Iceland Takes On Fishing Industry in Push for Economic Control

Iceland is heading for a showdown with its fishermen as the government claws back control over its economy following its financial collapse in 2008.

Prime Minister Johanna Sigurdardottir, a flight attendant turned union organizer, is seeking to raise fees for the right to fish off the north Atlantic island and also to limit the ability to rent or sell fishing quotas in a revamp of the nation’s 1984 fishing law.

The government is fighting for control over an industry that accounts for about 25 percent of gross domestic product after the island’s push into high-finance ended in an economic collapse in 2008. The island, which was bailed out by the International Monetary Fund and its Nordic neighbors after the collapse of its three largest banks, has since tried to return to motors of growth such as tourism, energy and fishing.

The idea is to “once and for all clarify that the natural resources in the water surrounding the island are the communal property of the Icelandic people,” Steingrimur J. Sigfusson, the fisheries and economy minister, said by phone. The plan will ensure that “quotas are utilization rights which the fishing industry pays for, but not anyone’s private property.”

The two bills, in the works since the Social Democratic-led government took power in 2009, were introduced to parliament in March and are now being discussed in committees.

The industry says the changes will hamper the recovery and drive many companies in the nation’s fishing fleet out business. Fridrik J. Arngrimsson, chief executive officer of the Federation of Icelandic Fishing Vessel Owners, said the proposal would eat up 70 percent of the industry’s estimated profit.

Exorbitant Levies

“If the government’s ideas materialize most of the island’s fishing companies will go bankrupt,” Arngrimsson said by phone. “The ideas on the charges that should be levied on the industry are exorbitant.”

The fishing industry is governed by a quota system which sets catch levels annually based on historical catches in the years before the regime was established in 1984. There’s also an annual allowable quota for each type of fish, which is set by multiplying the total annual haul of the year and each vessel’s quota share. Companies pay a fee of 13.3 percent of earnings before interest, taxes, depreciation and amortization of catching operations. Under the current system, fishing companies are also allowed to rent out or sell quotas.

Political Interference

“We oppose these bills because they will increase political interference in the fishing sector by imposing rules that will result in a large share of the fishing quotas being controlled by politicians,” said Arngrimsson. “This will fundamentally change the current system and risk reducing the sectors’ chances of continuing to contribute healthily to the gross domestic output.”

Iceland, whose banks defaulted on $85 billion in 2008, completed a 33-month IMF program in August. The Washington-based fund expects Iceland’s economy to expand 2.4 percent this year and 2.6 percent next year. That compares with a 0.3 percent contraction in the 17-member euro area, the European Commission said May 11.

HB Grandi hf had 11.78 percent of the island’s total quotas, followed by Samherji hf at 7.17 percent and Isfelag Vestmannaeyja hf at 5.78%, according to the Directorate of Fisheries. None of the companies is listed.

Thorsteinn Mar Baldvinsson, CEO and one of the largest shareholders of Samherji, was also the chairman of lender Glitnir Bank hf when it failed in 2008.

HB Grandi, which lists a fleet of 12 vessels, saw its profit rise more than fourfold last year to 37 million euros. The country’s fishing companies benefited as the weakening krona boosted exports.

Debt Sinks

Over the past 30 years, the industry has directly accounted for about 12 percent of the GDP and for 24.4 percent when supply and service areas are included, according to a 2011 report by Arion Bank hf. The fishing and supporting industries also account for 15 percent of all jobs on the island. Between 80 percent and 90 percent of all those jobs are in towns and areas outside the Reykjavik metropolitan area.

The 18 largest fishing companies hold 72 percent of the allowed catch each year. According to Statistics Iceland, the catch value from Icelandic ships in 2011 was 153 billion kronur, up 15.3 percent from the previous year. Exports of marine products rose to 252 billion kronur last year, or 40.7 percent exports, from 220.4 billion kronur in 2010.

Fishing companies reached peak indebtedness in 2008 of 13 times their earnings before interest, tax, depreciation and amortization, up from five times Ebitda in 2001. By the end of 2009, that had dropped to nine times Ebitda, according to Arion.

The industry is equipped to handle the clampdown and some of the profit should be “returned to the owners of this natural resource: the people of Iceland,” Sigfusson said. “It goes without saying that the government doesn’t want to jeopardize the market conditions of the fishing sector, which is one of the foundations of the country’s economy.”

To contact the reporter on this story: Omar R. Valdimarsson in Reykjavik valdimarsson@bloomberg.net.

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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