QS lease transactions are made for an IFQ year. The rules provide that halibut catcher vessel QS may be leased in the years 1995, 1996, and 1997. The regulations providing for leases of catcher vessel QS expire on January 2, 1998.1

Holders of freezer vessel QS may lease any or all of those holdings during a year. However, holders of catcher vessel QS in a management area may only lease up to 10% of that QS during a given year.

The IFQ program regulations which provide for limited leasing of catcher vessel QS during the first three years of the program represent a compromise designed to balance the Council's different objectives. Opponents of leasing wanted to keep QS in the hands of active fishermen rather than absentee QS holders. Some opponents also thought that the ability to lease QS might dampen the volume of QS sales and make it more difficult for new persons to enter the fishery as QS owner-operators.

However, proponents of QS leasing wanted to maintain operational flexibility for fishermen in a dynamic environment.2 The temporary 10% rule sought to balance both sets of concerns.

The tables in this chapter will show that there were relatively few catcher vessel QS lease transactions during the first two years of the program. This may be partially attributed to the fact that large portions of the halibut catcher vessel QS were "blocked" and at the beginning of the program a block had to be transferred in its entirety for any kind of transfer.

At the start of the program, blocked QS could only be leased on this "all or nothing" basis. Blocks could not be broken up to allow some of the QS to be leased. This coupled with the 10% leasing restriction made the leasing of blocked catcher vessel QS difficult.

For example, a person who held only one block of QS in an area could not lease that block or any part of it. Similarly, a person who held two blocks of QS for an area would only be in a position to lease some QS if one block was no more than 10% of the person's total QS holding.

During 1996, the regulations governing leasing of blocked QS were reworded into terms of IFQ. This change in wording allowed for 10% of the IFQ associated with a segment of blocked QS in a year to be leased. In other words, the blocking provision no longer applied to seasonal lease transactions of IFQ. This liberalization of the leasing provision for blocked catcher vessel QS did not become effective until September 9, 1996 and therefore did not have a substantial impact on catcher vessel leasing activities during 1996.

The reader should be aware that this chapter only covers formal lease transactions as reported to NMFS-RAM. While formal leases of catcher vessel QS were not extensively utilized in 1995 and 1996, there was another means under the halibut IFQ program regulations whereby some QS could be fished by someone other than the QS holder.

Regulations allowing for the use of a "hired skipper" by an initial QS recipient on a vessel owned by the initial QS recipient appear to have been widely used during the first two years of the program. This topic is explored further in Chapter 14.

Any Category A (freezer vessel) halibut QS holder can use a hired skipper to harvest the IFQ associated with that QS. Corporations and partnerships who are initial QS recipients of catcher vessel QS can employ a skipper to harvest the resource. Similarly, individuals who are initial recipients of catcher vessel QS can use a hired skipper in many cases.3

For example, regulations provide that: An individual who receives an initial allocation of QS assigned to (catcher) vessel categories B, C, or D does not have to be on board and sign IFQ landing reports if that individual owns the vessel on which IFQ sablefish or halibut are harvested, and is represented on the vessel by a master employed by the individual who received the initial allocation of QS. This provision is not extended to individuals who were initial issuees of QS in IPHC Area 2C.4

The regulatory requirement that the initial QS holder own the vessel that is being used to harvest the IFQ was meant to constrain leasing of QS. However, the regulation was not specific concerning the percentage ownership interest that the QS holder needed to have. There apparently have been cases where an initial catcher vessel QS holder has purchased a very small ownership interest in a vessel and then the skipper of that vessel fished all of the person's IFQ.

Some of these arrangements may be de facto leases. Since the QS holder appears to be using a "hired skipper" and can avoid a formal lease transaction, the 10% restriction can be circumvented. In other words, more than 10% of the IFQ associated with the person's catcher vessel QS holdings for an area could be fished under such an arrangement.

While the Council wants to provide for hired skippers, it does not want to expand the leasing privilege. During 1997, the Council has been studying the possibility of new percentage ownership requirements and may adopt regulations to constrain this practice.5

Persons also might be able to circumvent the restrictions on leasing of catcher vessel QS by selling their QS with a tacit understanding that the QS would be transferred back to the original QS holder at the end of a specific period of time. The authors have not examined the extent of returned transfers for this report.6

5.1 Halibut QS and QS Holder Lease Rates By IFQ Area

The halibut IFQ program's rules provide for unlimited leasing of freezer vessel QS. However, only 10% of a person's catcher vessel QS for an area can be leased in a year.7

Originally, as noted above, catcher vessel QS contained in blocks could not be separated for lease purposes. This meant that the either the entire block had to be leased or none of the QS in the block could be leased. Under the regulation, it was impossible for a person who held only a single block of QS for an area to lease any of that QS.

