Japan Government submits Postal Privatisation bills to Parliament

The government of Japanese Prime Minister Junichiro Koizumi on Wednesday night submitted a set of postal privatisation bills to parliament, after making significant concessions in the face of persistent resistance within his own party.

The government adopted the six bills at an extraordinary cabinet meeting earlier in the day after the ruling Liberal Democratic Party's decision-making General Council approved submission of the bills.

Privatisation of the state-run postal business is Koizumi's pet project in his structural reform drive.

Koizumi told reporters that the government will make utmost efforts to have the bills enacted during the ongoing parliamentary session ending June 19. He added that he has no plan to extend the session.

The government is likely to face difficulties passing the bills, however. The LDP General Council did not approve their content, leaving it to be discussed in parliament, and some LDP lawmakers still strongly oppose the postal privatisation plan.

Koizumi said he is not considering amending the bills or dissolving the House of Representatives for a snap election.

The bills call for the privatisation of Japan Post over a 10-year period from April 2007, by splitting it into mail delivery, savings, insurance and post office network management units, and bringing them under a new holding company.

The privatisation of Japan Post is intended to introduce the market mechanism to the gigantic state-run conglomerate of distribution, savings and insurance businesses and to ensure competition with the private sector on an equal footing.

But there is growing concern that this philosophy has weakened, as the government has made a series of compromises to appease staunch opponents within the LDP, who have a solid support base among post office workers and draw votes in rural areas through pork-barrel projects financed in large part by postal savings and insurance funds.

For example, the government has decided to permit the holding company to continue to possess equity stakes in the savings and insurance units after the 10-year privatisation process ends in March 2017, although the bills call for the sale of its entire stakes during the 10-year process.

The government previously intended to sever capital ties between them after completion of the privatisation process. The change was a concession to the LDP, which has demanded the integrated operation of the four postal service units.

The holding firm will be owned more than one-third by the government. If the holding firm possesses equity stakes in the savings and insurance companies, they will remain under the government's indirect influence, critics say.

Japan Post is an enormous financial institution. As of the end of March 2004, its "Yucho" postal savings had customer savings worth 227 trillion yen, roughly the same as the combined deposits of Japan's Big Four banking groups. "Kampo" postal insurance had total assets of 121 trillion yen, on a par with the nation's top four life insurers combined.

In another compromise with the LDP, the government agreed to double to 2 trillion yen the size of a fund to be established at the holding company to ensure uniform savings and insurance services across the nation, even in isolated areas where offering services may not turn profit.

For the bond market, privatisation of Japan Post is a risk factor, since the organisation possesses about a quarter of outstanding government debts through investment of massive funds it manages under savings and insurance accounts.

The legislation requires Japan Post to invest money in risk-free assets such as government bonds and to disclose asset management plans every year during the 10-year privatisation process. But once the process ends, the privatised financial companies will be free from such obligations.

If the privatised companies sell a large amount of government bonds, long-term interest rates will rise sharply.

A foreign securities house official predicted that Japan Post's asset management policy will change after its full privatisation.