[Federal Register Volume 79, Number 125 (Monday, June 30, 2014)]
[Proposed Rules]
[Pages 36699-36702]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-15173]
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DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric Administration
50 CFR Part 253
[Docket No. 140401299-4443-01]
RIN 0648-BE15
Fisheries Financing Program; Construction of New Replacement
Fishing Vessels
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Advance notice of proposed rulemaking; request for comments.
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SUMMARY: NMFS issues this advance notice of proposed rulemaking (ANPR)
to provide background information and request public comment on
potential amendments to the regulations governing the Fisheries
Financing Program (FFP) that address several specific issues currently
affecting fishers and fishing companies, and to identify specific
measures that might address these issues. NMFS is requesting public
comment regarding the potential implementation of changes to the
current prohibitions against using the FFP to finance the cost of new
vessel construction and a vessel refurbishing project that materially
increases an existing vessel's harvesting capacity.
DATES: Written comments regarding the issues in this ANPR must be
received on or before July 30, 2014.
ADDRESSES: You may submit comments, identified by NOAA-NMFS-2014-0062,
by any one of the following methods:
Electronic submission: Submit all electronic public
comments via the Federal e-Rulemaking Portal: Go to
www.regulations.gov#!docketDetail;D=NOAA-NMFS-2014-0062, click the
``Comment Now!'' icon, complete the required fields, and enter or
attach your comments.
Mail: Submit written comments to NMFS MB5, 1315 East-West
Highway, Silver Spring, MD 20910.
Instructions: Comments sent by any other method, to any other
address or individual, or received after the end of the comment period,
may not be considered by NMFS. All comments received are a part of the
public record and will generally be posted for public viewing on
www.regulations.gov without change. All personal identifying
information (for example, name, address, etc.) voluntarily submitted by
the commenter may be publicly accessible. Do not submit confidential
business information or otherwise sensitive or protected information.
NMFS will accept anonymous comments (enter ``N/A'' in the required
fields if you wish to remain anonymous). Attachments to electronic
comments will be accepted in Microsoft Word, Excel, or Adobe PDF file
formats only. Related documents, including the FFP regulations, are
available upon request at the mailing address noted above or on the
Financial Services Division's Web page at: http://www.nmfs.noaa.gov/MB/financial_services/.
FOR FURTHER INFORMATION CONTACT: Paul Marx or Earl Bennett at 301-427-
8724.
SUPPLEMENTARY INFORMATION: The FFP was originally created as the
Fishing Vessel Mortgage and Loan Insurance program in 1971. It was
renamed the Fishing Vessel Obligation Guarantee in
[[Page 36700]]
1973. In 1998 it became the FFP. While originally created as a Federal
Guarantee program that guaranteed loans made by the private sector, the
program ultimately became a direct lending program. The FFP does not
require appropriated funds because it has a negative subsidy under the
Federal Credit Reform Act (FCRA) of 1991. It operates on the basis of
credit authority, provided by the Congress in annual appropriations,
which authorizes the program to borrow from the U.S. Treasury. Unused
lending authority cannot be obligated after the end of each fiscal
year, so the lending authority must be authorized each year. The FFP
regulations do not allow financing the cost of new vessel construction
or a vessel refurbishing project that materially increases an existing
vessel's harvesting capacity. Additionally, for several years, prior to
FY14 (see comments below), appropriations language has prohibited the
use of FFP loan authority for any project that increases the capacity
in any U.S. fisheries.
I. Background
The FFP is a direct government loan program that receives annual
loan authority from Congress to provide long-term loans to the
aquaculture, mariculture, and commercial fisheries industries. These
loans involve a wide variety of fisheries activities, including
fishing, fish processing, purchases of fishing quota, and aquaculture
facilities. Borrowers may be single proprietors, private corporations
and limited partnerships, or public corporations. The program can
finance up to 80 percent of the cost of an eligible project.
General Program Requirements
In order to be eligible for this program:
1. Borrower must be a U.S. citizen, or an entity who is a citizen
for the purpose of documenting a vessel in the coastwise trade under 46
U.S.C. 50501,
2. Borrower must have a good credit and earnings record, net worth,
and liquidity in support of the project,
3. Lending must be fully secured with borrower's assets, which may
include personal guarantees and additional collateral not directly
associated with the project,
4. Borrower must generally have the ability, experience, resources,
character, reputation, and other qualifications necessary for
successfully operating, utilizing, or carrying out the project.
Loan Terms
The FFP makes long term, fixed rate loans with interest rates of
two percent over the U.S. Department of the Treasury's cost of funds.
Loan maturities may be up to 25 years, but may not exceed the economic
useful life of a project. Loans have no prepayment penalties. All loans
are secured by a promissory note, capital assets, and security
agreement.
