Huge Debt, Labor Problems and Mountains of Paper Work : Japan Faces a Massive Headache in Privatizing National Rail System

The biggest administrative reform in Japanese history, the breakup of the Japan National Railways, is now assured, but the question of how to pay off more than $234 billion in debt is still to be resolved.

At present, of JNR’s nationwide network of lines, only one main line--the Tokyo-Osaka-Fukuoka “bullet” line--and seven commuter lines are operating in the black.

Four years ago, the government undertook to reform JNR, the 114-year-old public corporation that runs the railways.

It is saddled with debts it cannot repay, pensions it cannot fund and has employees for whom it has no work. But not until Nov. 28 did Parliament enact a package of eight bills authorizing the breakup and privatization of the JNR.

It is to be replaced next April 1 by six regional passenger companies, a nationwide cargo corporation and a company that will lease the three bullet lines--on which trains move at speeds of more than 135 m.p.h.

Firm to Settle Debts

A special government corporation charged with settling the JNR’s debts will also go to work in April.

Enactment of the program climaxed a six-year program of administrative reform undertaken by Yasuhiro Nakasone, now prime minister, when he was named director of the Administrative Management Agency in his predecessor’s government.

The two other major government corporations were privatized last year--Nippon Telegraph & Telephone Co. and the Japan Tobacco & Salt Monopoly.

Privatization of those firms, both of which were profitable and had smooth labor relations, was carried out without trouble. But the outlook for JNR is less cheerful.

The railways, which have the worst labor relations in Japan and a management that has failed to cope with change, started accumulating debt in 1964 and have continued to do so.

At least 10 years will be needed to bring about full private ownership of the new rail firms. Shares in the companies, which the government will hold initially, will not be offered to the public for at least three years.

Leading businessmen being sounded out to head the companies are reported to be showing no interest.

Expected to Show Profit

The Nakasone government told Parliament that all six passenger lines and the new cargo firm as well are expected to show a profit, but most analysts predict that three of the passenger lines--on the islands of Hokkaido, Kyushu and Shikoku--and also the freight firm face a bleak future.

The government will set up a special fund to subsidize the lines causing concern, but it is expected to fall far short of what will be needed.

On one of these lines, operating costs amount to $28 for every $1 in revenue.

In the end, the analysts say, there is likely to be a massive cutback in services, with some lines being closed altogether.

Introduction of the bills to privatize the JNR served to disclose, for the first time, the full extent of railways’ debt, previously listed at 23.5 trillion yen ($147 billion).

Including separate accounts for construction of tunnels and bridges and the two newest bullet lines--along with reserves needed to maintain the pension system--total indebtedness is actually expected to reach 37.5 trillion yen ($234.4 billion) by next March 31.

Tax Money to Pay Off Debt

The new laws do not specify how the debt is to be paid.

However, officials of the Transportation Ministry told Parliament that tax money will be used to pay off at least $91.9 billion of the debt and that proceeds from the sale of land will be used to repay an additional $48 billion.

The rest would be apportioned among the new companies for payment.

The officials did not say how interest on the debt is to be paid. It is expected to accumulate at a rate of at least $6.25 billion a year.

Data submitted to Parliament showed that more than 8,000 acres of land will be sold off.

A single parcel, in Shiodome, a former freight yard near Tokyo’s city center, is valued at $12.5 billion.

The rest of JNR’s land holdings, more than 143,000 acres, will be handed over to the new companies as part of their assets.

The process of reregistering land ownership is expected to involve 10 million documents at registry offices throughout the country and take more than seven years to complete.

More than 2 million changes will have to be made in the rail system’s computer software.

The laws will require the new firms to employ 215,000 of the present JNR labor force of 277,000.

Retirements Expected

About 20,000 employees are expected to retire by March 31 and more than 41,000 will be assigned to the firm charged with writing off JNR’s debt.

Nakasone told Parliament last month that the government has received 67,000 job offers on behalf of the 61,000 surplus workers, either in government work or in private industry.

The planned breakup has already stirred up new labor strife, with the 13 JNR unions all struggling to ensure jobs for their members.

Union extremists opposing the breakup have twice sabotaged rail operations in Tokyo and Osaka by cutting cables.

In September, a pro-management union leader was killed and eight others were injured in attacks believed to have been carried out by opponents of the breakup.