JAPAN TOLL AUTHORITY ROCKED BY BRIBERY SCANDALS

JAPAN

Toll authority rocked by bribery scandals

Nihon Doro Kodan (NDK), the Japan Highway Public Corp owned by the national government may be in for some major change. It has been linked to some of biggest bribery scandals in Tokyo that have rocked major banks and government agencies and dominated news and politics there for the past several months.

The affair made world news with the sad suicide by hanging of handsome vigorous 50 year old Shokei Arai, a former finance ministry official , then parliamentarian charged with extorting bribes from Nikko Securities, another finance house.

Other officials from the disgraced Ministry of Finance who were appointed to NDK were revealed to have given first the Nomura bank a monopoly of its bond issuing business in return for bribes. Arrested was Takehiko Isaka, Director of Finance at NDK. Now a similar scandal is unfolding , we are told, with the Industrial Bank of Japan which succeeded Nomura as the pike’s bond agent.

The bond business of NDK is huge. It has $176b of bonds outstanding and with a major construction program under way issues $16b to $20b of new bonds each year.

Arai the suicider was said by Nikko to have pressured them for payoffs which were laundered through a supposed trading account, though Arai claimed that the account reflected legitimate securties trading. Similar allegations are made about Finance Ministry officials who moved to the top of NDK. The bribery stories in Japan are spiced up with accounts of lavish ‘entertainment’ including much wine, women and song. They make White House /New Brunswick stuff totally trivial — like the rape of Nanking vs the My Lai massacre.

Some observers say that the Japanese financial and business system is riddled with ‘fixes’ that transactions depend more on various kinds of payoffs, bribes and mutual dealing than on open competition. A new generation of western-oriented lawyers are pursuing high officials and politicians in a zealous drive to root out such fixes, and there are strong political pressures to bust up the entrenched cliques. Deregulation, privatization and transparency are all the rage.

NDK, which was founded in 1956 has become by far the largest toll road agency in the world. It operates 6,810km of toll motorway (6135km national, 675km regional) and has an active program of building new pike, with 1,809km in construction currently, 2,651km under survey and 925km in location planning for an approved network of 11,520km of national toll motorway (more when regional are added.) Daily trips on the system are currently 4 million. The organization employs 8,800 staff (more even than the Pennsylvania pike, Philly Inquirer!) NDK operates 19 national toll roads, mostly 2x2-lanes. It tolls by trip, issuing a magstripe ticket on entry. NDK is moving slowly on implementation of electronic toll collection.

NDK’s revenues make most US pikes look like a kid’s soda stand by comparison. In the last fiscal year toll revenues were $16.2b — over three times all US pikes’ revenues combined. That is because NDK runs Japan’s equivalent of the US interstate system — they don’t have any untolled mwys — and because they charge much higher toll rates .

NDK had operating and administrative expenses of $3.1b and interest on bonds outstanding of $7.2b last year. It reports no substantial profit as such but makes a huge $6.4b “provision of reserves for recoupment” which the fine print of the accounts says is equivalent to a “surplus.”

If you assume that surplus is earnings and 20 is a fair price/earnings ratio then NDK would be a decent buy at $130 billion! It isn’t on offer yet, but with the various scandals changing the face of Japanese politics, privatization or some kind of break-up is a distinct possibility.

So takeover guys, keep an eye on NDK. And underwriters!

Thought: US Commerce Secretary William M Daley is currently in Japan and has been preaching the deregulate-privatize-liberalize line like a splendid free marketeer, always good stuff for foreign consumption. If only US officials would talk like that in Chiacgo, Boston and NYC! The Japanese might get some good entertainment by asking Daly one evening over saki to tell some stories about the ways of the Illinois Turnpike. Or the Indiana.