FISHING INDUSTRY NEWS ARTICLE – DECEMBER 2012


2013 RIGHTS ALLOCATIONS

 

INTRODUCTION:

It is hard to believe that at the end of December 2013 eight years would have passed since the granting of the first long term rights allocations commencing at the beginning of 2006.

Long term rights in the following sectors expire at the end of December 2013, and accordingly will be up for re-allocation next year:

  • Tuna Pole
  • KZN Prawn Trawl
  • Demersal Shark
  • Hake Handline
  • Traditional Linefish
  • White Mussels
  • Oysters

 

In a previous article dealing with proposed changes to the Marine Living Resources Act (MLRA), I commented that the Department would be under extremely tight time constraints to bring about the proposed amendments to the MLRA as well as completing the future rights allocation process. However, at a recent portfolio committee briefing in Parliament on the 6 November 2012 the Department through Mr Saasa Pheeha presented a report dealing inter alia with the 2013 fishing rights allocation process. The following timeline was proposed for the allocation process:

ACTIVITY  TARGET DATE 
Public consultation process on policy considerations February 2013
Public consultation of Industry “Rule Books” February 2013
Design the rights allocation guidelines March 2013
Setting up of structures March 2013
Design of application forms March 2013
Call for applications May 2013
Determination of size of allocations June 2013
Processing applications forms and data capturing July 2013
Allocations by the delegated authority September 2013
Calls for appeals September 2013
Processing of application forms and data processing October 2013
Announcement of appeals November 2013
Amendment of rights register December 2013

 

DAFF also appear to be ad idem regarding our concern that not only the above objectives must be met but at the same time MLRA amendments need to be enacted as well.

We can summarise below certain important issues for industry which were raised by DAFF during the presentation:

Transformation:

Unlike during the previous long term rights process where a comparative scoring process was used to assess Rights Holders, DAFF have confirmed that during next year’s process an external bench mark system will be used where specific targets will be set for sectors. DAFF did not clarify whether a minimum transformation level would be set which had to be surpassed in order to be allocated a right or whether a simple bench mark scoring system would be utilised by which certain levels of transformation would score a certain number of predetermined points.

New Entrants:

Of importance in the division of future TAE’s and TAC’s, DAFF made it clear that the next round of allocations would benefit new entrants more than in the previous long term rights process where minimal provision was made for the entrance of new Rights Holders particularly in established sectors. In the next round of allocations new entrants would be considered and DAFF intends to reserve a portion of the available rights / effort for allocation to new entrants and SMME’s, particularly in order to improve transformation in certain sectors.

Economic Viability of Rights:

DAFF further expressed the view that in the previous rights allocation process certain Rights Holders were allocated a quantum that was not economically viable, as such in the next round of allocations DAFF have taken a decision to ensure that there is a minimum threshold right (quantum or effort) for each sector to ensure that rights holders are given economically viable rights. Obviously the knock on effect of this would be to reduce the number of participants in sectors. It is unclear whether this will mean fewer existing Rights Holders or fewer new entrants but with increased quantum.

Fronting:

One of the concerns raised by DAFF regarding the utilisation of the current rights  was that in their view the true benefit of rights in many cases was being acquired by third parties who were attending to the catching, processing and marketing of such allocations. It was stated that the Rights Holders “were missing out on economic opportunities due to their inferior bargaining position” and DAFF would attempt to address this issue during the next long term rights allocation process. It was not stated how they intended to address this issue but it was recorded that access to vessels was  a key factor in this regard.

Economic Unit Consolidation:

DAFF recorded that they had noticed that larger companies had made acquisitions since the 2006 allocations and as a result there were many wholly owned subsidiary companies holding rights in the same sectors as their parent companies. As such DAFF recorded that they would be determined to stop “economic disguises” and prevent wholly owned subsidiaries from obtaining rights in the same sector as the parent company. Our interpretation of this is that where Rights Holders have wholly owned subsidiaries in the same sector DAFF may force a consolidation of economic units so that ultimately there is only one right holder representing the group per sector and such rights holder would have in effect a consolidated allocation rather than split amongst various subsidiaries and the parent company.

Rule Books:

One may recall that during the long term rights allocation process the application forms were accompanied by “explanatory notes” and “schedules” to assist with the completion of the application forms. From the presentation it would appear that DAFF intends to replace such explanatory notes and schedules with an industry / sector “rule book”. It is proposed that this rule book will contain the criteria to be used for the rights allocation process and will be subject to a public consultation process.

The Process:

Based on the presentation it would appear that the 2013 rights allocation process would follow a similar methodology as in 2005. Therefore the Minister will appoint a delegated authority (“DA”) for each sector who will adjudicate and allocate rights for such sector. A verification unit will be appointed to audit applications and in addition a rights allocation unit will evaluate and score all applications submitted. Thereafter all applications that have been scored will be sent to the DA who will make a final decision. After decisions have been made appeals will be invited and only once the appeals have been processed will allocations be granted to successful Rights Holders.

Another issue which was not in fact raised at the presentation on the 6 November 2012 but which is of paramount importance to future rights allocations in 2013 are the many outstanding Section 21 applications, particularly in those sectors which are to be reallocated. The Department has informed industry that there is in fact a Section 21 Committee dealing with all Section 21 applications,  and decisions on all Section 21 applications will be made and communicated to applicants by the end of November 2012. This was confirmed in writing by the chairperson of such Section 21 Committee being Ms Sue Middleton. There have been many undertakings in the past by the Department regarding Section 21 applications and it remains to be seen whether they will comply with this undertaking. In our view should such undertaking not be complied with in those sectors which are up for re-allocation in 2013 then urgent Court proceedings should be instituted to obtain a decision on such applications. Applicants should not go into the next rights allocation process with outstanding Section 21 applications.

Preparing for Future Rights Applications

My advice to Rights Holders would be to start preparing for next year’s rights allocation process now and consult with one’s experts regarding the process and the best possible way to prepare therefore. By way of example our firm is offering its assistance to Rights Holders based on two approaches, one more formal and one less formal. They are as follows:

  1. On a less formal basis we would consult with Rights Holders to discuss their pre submission self-assessment and their approach to the Rights Allocation Process. This would assist them in accurately assessing where they stand relative to the rest of the participants in the sector and what their potential risk areas are. This would assist Rights Holders in considering any possible changes or any areas of improvement that they may wish to implement prior to the submission of applications. 
  2.  

  3. The more formal approach is our appointment to conduct a preliminary audit of a Right Holder’s status having regard to their performance and position relative to the 2005 LTRAMP Process, the 2009/2010 Performance Review Process and current position. This would then provide them with a strong indication of areas where their performance is above or below the rest of the participants in their sector. We would then be able to recommend areas that require attention and support the Rights Holder in the preparation of their data and annexures for the long term rights application process. Right Holders would then have an opportunity to timeously remedy any potential weak areas in their application form in order that they maximize the points awarded in the process which in turn will assist them to maximize their allocation in the 2013 Rights Allocation Process.

 

Preparation now by Rights Holders is key for next year’s process as we have seen during previous rights application processes that last minute preparations, structuring and agreements are risky and may be disregarded by the Department.

As this may be my last column for 2012 we would like to take this opportunity of wishing our readers a relaxing and enjoyable festive season and a positive and successful 2013.