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After compromising with the Liberal Democratic Party, Prime Minister Junichiro Koizumi’s Cabinet adopted a watered-down plan Monday to privatize the state-run postal services by 2017.

The government presented its draft plan, the culmination of discussions among Cabinet ministers over the weekend, to LDP executives later in the day. Although it outlines a soft landing for the privatization, it remains to be seen whether the latest plan will win over lawmakers adamantly opposed to the move.

Koizumi hopes to gain LDP approval for the plan by the end of the week so related bills can be submitted to the Diet by month’s end. But given the stiff objection to the privatization proposal seen so far, a political showdown appears all but inevitable.

Under Monday’s plan, the state-run postal services would be split into four entities, each separately dealing with mail delivery, postal savings, postal insurance and over-the-counter services.

A government-owned holding company also would be established in April 2007 to hold the shares of each of the four firms.

Whether and how the holding company sells off its shares in the firms handling postal savings and postal insurance had been the focus of heated debate between postal privatization minister Heizo Takenaka and posts minister Taro Aso that continued until late Sunday night.

The matter was left for Koizumi to decide, and the prime minister deemed that all of the shares of the two firms should be gradually sold off by 2017, the end of a 10-year transition period, Chief Cabinet Secretary Hiroyuki Hosoda said.

Aso apparently speaks for LDP hardliners. Many LDP members have argued that the government needs to maintain control over the two companies, fearing full privatization and the introduction of market principles could lead to a drastic reduction in loss-making postal offices, particularly in rural areas.

“Some (Cabinet members) were worried that the companies would be left to fend for themselves and that they would find themselves in a difficult (financial) situation,” Hosoda told a news conference Monday. “But others argued that the principle of 100-percent privatization needs to be maintained.”

Hosoda served as the main coordinator among the Cabinet ministers.

But the revised plan would not prohibit cross-shareholding among the five entities after the transition period ends in 2017.

The government would still have more than a third of the shares of the holding firm in 2017 under Monday’s plan. Thus, if the holding company or the firms dealing in mail services or over-the-counter services bought the two firms’ shares, the state could indirectly exert influence over them, critics say.

In the course of negotiations, the government also made a number of other compromises to help maintain the current size of the postal giant, which has long been criticized for devouring the financial assets of Japanese individuals and funneling them to public projects. It has also been criticized for squeezing private-sector firms out of lucrative sectors of the financial market.

The government’s new plan would also set up a 1 trillion yen fund to help maintain loss-making rural post offices.

The scheme also calls for legally obliging the newly privatized companies to set up post offices nationwide.

More specific guidelines would oblige the government by ordinance to keep “postal office networks of the current level” in depopulated areas.

Koizumi hopes to have the privatization bills passed by the Diet by the June 19 end of the current ordinary session.

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