Applicants must pay a fee of 0.5% of the amount applied for with
the application for a new loan. Half of this is the filing fee, which
is nonrefundable.
Need for Action
The FFP has operated under regulations stating that loans will not
be made for the cost of new vessel construction or vessel refurbishing
that materially increases an existing vessel's harvesting capacity.
Vessel owners have indicated that a significant portion of the existing
fleet of U.S. fishing vessels consists of older vessels which are not
optimal in terms of safety, efficiency, and environmental and fuel-
efficient operation. The country needs to maintain the economic
benefits of having a commercial fishing industry. This industry is a
large employer, produces significant exports, and feeds people. The
economic benefits trickle down to many segments of the national
economy, including but not limited to the insurance, fuel, and vessel
supply and equipment sectors. In many communities, the fishing industry
is an essential element in their survival. This action will also
generate employment by supporting projects in U.S. shipyards. Renewal
of our aging fishing fleet would improve both safety and fuel
efficiency and assist in maintaining the economic benefits derived from
the commercial fishing industry.
Fiscal Year 2014 Appropriations increased FFP's traditional loan
authority from $59 million to $100 million and removed the language
prohibiting its use for new vessel projects that increase capacity.
Meeting this new program initiative will require changes to the
existing FFP regulations at 50 CFR part 253. Specifically, the
regulations will need to be changed to allow the direct loan program to
finance the construction of new fishing vessels and projects that
increase an existing vessel's capacity under specific circumstances.
The regulations would also specify the manner in which these types of
loans will be managed, including project review, qualification and
collateral requirements, and related provisions.
In this ANPR, NMFS requests comments and input on the proposed
program changes, and the provisions that need to be in place to
implement those changes. Specifically, NMFS seeks to answer the
following programmatic questions. Can fishing fleets be replaced or
modernized without causing overfishing? Does it require that
recapitalization occur only in limited access or quota share fisheries?
If, implemented, are the suggested lending standards and requirements
adequate?
II. Potential Program Solutions
NMFS generally does not want to finance the cost of new fishing
vessels or reconstruction of existing vessels that materially increase
harvesting. NMFS believes it can entertain financing these costs only
for vessels participating in limited access fisheries. Where catch
limits control the annual harvest, replacement or improvement of
vessels does not increase the total catch. The FFP currently does not
make vessel loans in any fisheries that are listed as overfished or
subject to overfishing.
1. Questions Associated With Considering these Changes
a. How and where to implement new vessel construction lending and
remain harvesting neutral?
b. How to identify, approve and control the use of the replaced
vessel?
c. How to control movement of new or improved vessels to other
fisheries?
d. How to protect the FFP from the risks associated with vessel
construction lending?
The FFP's regulation prohibits financing the cost of either new
vessel construction or a vessel refurbishing project that materially
increases an existing vessel's harvesting capacity. NMFS believes it
should enter into financing the construction of new vessels and
refurbishing that increases a vessel's harvesting capacity only if such
lending results in no significant increase in fish harvesting. We will
make that determination on an application-by-application basis.
NMFS is considering two approaches in implementing this new
authority: Either we will act upon plans submitted by Fishery
Management Councils responsible for particular fisheries or we will
allow vessel owners in any limited access fishery to use the FFP.
Factors to be considered in this determination include:
What fisheries are appropriate for this new lending? Would it be
any fishery or just limited access fisheries?
Pros: In a limited access fishery, replacing one vessel with
another maintains a constant number of vessels and permits. It provides
the fishers or firms with the flexibility to tailor the replacement
vessel to the market conditions at the time. If it makes sense to
replace an existing vessel with a
[[Page 36701]]
larger one, the business decision is left to the owner. The new vessel
remains bound by the Total Allowable Catch in the fishery. There is no
increase in harvesting.
Cons: Allowing this new lending in any fishery, without limitation,
could increase the pressure on stocks not under controlled catch
limits.
Where should new vessel construction be authorized--Nationwide, or
in specific regions at the request of fisheries governed by specific
Fishery Management Councils?
Pros: Implementing the program nationwide would remove ambiguity,
allow the fisheries market to determine where and how to recapitalize,
and might simplify the changes to the rule. Implementing at the request
of Fishery Management Councils (FMC) would accommodate differences
between regions and fisheries, and would allow the FMC to more narrowly
tailor environmental analyses to regional issues and concerns.
Cons: Implementing the program nationwide might require a
programmatic environmental assessment (PEA), addressing all of the
fisheries of the United States. Such a PEA could take longer to
complete than the time provided to use lending authority in a year. It
would also require a significant increase in FFP lending authority, no
matter which region was involved. One estimate of new vessel need for
the North Pacific alone ranges between $2.2 and $4.4 billion.