As large portions of the catcher vessel QS issued in some areas were issued in blocks, leasing of some QS was not feasible for many persons. As a result, the regulation was altered in 1996 to allow for the leasing of up to 10% of the IFQ associated with a person's QS for an area, even if that QS was in a block. However, this liberalization did not become effective until September 9, 1996 and therefore had very little impact during the 1996 season.

Table 5-1 provides a broad overview of halibut QS leasing activity by management area and year for 1995 and 1996. The table provides the year-end amounts of QS outstanding and the amount of QS that was leased during each year. A rough "QS lease rate" is calculated by dividing the amount of QS leased by the amount of QS outstanding at the end of each year and converting the resulting fraction into a percentage.

The table also contains an "All" years row that provides summary data over both years. The data in the row are the summation of numbers over the two years or ratios based upon numbers summed over both years.

As can be seen, only a small amount of QS was leased occurred during 1995 and 1996. Most of the leases occurred in non-CDQ areas. Some leasing also occurred in 1995 in CDQ area 4B. Over the entire time period, QS lease rates ranged from 0.0% in Areas 4C through 4E to 1.4% in Area 4A. Again, the low lease rates may be partially due to the restrictions on the leasing of catcher vessel QS.8

Table 5-1 also provides data on the number of year-end QS holders and the number of QS holders who leased out some of their QS during the year. A rough "QS holder lease (lessor) rate" was calculated by dividing the number of QS lessors during the year by the number of year-end QS holders and converting the resulting fraction to a percentage.9 Over the entire 1995 through 1996 time period, the QS lessor rates ranged from 0.0% in CDQ Areas 4C through 4E to 1.4% in Area 4A.

Table 5-1. Halibut QS and QS Holder Lease Rates by Area, 1995-1996

5.2. Halibut QS and QS Holder Transfer and Lease Rates By Area and Vessel Category, 1995-1996

Tables 5-2a and 5-2b provide more detailed summaries on halibut QS and QS holder lease rates by area and vessel category for the years 1995 and 1996. For comparative purposes, QS and QS holder permanent transfer rates have also been included.

Leases and permanent transfers allow QS to move to persons who feel that they can use it more profitably and allow for consolidations of QS holdings and fishing operations either seasonally or permanently. These tables tend to show high permanent QS transfer rates relative to QS lease rates in both 1995 and 1996.

Table 5-2a provides data for each area and vessel category in 1995 and 1996. It also provides summary data over both years. The table includes the amount of QS at the end of each year, the amount of QS transferred within each year, and the amount of QS leased within each year by area and vessel category. QS transfer rates and QS holder lease rates are calculated for 1995, 1996, and the entire time period (ALL) for each area and vessel category. The methodology used to calculate these rates is the same as that described for Table 5-1.

The table indicates that freezer vessel lease and transfer rates differ sharply with catcher vessel lease and transfer rates. Leasing of halibut QS was largely confined to freezer vessels during 1995 and 1996. This can be seen by the relatively high freezer vessel QS lease rates shown in Table 5-2a.

For example, over the first two years of the IFQ program, lease rates for freezer vessel QS in non-CDQ areas ranged from 15.6% in Area 2C to 39.5% in Area 3B. There was very little catcher vessel QS leased in any area and catcher vessel QS lease rates were less than 1.0% in all areas and catcher vessel classes. No leases occurred in CDQ Areas 4C through 4E.

The only "less than or equal to 35 feet" catcher vessel QS leased during the first two years of the program occurred in Area 2C. The predominance of blocked QS in this small vessel category may have made leasing largely impractical.

While catcher vessel QS lease rates tended to be lower than freezer vessel QS lease rates, QS permanent transfer rates for catcher vessels tended to be higher than QS transfer rates for freezer vessels for many areas and catcher vessel classes.

For example, over both years, permanent transfer rates for freezer vessel QS were the lowest of all the vessel categories in Areas 2C, 3A, 3B, and 4B, and the QS transfer rate for freezer vessels was second lowest among the vessel categories in Area 4A.

However, over the entire time period, permanent QS transfer rates for freezer vessels were the highest of all the vessel categories in Areas 4C and 4D. There have been no permanent QS transfers in Area 4E where 100% of the TAC has been devoted to CDQs.

