FCR(1999-2000)26

For discussion
on 25 June 1999

LOAN FUND
HEAD 262 - PRIMARY PRODUCTS
New Subhead "Fish Marketing Organization Loan Fund - loans to fishermen"

Members are invited to approve the creation of a new subhead under Head 262 Primary Products under the Loan Fund with a commitment of $65 million to provide funding for the Fish Marketing Organization Loan Fund to make loans to fishermen affected by the fishing moratorium in the South China Sea.

PROBLEM

The fishermen affected by the fishing moratorium in the South China Sea need loan assistance from the Fish Marketing Organization Loan Fund (FMOLF) to maintain and repair their fishing vessels for resumption of fishing operation after the moratorium. However, the FMOLF has insufficient funds to meet the requirements.

PROPOSAL

2. We propose to create a new subhead under Head 262 Primary Products under the Loan Fund with a commitment of $65 million to provide funding for the FMOLF to make low-interest loans to affected fishermen.

JUSTIFICATION

Fishing moratorium

3. The Bureau of Fisheries Management and Fishing Port Superintendence of the Ministry of Agriculture of the Mainland announced in March this year that it would enforce a fishing moratorium in June and July and annually thereafter during the same months. Under the moratorium, all fishing operations using trawl net, purse-seine and hang trawl would be banned in the South China Sea north of latitude 12°N to conserve the fisheries resources and promote sustainable development of the fishing industry.

4. Some 1 350 Hong Kong fishing vessels dually licensed in Hong Kong and the Mainland, which have all along been operating in the South China Sea, are affected by the moratorium. It is impractical for the affected fishermen to go to other waters to fish because these waters are either too far away and unfamiliar to the fishermen or under the jurisdiction of other countries. Although the Mainland authorities have offered to issue certain number of permits to Hong Kong fishing vessels to fish in Nansha waters, we expect that the number of fishermen who could benefit from this arrangement would be limited due to the distance involved. Most of the affected fishermen will therefore have to stop their fishing operations and leave their fishing vessels in ports. Due to the berthing arrangement in the ports, the vessels have to remain idle during most part of the moratorium, and as a result, are subject to structural and mechanical problems.

5. Therefore, apart from having no income during the two-month moratorium, the fishermen will need to incur additional costs to carry out a basic repair and maintenance programme including anti-fouling, putting and caulking of vessel hull, cleaning and inspection of propeller and engines, and the maintenance of decks, equipment and fishing gear to upkeep the seaworthiness of the vessel and prepare it for resumption of operation after the fishing moratorium. Based on information obtained from local shipyards, the Agriculture and Fisheries Department (AFD) estimates that the costs for the additional repair and maintenance works per vessel are around $30,000 for vessels of less than 20 metres in length, around $40,000 for vessels of 20 to 25 metres in length and around $50,000 for vessels exceeding 25 metres in length.

6. Owing to the short notice of the date for implementation of the fishing moratorium and the fact that the fishing moratorium is enforced in the South China Sea for the first time, most fishermen have not been able to adequately prepare themselves financially to cope with the situation.

7. AFD estimates that of the 1 350 fishing vessels affected, around 250 are less than 20 metres in length, around 350 are of 20 to 25 metres in length and around 750 exceed 25 metres in length.

Loan assistance under the Fish Marketing Organization Loan Fund

8. Under the existing arrangements, affected fishermen may apply for loans for repair and maintenance of their fishing vessels from the FMOLF established by the Fish Marketing Organization (FMO), a statutory corporation established under the Marine Fish (Marketing) Ordinance Cap. 291.

9. The FMO operates seven wholesale fish markets and currently charges 7% commission on fishermen's catch sold through the wholesale markets. It operates on a self-financing basis and has allocated $19 million from its accumulated surplus to the FMOLF as loan capital to provide loans to fishermen who are their clients. The loans are for the repair, replacement or provision of fishing vessels, gear and equipment and any other productive purpose which will maintain or improve the fishermen's fishing operation. The FMO also provided a $7 million loan to the FMOLF this year. Due to the increase in demand for loans, the FMOLF only has $4.9 million in cash currently but the outstanding loan applications on hand amount to over $3.4 million. The FMO has operated at a loss of $8 million last year. In view of the economic downturn, it cannot allocate further funding for loans to fishermen affected by the moratorium. We therefore propose to create a new subhead under Head 262 Primary Products under the Loan Fund with a commitment of $65 million to provide funding for the FMOLF to make low-interest loans to affected fishermen.