Implementing the program on the basis of Fishery Management Councils'
plans could result in different rules for different fisheries--for
example, some fisheries might request loans only for new replacement
vessels, while others might request loans for vessel rehabilitation as
well.
How to deal with the replaced vessel? In the case of new vessel
construction, attention must be paid to the replaced vessel to insure a
capacity and harvesting-neutral outcome. With no restrictions on the
replaced vessel, it will become available for use in other U.S.
fisheries or elsewhere in the world. This result could lead to, or
increase, over fishing. The options are to have the vessel scrapped,
have the vessel title restricted by revoking its fisheries endorsement
and prohibiting foreign transfer, or have no restriction. An
alternative would be to prohibit the replaced vessel's use in any U.S.
fishery without the written approval of the FMC that manages that
fishery. A related question is whether an FMC should be given
responsibility to make such approvals. Included in considerations
surrounding replacement vessels is what vessel is replaced. Can it be
any fishing vessel or must it be one of similar capacity and in the
identical fishery? Vessels in limited access fisheries are
predominantly federally documented. Should we require that both new and
replacement vessels be federally documented?
Pros: To require the replaced vessel to be scrapped would be the
most straightforward solution. The business calculation would be
simplified. Once the new vessel goes into operation, the replaced
vessel would have a set time to be scrapped. However, some owners have
expressed the wish to be able to re-sell their replaced vessel to
another permit-holder in the same fishery, who would then scrap that
replaced vessel. Title restriction allows the replaced vessel, which
may have significant residual value, to be used in a non-fishing
activity. Applicants will want to realize the greatest financial return
from the replaced vessel.
Cons: Requiring vessels to be scrapped may cause owners to delay
replacement of older vessels with significant residual value, which
would slow the recapitalization effort and extend the use of older,
less efficient vessels because of the cost involved and the potential
loss of revenue from not having an alternative use. Title restriction
has been an issue with State-documented vessels. Having no restriction
isn't consistent with being capacity-neutral. Not requiring the vessel
to be scrapped creates enforcement difficulties, as illustrated by the
vessel capacity reduction programs. Under the latter programs, the U.S.
Coast Guard has discovered abandoned buyback vessels docked in harbors,
causing environmental and economic damage to the community.
Additionally, buyback vessels have shown up in State waters, fishing in
violation of the prohibition against fishing. Since they are not
required to have a fisheries endorsement in State fisheries, they fish
there with impunity.
What would we consider for the timing of the removal? We see two
options. Option one is to require the removal restriction prior to
funding the loan. Option two would require the removal restriction
within four months of the new vessel being put in service.
Pros: Removal of the replaced vessel prior to funding the loan
makes the process straightforward. There is no risk that the loan can
be used to increase the number of vessels in a fishery. Removal within
four months of the new vessel entering service would provide a break-in
period for the replacement vessel, thus minimizing the disruption to
the owner's operations.
Cons: Removal prior to funding exposes the vessel owner to sea
trials and shake-out risk--potentially having no vessel able to fish
until the new vessel is fully seaworthy. Management of FFP lending
risks and traditional lending:
The FFP has a negative FCRA subsidy rate. As such, no appropriation
of subsidy is required to allow program lending. New vessel
construction lending and major rebuilding projects pose higher credit
risks and are more labor intensive than the current program.
Additionally, the 2014 appropriation results in an increase to the
FFP's annual loan authority without allocation of this authority. We
need to continue to have loans available for the FFP's historical uses.
The projected size of the proposed new loans could quickly consume a
year's loan authority without providing any loans for historical FFP
purposes.
How do we design the requirements and guidelines to protect the
FFP's negative subsidy and traditional uses?
Cost overruns pose a significant risk to the FFP. Progress payments
while the vessel is in construction represent liabilities in advance of
the project generating any revenue. The owner must begin to make debt
service payments before the vessel is completed. If the final vessel
cost exceeds the original estimate, the vessel owner must make up the
difference. Cost overruns are common if not normal for large shipyard
projects. The FFP could be left with an unpaid loan, and an unfinished
asset with negligible value--the likelihood of a significant loss
exists. The way to mitigate this risk is either through a performance
bond or insurance, or a reserve fund.
Pros: A performance bond/insurance (a common practice) provides a
payout in the event that the vessel is delayed in the shipyard, faces
materials cost increases due to market fluctuations, or its final cost
increases for other reasons. A reserve fund in the amount of 25% to 50%
of the estimated cost of the vessel provides the same functionality,
increasing the assurance that the vessel will be completed and viable
for its intended use in a fishery, even if the cost rises inordinately.
Either of these mechanisms would reduce the risk to the FFP
significantly.