Table 5-2b provides similar data for QS holders by area and vessel category. Again, data are provided for 1995 and 1996. The table includes the number of QS holders at the end of each year, the number of QS holders with transfers within each year, and the number of QS holders with leases within each year. QS holder transfer rates and QS holder (lessor) lease rates are calculated for 1995 and 1996 for each area and vessel category

An "All Years" grouping sums data and provides QS holder lease rates (lessor rate) over both of these years. Data on permanent halibut QS transfers by QS holders were provided for comparative purposes.

These data on QS holders with leases and transfers are roughly similar to the data on QS leased and transferred. As can be seen the number of catcher vessel QS holders who leased some QS in the first two years is quite small relative to the number of year-end QS holders. Lessor rates were highest among holders of freezer vessel QS in Areas 2C through 4B.

Table 5-2a. Halibut QS Transfer and Lease Rates, 1995-1996 By Area, Year, and Vessel Category

Table 5-2b. Transfer and Lease Rates of Halibut QS Holders, 1995-1996 By Area, Year, and Vessel Category

5.3 Lessors, Lessees, Leases, and Lease Rates

Table 5-3 provides additional details on lease transactions over the 1995 and 1996 time period. The table provides information on the number of lessors and lessees as well as the number of leases. Note that the numbers of lessors, lessees, and leases may vary for a particular type of QS because a person could lease QS to more than one person. Similarly, a person could lease QS from more than one person.

The table also provides data on the average QS per lease, the total amount of QS leased, and the QS lease rate as a percentage of the year-end QS. These data are provided by area, year, and vessel category.

An "All Years" summary row is also provided for each area and vessel category. The numbers in these rows are the sum of the numbers in the two years or averages and rates based upon numbers summed over both years.

The table again shows that all of the formal lease transactions in 1995 and 1996 occurred in Areas 2C through 4B. No leases occurred in CDQ areas 4C through 4E. Most of the halibut QS leasing occurred among freezer vessels where there were no restrictions on leasing. In the five areas where QS lease transactions occurred, QS lease rates among freezer vessels over the two year period varied from 15.6% in Area 2C to 39.5% in Area 3B. The average QS per lease was highest in the freezer vessel category in all five areas.

Table 5-3. Leases of QS By Area and Vessel Category, 1995-1996

5.4 QS Lease Prices

This section provides information on QS lease prices. Table 5-4 provides summary data on the total number of formal lease transactions over the 1995 and 1996 time period and the number and percentage of these transactions that had lease prices available from the transfer forms. The table indicates that there were only 92 halibut QS lease transactions over the 1995 and 1996 time period, and lease prices could be calculated from only 27 (29.3%) of the transactions.10

As noted previously, leases occurred in Areas 2C through 4B only. Since a QS lease within a year can be translated into a specific amount of IFQ for that year, the pounds of IFQ associated with the lease are reported in the tables.

Table 5-5 provides information on halibut priced lease transactions only. The table provides information on the number of priced lease transactions, the amount of QS involved in the lease, the average QS per lease, the amount of IFQ associated with the lease, and the average IFQ per lease by area and vessel category.

Where sufficient observations are available to preserve confidentiality, average lease prices are reported. Prices are reported in dollars per leased QS unit and in dollars per pound of IFQ leased. Prices per pound of IFQ leased are comparable across areas within a year.

As can be seen, there are too few priced observations in most categories to report an average price. Since there were so few priced lease transactions, the reader should view the few reported prices with caution. The only reportable average prices are for freezer vessels in Areas 2C and 3A in 1995. The Area 3A average lease price in terms of dollars per pound of IFQ was lower than the Area 2C average lease price in that year.

Prices over "All Areas" are reported in the last rows of the table for both 1995 and 1996. Again, prices can only be reported for the freezer vessel category. Average prices for the lease of freezer vessel QS increased from $.84 per pound of IFQ in 1995 to $.99 per pound of IFQ in 1996.

Table 5-6 provides similar data by area and block status. Again, because of the paucity of observations few prices can be reported. The "All Areas" row again indicates an increase in the average price of blocked QS from $.82 per pound of IFQ in 1995 to $.99 per pound in 1996.

Table 5-4. Priced and Unpriced Halibut QS Leases By Area and Vessel Category, 1995-1996

Table 5-5. Average Prices For Halibut Priced QS Leases By Area and Vessel Category, 1995-1996

Table 5-6. Average Prices For Halibut QS Priced Leases, 1995-1996 By Area and Block Status