The government and ruling coalition on Monday endorsed a privatization scheme for semigovernmental expressway operators that effectively fails to put the brakes on the completion of unfinished sections of the planned 9,342-km thruway network.

The scheme represents a deviation from a proposal issued a year ago by an advisory panel to Prime Minister Junichiro Koizumi that calls for debt repayment to be prioritized over the construction of new roads.

While the advisory panel stated last December that the privatized firms should use toll revenues primarily to repay debts, Monday's scheme says they should use toll revenues as collateral to raise funds for expressway construction.

In an apparent compromise between reformist elements and proponents of road construction within the Liberal Democratic Party, the plan affords the heavily indebted corporations -- when they are privatized in fiscal 2005 -- the option of saying no to the government's request to build expressways.

However, the scheme drew the ire of some panel members. Two of them -- Masatake Matsuda, chairman of East Japan Railway Co., and Kazuaki Tanaka, acting chairman of the panel -- said they would resign from the panel in protest.

Koizumi told reporters Monday, however, that he believes "most of (the advisory panel's proposals) are being respected" in the scheme.

The Land, Infrastructure and Transport Ministry plans to submit legislation to privatize the four entities -- Japan Highway Public Corp., Metropolitan Expressway Public Corp., Hanshin Expressway Public Corp. and Honshu-Shikoku Bridge Authority -- to the regular Diet session that convenes in January.

The privatization of the four expressway operators, saddled with debts of 40 trillion yen, forms the centerpiece of Koizumi's drive to reform inefficient government-affiliated corporations.

The scheme is designed to pave the way for the government to complete some 2,000 km of unfinished highways out of the planned 9,342-km network, by revising construction methods and contract systems in an effort to cut costs.

As part of these efforts, the scheme calls for effectively putting on hold the construction of five sections -- planned to cover 143 km -- whose profitability is highly questionable.

Through these measures, the total cost of building the unfinished 2,000-km sections -- originally expected to hit 20 trillion yen -- will be reduced by 6.5 trillion yen, according to the scheme.

Of the remaining 13.5 trillion yen, 3 trillion yen will be shouldered by Japan Highway, another 3 trillion yen will be shouldered jointly by the national and local governments, while the privatized companies are expected to shoulder 7.5 trillion yen.

The scheme also advocates reducing expressway tolls by an average of 10 percent by 2005 by reducing maintenance costs by 30 percent from 2002 levels.

The plan calls for the four highway corporations to be regrouped into six privatized entities, including three to emerge from the regional breakup of Japan Highway, plus a separate asset-holding and debt-servicing administrative organ.

While the privatized entities will undertake expressway operation, maintenance and construction duties, the administrative organ will lease expressways to the new firms and receive toll revenues from them in the form of rental fees to repay their combined debts.

The government and ruling parties also pledged to complete debt repayment within 45 years under the scheme, and then make the expressways toll-free under the control of the national and local governments.

Yet the repayment scheme could be jeopardized if interest rates rise in the future.

Ministry officials said the plan was based on an assumed interest rate of 4 percent, adding that it would fall through should the rate rise to double this level.

Regarding the construction of unfinished sections of the expressway network, the scheme calls on the government to respect the autonomy of the privatized entities in deciding whether to build each of the routes.

It advocates abolishing the current system, under which construction is undertaken upon the administrative orders of the land, infrastructure and transport minister.

Under the new scheme, the minister will designate certain sections of the unfinished routes to be built by a privatized company, via consultations.

If consultations break down and no other expressway operators agree to build the designated section for justifiable reasons, the minister will refer the matter to an advisory council tasked with deliberating social infrastructure projects.

Should the council judge that the given reasons are reasonable from a company management perspective, the minister would have to respect this judgment and withdraw the designation.

The privatized entities would be entrusted with construction by raising funds in bank loans and from the bond market, pledging their future toll revenues from the new routes as collateral.

The borrowings would also be backed by a government guarantee.

Once construction is completed, both the debts and the expressways would be transferred to the administrative body, with the companies leasing the expressway facilities from it.

Panel members divided

Members of Koizumi's advisory panel on privatization were split in their assessment of Monday's scheme.

Matsuda of JR East said the scheme neglects the primary objective of privatization -- debt repayment and curbing reckless expressway construction.

Tanaka, who is a Takushoku University professor and an expert on administrative reform, also voiced disgust at the move, saying the scheme cannot guarantee the autonomy of the privatized entities from political intervention.

He added that it will lead to a delay in debt repayment and increase the expressway operators' liabilities to the extent that they will eventually need to be shouldered by taxpayers.

Tanaka said the scheme defies the advisory panel's proposal that the privatized firms should take over the expressways and the remaining debts from the administrative organ in future.

Instead, Monday's scheme advocates keeping the expressways under the control of the administrative organ and transferring them to the national and local governments when debt repayment is completed, some 45 years after privatization.

Meanwhile, writer Naoki Inose, another panel member, voiced support for the scheme, underscoring such points as the regrouping of the expressway operators, a massive reduction in construction costs and cuts in toll charges.

The resignation of Matsuda and Tanaka will deal a severe blow to the activities of the panel, which has operated with five of its seven members over the past year. The two other members have been absent from the panel's deliberations since last December, when they disagreed with their fellow members over the privatization proposal.

Fujii sues government

Haruho Fujii, former chief of Japan Highway Public Corp., filed a lawsuit Monday with the Tokyo District Court asking it to order Land, Infrastructure and Transport Minister Nobuteru Ishihara to cancel his dismissal from the post, Fujii's lawyers said.

Fujii, 67, states in the suit that the reasons for his dismissal in October -- his suspected concealment of a financial statement that showed the road entity has negative net worth and his alleged efforts to stall reform of the corporation -- lack substance and that Ishihara acted too hastily in firing him.

Ishihara issued a statement saying he dismissed Fujii in compliance with the law.