Cons: The performance bond/insurance would raise the owner's cost
somewhat. The reserve fund would raise the owner's initial cash needs
substantially, requiring the aggregation of between 45% and 70% of the
vessel's total cost prior to closing on the FFP loan.
[[Page 36702]]
2. Project Monitoring
The vessel construction in progress must be monitored to certify
milestones for periodic payments and the adequacy of the work. The FFP
does not have the staff, expertise or funds for this. Not having the
ability to perform this function would make the credit risk
unacceptable. Requiring the borrower to procure such a third party is a
reasonable way for NMFS to assure itself that milestones claimed for
reimbursement with loan proceeds have, in fact, been met. The applicant
will engage a surveyor to perform these functions for them. We need to
determine if the same surveyor can jointly represent the applicant and
NMFS.
Pros: Use of a vessel surveyor to monitor construction is the
standard. Ship surveyors are a skilled trade, with industry
certifications and licenses. The cost of the surveyor is generally
proportional to the cost of the vessel. The borrower is responsible for
managing and reimbursing the surveyor's costs. NOAA/NMFS could be
adequately represented if we required our approval of the surveyor with
a requirement to report directly to NMFS. Use of the applicant's
surveyor would be paid by the applicant, but NMFS would receive copies
of the surveyor's reports to the borrower.
Cons: The borrower has already hired a project manager and other
support staff, so the surveyor may add to the overall cost of the
vessel. The surveyor will be reporting to the FFP, but hired by the
borrower. If one surveyor is reporting to the owner and NMFS but being
paid by the owner, there could be a conflict of interest.
3. Lending Allocation
The FFP's annual traditional loan authority has been $59 million
for a number of years. For FY14, it's $100 million. Even assuming a
continuation at the $100 million level, a few large projects for new
vessels or major reconstruction ($8-$25 million or more) could use all
available loan authority. The FFP wishes to ensure it can continue to
help as many industry participants as possible and provide traditional
lending for purposes that don't increase capacity. Should there be an
allocation reserved for traditional loan purposes?
Pros: The FFP provides a variety of loans for purposes that do not
increase capacity. Examples include aquaculture facilities, existing
vessel purchases, vessel repairs, and fish processing facilities.
Maintaining a portion of loan authority to support these vital projects
is important.
Cons: Lending authority set aside for the primary program would not
be available to meet potential demand for new vessels or reconstruction
projects. Recapitalization could be slowed as a result.
NMFS seeks comments on these questions and recommendations, as well
as any alternatives that may achieve the same goals.
IV. Conclusion
This ANPR explains the Fisheries Finance Program management history
while also identifying some major potential changes to the program to
support recapitalization and modernization of the fishing fleet. Some
of the ideas discussed are specific changes to the current restriction
on new vessel construction and reconstruction that materially increases
the capacity of an existing vessel. This amendment to the FFP could be
implemented through a regulatory action within the next year. The other
changes discussed include operational considerations for the loan
program, but they also signal an overarching policy on providing loans
to support recapitalization of the fishing fleet over the long term.
Additionally, we note that all vessel construction or
reconstruction projects will be required to be performed at a shipyard
in the United States.
It is NMFS's goal to move forward with a viable and flexible vessel
replacement and/or modernization solution that will achieve sustainable
fishery goals and objectives while minimizing adverse environmental
impacts. NMFS seeks public comment on the above issues and
recommendations. NMFS anticipates having a relatively short time to
draft, publish, and finalize a rule to implement the new authority, as
well as to obligate the funds made available for the purpose, because
these funds lapse at the end of the fiscal year for which they were
appropriated.
V. Submission of Public Comments
The comment period for all topics discussed in this ANPR closes on
July 30, 2014. Please see the ADDRESSES section of this ANPR for
additional information regarding the submission of written comments.
NMFS requests comments on the potential adjustment of the FFP program
authority to allow the financing of new vessel construction to replace
existing vessels in limited access fisheries.
The preceding sections provide background information regarding
these topics and ideas for potential changes. The public is encouraged
to submit comments related to the specific ideas and questions asked in
each of the preceding sections. All written comments received by the
due date will be considered in drafting proposed changes to the
Fisheries Finance Program regulations. In developing any proposed
regulations, NMFS must consider and analyze ecological, social, and
economic impacts. Therefore, NMFS encourages comments that would
contribute to the required analyses, and respond to the questions
presented in this ANPR.
Classification
This rulemaking has been determined to be not significant for
purposes of Executive Order 12866.
Authority: 46 U.S.C. 53701 and 16 U.S.C. 4101 et seq.
Dated: June 23, 2014.
Eileen Sobeck,
Assistant Administrator for Fisheries, National Marine Fisheries
Service.
[FR Doc. 2014-15173 Filed 6-27-14; 8:45 am]
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