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Nine officials of seven leading oil wholesalers were arrested Tuesday for allegedly rigging bids on fuel contracts with the Defense Agency, according to prosecution sources.

Among those arrested was Yuki Yamamoto, a 53-year-old executive of Cosmo Oil Co. who allegedly served as a go-
between for the agency and industry.

The other officials arrested were Takanori Uchiyama and Kenichi Haruta of Nippon Mitsubishi Oil Corp., Keizo Murakoso of Showa Shell Sekiyu K.K., Takamasa Morita of Japan Energy Corp., Takeshi Hiraoka of Idemitsu Kosan Co., Takayuki Nomoto and Nobuyuki Fujii of General Sekiyu K.K. and Hachiyoshi Watanabe of Kygnus Sekiyu K.K.

The scandal, highlighting the murky nature of the government’s defense procurement system, comes in the wake of a recent bill-padding case involving major defense contractors in which a former chief of the Defense Facilities Administration Agency was given a suspended prison sentence last week.

The allegations concern about 31 billion yen worth of contracts the oil companies handled during fiscal 1998 to supply fuel and petroleum products for Self-Defense Forces aircraft and vehicles.

According to the sources, investigators believe the companies rigged four out of the six bids that the agency’s Central Procurement Office held between April and September 1998.

They are also alleged to have allocated sales portions based on deliveries made in fiscal 1997.

The Tokyo District Public Prosecutor’s Office is investigating the role of the procurement office, particularly the alleged long history of bid-rigging and reports that the office leaked prices for the sales orders before the bidding.

Tuesday’s arrests follow the Fair Trade Commission’s filing of a criminal complaint against 11 oil wholesalers, which included the seven, last week for violating the Antimonopoly Law.

The four other firms are Fuso Sekiyu K.K., Kyushu Oil Co., Taiyo Oil Co. and Taiho Industries Co.

According to oil industry sources, the wholesalers appear to have been trying to make sure they secured contracts with SDF bases located close to their respective oil refineries so they could save on transportation costs. The contracts are signed for each SDF base individually.

The bidding practice is believed to have started more than 20 years ago. Since the early 1990s, the firms have held meetings, arranged by Yamamoto, at a venue near the agency to decide the winning tender prior to the actual bidding.

During bidding, all 11 companies submitted prices higher than those offered by the procurement office and jacked up contract prices in a second bidding before sales contracts were awarded to the prearranged winners, the sources said.

Nippon Mistubishi Oil, Cosmo Oil, Japan Energy and Kygnus Sekiyu made statements of apology or regret following the arrests and, in some cases, offered to fully cooperate with investigators. Cosmo Oil also expressed a mild denial of Yamamoto’s role.

Showa Shell Sekiyu said probes conducted by in-house and independent bodies show fuel contracts were obtained properly following procedures set by the agency. Along with Idemitsu Kosan, it expressed hope for a fair investigation.

Only General Sekiyu declined to comment on the arrests.

The bid-rigging allegations surfaced late last year, when the Board of Audit found suspicious practices involving tenders for supplying jet fuel to the Air Self-Defense Force.

In March, FTC investigators searched the offices of petroleum distributors on suspicion of bid-rigging.

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