Kyodo News The proposal by the government of Prime Minister Junichiro Koizumi to scrap Japan National Oil Corp. and turn it into a private company as part of his structural reform scheme will leave the privatized firm with many problems unresolved.

The corporation, created to ensure crucial supplies of oil for Japan, is the first government-backed corporation to face liquidation under the scheme.

Its abolition was proposed by the secretariat of the Cabinet’s administrative reform task force, which is supervised by Nobuteru Ishihara, minister in charge of administrative and regulatory reforms.

The reform of state-backed corporations is chiefly aimed at slashing by 1 trillion yen the 5.3 trillion yen in subsidies the government now doles out annually to such corporations. “We were sniped at as a scapegoat of the reform. There was no alternative other than abolition,” complained a top official at the Agency of Natural Resources and Energy of the Ministry of Economy, Trade and Industry. The corporation is under the agency’s control.

The demise of the corporation as an organization linked to the government was effectively decided in April, when Mitsuo Horiuchi, former minister of international trade and industry, was named chairman of the Liberal Democratic Party’s General Council, one of the three top posts in the ruling party.

The Ministry of International Trade and Industry was turned into the Ministry of Economy, Trade and Industry in the administrative shakeup in January.

Horiuchi, chairman of the railway Fuji Kyuko Co. and an accounting expert, launched an investigation into the management of the oil corporation in 1998 when he was MITI minister.

For Horiuchi, the management of the corporation, which posted losses close to 600 billion yen on failures in overseas oil field development projects, was indefensible. He filed a complaint against its opaque accounting.

The corporation afterward drastically reviewed its management setup and made public its settlement of accounts and the management situation of its related enterprises.

But Horiuchi advised Koizumi in early July that the corporation should be scrapped, saying, “It will be easy to privatize because its management situation is known.”

Economy, Trade and Industry Minister Takeo Hiranuma, who at that time was on a visit to the Middle East, at first opposed the idea but was forced to fall in line with Koizumi’s view that the corporation should be liquidated.

Crude oil prices plunged to around $10 a barrel at the end of 1998 but had rocketed to $37 last fall, the first surge in 10 years due to the booming U.S. economy. The prices now are in the upper half of the $20-$30 range. The higher crude oil prices have also affected the corporation’s fate.

“The business of storing oil yields no profit,” a METI official said. If the state takes charge of oil stocks after the corporation becomes a private firm, more than 130 employees at the corporation engaged in stocks will have to be transferred to the ministry, going against the official policy for a smaller government, government sources said.

As for oil field development projects, which are risky and require vast funds, an executive at an oil wholesaling company said, “It is not easy for us to persuade our shareholders to accept proposals to invest in oil development projects.”

The oil corporation has been the target of severe criticism over its management, but there appears to be no prospect of the private sector initiating crude oil development projects on its own.

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