quotas for certain types of aquatic biological resources, mainly fish objects, for allocation with obligation in the form of the construction of an investment object – a fishing vessel or a processing plant in Russia. This was the first hit to the historical principle.

Further, under the proposal of creating conditions for new participants to enter the market for harvesting of aquatic biological resources, it was decided to withdraw 50% of the volume of crab catch, previously allocated according to the historical principle, and conduct an auction in electronic form. 

According to the new rules, the crab should be allocated 50/50: half of the quotas, as before, on a historical basis, and the other at auctions with the winner obligated to build a crab fishing vessel in Russia.

The first auctions conducted in the fall of 2019 and still going on. The negative results of these innovations proved itself quickly: already in 2020, the collection of income tax from the fishing industry fell sharply – enterprises were heavily credited, and interruptions in fishing began. As the result of the bidding, no new players appeared – only those who already had quotas bought it. To be honest, the enterprises were simply robbed. In order to catch the crab and be at the proper level, the enterprises themselves looked after the reinforcement of the fleet.

On the example of deep-sea crab, in 2020 the catch in the basin decreased to 7,7 thousand tons, although earlier it was at the level of 13,5 thousand tons. 

From this historical excursion and the example of our enterprise, it becomes clear that the most favorable stage for the development of business, enterprises and the fishing industry at all is the period of the historical principle in 2004–2018: all indicators for the industry have steadily improved and increased, and the industry confidently and steadily developed.

– To expand fishing horizons, it is important to cooperate with science. With which institutes has “Vostok-1” cooperated and is currently cooperating?

– During the whole period of the enterprise's existence, we have been very closely cooperating with industry science and, first of all, with the Pacific branch of VNIRO (TINRO), especially in the area of deep-sea fish and crab development. We conduct joint surveys and place scientific observers on our fishing vessels.

Today “Vostok-1” is the only company in the industry that really works on the development of deep-sea fishing and annually spends for these purposes a significant part of the profit received from the fishing of aquatic biological resources. 

All our expeditions to the new areas and for the new fishing objects we certainly cooperate with TINRO-Center and always give the opportunity to researchers to take a part in these expeditions to collect new data; we permanently exchange information and share vision of future work.

Whenever possible, we provide financial support, as well as help in reinforcement the material and technical base of the institute. So, in 1992, when the financial system collapsed, our company has funded without compensation 62 million rubles for the maintenance of TINRO-Center.

As a result, it was possible to pay salaries to researchers within six months. It should be noticed that time the dollar exchange rate was 0,52 rubles. In 2001, we handed over the fishing vessel “Bukhoro” to TINRO. In 2020, for the 100th anniversary of TINRO, a presentation video panel was presented to the new hall of the scientific council. 

We also cooperate with other educational and scientific institutes – FESTFU (Far Eastern State Technical Fisheries University), FEB RAS (Far Eastern Branch of the Russian Academy of Sciences), etc.

– Each company has its own principles of staff policy, especially those who have been on the market for a long time. What approaches to work with crews and administrative workers do “Vostok-1” adhere to?

– Our staff, specialists in deep-sea fishing, are really the main fund of the enterprise. We pay great attention to work with staff. All management specialists are involved in it, not only the HR department; this allows to take control over each employee from the first days of work andtrack his fate, in which the company tries to take an active part. First of all, this is focus on career and professional growth, we try to involve everyone in the study and discussion of important issues, we take note of smart guys and promote them; if necessary, we help to get an education, improve their qualifications. This way, we have a whole cluster of captains, chief engineers and other officers who have grown to this level in our enterprise from sailors and junior engineers. Most of the onshore specialists working in the department are also natives of the fleet, which allows them to make competent decisions and be on the same wave with the vessel specialists.

We try to help our reliable and proven employees in various difficult life circumstances, and this is not only financial matters. 

A lot of attention is paid to the financial prosperity of employees, we are constantly looking for an opportunity to provide a decent level of salary and increase it, which is quite difficult when working at low-profit deep-sea fishing species, but nevertheless, we always are in the first lines among all enterprises in terms of salary. And most important, our salaries are always paid clearly and without delays. Most of our employees value the stability and reliability of salary.Additionally, we have a flexible system of various material bonuses and incentives. 

In general, we try to create a special atmosphere in which trusting relationships are formed, creativity, professional and responsible attitude to work is supported, there are all conditions for personal and professional growth, broadening of horizons.

The main indicator of the high level of “Vostok-1” staff school is that in almost all our endeavors the company has achieved success, specialists with experience in “Vostok-1” are especially appreciated. Over the past 30 years, more than 30 thousand people have passed through the company, many of whom now hold managerial positions and work as captains in other companies, spread the experience and knowledge gained from us.