Monday, February 15, 2016

What a New Vietnam-Russia Deal Says About the Mekong’s Future


A rather unusual business transaction shows how some Mekong countries are focusing on aquaculture with the river’s future in peril.

It is potentially an unusual business transaction. While the prospect of a Vietnamese company taking over a Russian group in of itself is unusual, the buyout of a strategic stake in a major fish distributor is also a reflection of changing attitudes to the management of the Mekong River.

Food security is the priority issue dominating the political agenda surrounding the lower Mekong subregion for the Vietnamese and Cambodian governments. It’s a stark contrast to thinking in Laos, which sees the Mekong primarily through the lens of hydropower.

Vientiane has upset its neighbors, scientists, environmentalists and downstream fishermen with its extraordinary dam construction program, including the damming of the mainstream of the river threatening about 50 percent of the area’s freshwater fish stocks.

Its highly controversial strategy was partially behind a decision by major international donors to walk away from the Mekong River Commission (MRC) after the Vientiane-based agency failed to curb Laos’ ambitious and very expensive hydroelectric plans.

The food security threat and complaints of smaller fish catches have also forced downstream governments and companies to start focusing on aquaculture. That led Hung Vuong Corp to announce in late January that it would be buying a 51 percent stake in RKK Holding, a Vietnamese-Russian joint venture, for $15 million.

Under the reported deal, Russian Aquaculture Company will sell its distribution arm, which accounts for 5 percent of the Russian fish market, to RKK which is hoping to improve the company’s flagging striped catfish exports with the acquisition.

The deal also follows the signing of a free-trade deal between Vietnam and the Eurasian Economic Union nine months ago which is expected to reduce tariffs on Vietnamese fish exports to Russia, Kazakhstan, Belarus, Armenia, and Kyrgyzstan to zero.

Vietnamese acquisition of Russian companies is unusual to say the least. But for Hung Vuong, the transaction makes sense. Russia is Hung Vuong’s third biggest market after the European Union and the United States. Exports in 2015 totaled $400 million (for perspective, the entire catch from the lower basin of the Mekong River was valued at about $17 billion over the same period).

In 2014, Russian Aquaculture boasted 2,200 customers and one of Russia’s largest distribution networks, with 19 branch offices in major cities and ports and a further 13 representative offices in provincial cities and towns. It also has extensive fish farming assets in Russia’s northwest, including five trout farms in Segezoro Lake and another four salmon farms in the Barents Sea.

Vietnamese pangasius exports have fallen sharply in the past year and a further fall in revenues of around 5 percent is expected over the current calendar year. Overfishing is already taking a toll while the Laos government is prepared to borrow heavily to fund its dam construction program.

Preliminary findings of one report released last year at the Greater Mekong Forum on Water, Food and Energy in Phnom Penh echoed earlier research and portrayed a bleak future for the Mekong if Laos builds its nine-planned mainstream hydropower across its mainstream.

Following the lead in Laos, and Vientiane’s absolute refusal to consider alternatives, Cambodia is also considering plans to construct two dams across the mainstream of the Mekong River. The forum report found more than half of fish catches could be lost across the region with dams blocking fish migratory paths. Nutrient levels within the water are expected to fall by 50 percent due to trapped sediment.

“When you have 11 dams there ain’t a lot left when you get to the bottom,” Ian Cox, director of the International Fisheries Institute at Britain’s Hull University, was quoted as saying by the Phnom Penh Post.

He also said the dams could wipe out 100 percent of fish which migrate over long distances.

That prospect has governments and relevant authorities searching for alternatives and aquaculture has long been touted as an industry for ripe for development with huge unrealized potential. Mergers and acquisitions with strategic deals designed to expand the aquaculture sector is another, making Hung Vuong one of the more interesting regional companies to watch.

Luke Hunt



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