For discussion FCR(97-98)52
on 7 November 1997

ITEM FOR FINANCE COMMITTEE

LOAN FUND
HEAD 262 - PRIMARY PRODUCTS
Subhead 101 Fisheries loans

Members are invited to approve an increase in the approved commitment of the loan capital of the Fisheries Development Loan Fund from $7 million by $93 million to $100 million.

PROBLEM

The loan capital of the Fisheries Development Loan Fund is insufficient to meet the practical needs of the fishing industry.

PROPOSAL

2. We propose to increase the commitment of the loan capital of the Fisheries Development Loan Fund from $7 million by $93 million to $100 million.

JUSTIFICATION

3. Fishery resources have declined in the traditional fishing grounds of the Hong Kong fishing fleet in the South China Sea. The fishing industry is therefore moving towards greater use of steel-hulled fishing vessels, which can operate further afield and in deeper waters. Hence, there is a growing demand for loans from the Fund for the construction of such vessels, which currently cost about $5 million. The normal loan application in such cases is for a sum of about $3 million.

4. Loan applications currently in hand amount to some $37 million. The existing loan capital of $7 million is therefore insufficient to meet the needs of the industry. The Fisheries Development Loan Fund Advisory Committee (the Advisory Committee) expects that there will be 20 to 30 further applications for loans for the construction of steel-hulled fishing vessels in the foreseeable future. The Advisory Committee recommends that the loan capital of the Fund be increased from $7 million to $100 million. We support the recommendation.

5. The Fisheries Development Loan Fund Regulations, which are administrative rules, govern the administration of loans from the Fund. The Agriculture and Fisheries Department in consultation with the Advisory Committee has reviewed the Regulations and recommended strengthening of the arrangements for loan security and repayment of loan and interest. In future, loans will be granted direct to a member of a co-operative society, instead of to the society concerned. This will facilitate recovery of the sum outstanding in the event of default. There will also be requirements for a quarterly repayment pledge, insurance against loss of the vessel and the borrower's death and disablement and additional collateral for large loans. We will incorporate the new arrangements into the Regulations. The parameters for approval of loans from the Fund will be as set out in the Enclosure.

6. The limit below which loans may be approved by authorities below the Finance Committee is currently $1.5 million. This limit was set in 1986. Having regard to current vessel construction costs and to existing levels of delegated authority for other purposes, we intend that, in future, we recommend that the Finance Committee should continue to be consulted on loan applications exceeding $10 million but that the Secretary for the Treasury should be given the authority to approve any loan of $10 million or less and that he may, for administrative efficiency, delegate his authority to the extent that he considers appropriate to other public officers.

FINANCIAL IMPLICATIONS

7. The proposed increase in loan commitment is a one-off commitment in the Loan Fund. There are no recurrent implications for the General Revenue.

Public Consultation

8. We have consulted the Provisional Legislative Council Panel on Economic Services on the Advisory Committee's proposal to increase the loan capital of the Fund to $100 million. We have not received any objection to the proposal.

BACKGROUND INFORMATION

9. The Fisheries Development Loan Fund is a revolving loan fund which was established in January 1960 with an initial loan capital of $2 million from the then Development Loan Fund (now known as the Loan Fund) to provide loans to fishermen so as to promote development of the fishing industry. The then Legislative Council Members approved increases in the loan capital to $5 million on 27 December 1961 and to $7 million on 24 October 1984 respectively.

10. The Advisory Committee advises the Director of Agriculture and Fisheries on the granting of loans from the Fisheries Development Loan Fund. It has been the practice since 1960 for two members of the Finance Committee to serve on the Advisory Committee.

Economic Services Bureau
October 1997

Enclosure to FCR(97-98)52

Parameters for the grant of loans from the Fisheries Development Loan Fund

1.Purpose of loan :
  1. For building of a new modern fishing vessel capable of fishing in distant waters and designed or approved by the Director of Agriculture and Fisheries.

  2. In respect of an existing vessel, for :

    1. hull modification;

    2. replacement of existing engines;

    3. purchase of more efficient fishing gear and equipment;

    4. installation of navigational aids;

    5. installation of chilled storage or refrigerated fish hold.

  3. In special cases, for purchase of a new vessel designed or approved by the Director of Agriculture and Fisheries.
2.Qualifications of applicants :
  1. A member of a registered fishermen's co-operativesociety; or

  2. an individual fisherman; or

  3. a registered fishing company vested in one or more local residents.Subject to the applicant being able to contribute from his own resources an amount acceptable to the Director of Agriculture and Fisheries, such amount being not less than 10% of the total cost of the project for which the loan is required, and agreeing to the terms under which the loan is granted.
3.Interest :
  1. 6% per annum for loans to members of co-operative societies and individual fishermen and a higher rate for loans to registered fishing companies.

  2. Interest is to accrue from the date of the loan but need not be met until the loan principal is re-paid by the borrower in full.
4.Authority for approval of loans :
  1. Finance Committee will be the authority for approval of any loan exceeding $10,000,000.

  2. The Secretary for the Treasury will be the authority for approval of any loan of $10,000,000 or less. He may delegate his authority to other public officers for administrative efficiency.
5.Authority for approval of transfers of vessels : The Finance Committee, and the Secretary for the Treasury and his delegated public officers will be the authority to approve transfers in respect of vessels whose outstanding loans were originally approved by them.
6.Repayment : Loans to be repaid by instalments according to arrangements drawn up by the Director of Agriculture and Fisheries to recover the total capital sum of the loan plus the interest thereon within the loan terms (a maximum of 14 years). In case of default in the repayment of loan, the Director may recover the sum outstanding together with accrued interest from the borrower and the co-operative society in such manner as he thinks fit.
7.Security : The Director of Agriculture and Fisheries shall ensure adequate security is provided for loans made to members of a co-operative society, individual fishermen or fishing companies.

Last Updated on 5 November 1997