10. The Director of Agriculture and Fisheries in consultation with the Fish Marketing Advisory Board established under the Ordinance will administer the proposed loans in accordance with the parameters set out at the Enclosure.

11. The key features of the proposed loans are -

Eligibility - fishermen dually licensed in Hong Kong and in the Mainland using trawl net, purse-seine and hang trawl to fish in the South China Sea and affected by the fishing moratorium; and there will be only one loan per vessel;

Loan amount - the actual cost of maintenance and repairs up to $50,000 per vessel, depending on the length of the vessel;

Interest - at the rate of 3% per annum from the date of drawdown;

Loan repayment - by lump sum or quarterly instalments, total amount to be repaid within one year after drawdown;

Closing date for loan applications - 31 July 1999. 12. The proposed loans to be provided under this new commitment under the Loan Fund are intended to be made available to the affected fishermen for this year only, as the fishermen should have sufficient time to plan their schedule and their routine maintenance to fit in with the annual fishing moratorium in subsequent years.

FINANCIAL IMPLICATIONS

13. The proposed commitment is one-off. There are no recurrent implications.

14. The interest forgone for lending at the concessionary rate of 3% per annum would be $2.1 million. This is based on the assumption that the $65 million would be fully drawn down on day one and repaid at the end of the twelve month, and that the Government "no-gain-no-loss" interest rate of 6.25% per annum, which is 2% below the average best lending rate of the note-issuing banks, would remain the same throughout the period. Subject to Members' approval, the funds required in 1999-2000 will be provided under delegated authority. Subsequent loan repayments will be credited to the Loan Fund.

BACKGROUND INFORMATION

15. A working group chaired by AFD and comprising government departments concerned and fishermen representatives has been set up to deal with matters relating to the fishing moratorium, including the proposed provision of low-interest loans to affected fishermen. Fishermen representatives, representing over 90% of the fishermen's associations in Hong Kong, have been consulted on the proposal and they considered the proposal reasonable and acceptable.

16. In addition to the proposed provision of low-interest loans for the additional maintenance work, affected fishermen who meet the eligibility criteria may apply for financial assistance under the Comprehensive Social Security Assistance (CSSA) Scheme. In light of the special circumstances, the Social Welfare Department has agreed to disregard the value of a fishing vessel for the purpose of the asset test under the CSSA Scheme so as to enable fishermen affected by the fishing moratorium to be eligible for assistance, on condition that they meet other eligibility criteria for CSSA.

17. Some affected fishermen, particularly those with large vessels exceeding 25 metres in length have requested Government to provide low-interest loans of over $200,000 to meet their maintenance needs. Others have also requested that Government help them repay their personal loans with banks or financial institutions. AFD advised that loan requirements of individual fishermen in excess of $50,000 would likely involve repair and maintenance of their vessel not directly relating to the fishing moratorium. Therefore, such loan requirements should be dealt with by the FMOLF under existing criteria subject to the availability of funds. As regards fishermen's personal financial matters, these are arrangements made between fishermen and banks or financial institutions. Any Government intervention or use of public funds in such personal financial matters is inappropriate.




Economic Services Bureau
June 1999

Enclosure to FCR(1999-2000)26

1.Purpose of the loan	For maintenance and repair of fishing vessel hull, engine and fishing gear.
2.Qualification of applicants	Owners/operators of fishing vessels dually licensed in Hong Kong and in the Mainland using the following fishing gear and affected by the fishing moratorium in the South China Sea - Trawl net (including pair trawl, stern trawl and shrimp trawl); Purse-seine; Hang trawl.
3.Number and maximum amount	Only one loan per vessel. A maximum loan of $30,000 will be granted to each applicant whose vessel is less than 20 metres in length; a maximum loan of $40,000 to each applicant whose vessel is 20 to 25 metres in length; and a maximum loan of $50,000 to each applicant whose vessel exceeds 25 metres in length.
4.Security / Surety	No security is required but the applicant is required to provide a guarantor or submit the licence book of his fishing vessel to the Marine Department for endorsement as surety for the loan.
5.Interest	3% per annum. Simple interest will be calculated on a monthly basis.
6.Loan period	Up to 1 year.
7.Repayment	By lump-sum 12 months after draw down or by 4 quarterly instalments upon draw down of loan, the last instalment to include interest accrued.
8.Approving authority	The delegated authority for approving the loans under this package is Senior Fisheries Management Officer.
9.Submission of applications	Applications should be submitted on or before 31 July 1999.