European Conference of Ministers Ministry of Land, Infrastructure and Transport of Transport Japanese Government

2-3 March 2005 Akasaka Prince Hotel,

Improving Efficiency Through Privatisation of Railways

Masayuki SATOMI Corporate Planning Headquarters Management Administration Department East Railway Company (JR East) Japan Split and Privatization of JNR (Japanese National Railways) Causes of JNR’s Failure 1

○Unconsolidated long-term debts (In trillion yen)

6.00 25.00 balance oflong-termdebts

5.00 long- term debt s 20.00 l

income i o income b n n a c 4.00 g cost l o 15.00 t ・ a m e

cost n e r 3.00 c ・ m e c 10.00 o d o s 2.00 e f t b t 5.00 1.00 s

（year） 0.00 0.00 ‘63 ‘65 ‘70 ‘75 ‘80 ‘85 ‘86 Causes of JNR’s Failure 2

Problems related to the public Problems related to the unified corporation system organization covering the entire nation (1) Interference from the government and (1) Beyond the scope of managerial control administrative bodies (2) Uniform operations (2) Loss of self-reliance in management (3) Unreasonable relationship of (3) Abnormal labor-management relations interdependence (4) Restrictions on the scope of operations (4) Lack of competitive spirit

Incapable of accurately responding to changes in circumstances surrounding the corporation

Managerial failure JNR Reform Scheme 1

JNR Passenger Railway Companies

JR Hokkaido JR West Transformation in April 1987 JR East JR Shikoku JNR Settlement Corporation JR Central JR Kyushu

‘98.10 Japan Freight Railway Company

Japan Railway Construction Public Corporation – Railway Telecommunication Company JNR Settlement Division Japan Telecom Merged in May 1989

Railway Information System Company JR Hokkaido Holding Corporation

‘91.10 Railway Development Fund JR West JR East ‘97.10 Corporation for Advanced Transport & Technology JR Kyushu JR JR Central Railway Technical Research Institute Shikoku JNR Reform Scheme 2

{ Reemployment of JNR’s employees (in thousands of people)

JR Hokkaido 12.7 277 国鉄職員 JNR employees （1986.4） JR East 82.5 Passenger JR Central 21.4 Railway JR West 51.5 Companies JR Shikoku 4.5 JR Kyushu 14.6 Japan Freight Railway Company 12.0 Voluntary希望退職 retirement 39.1 1.5 Employees1986年度中の退職者 retired in Others FY1986 General一般退職 retirement 6.3 Subtotal 200.7 Transferred to government and 52.7 other public公的部門転出 organizations 7.3 JNR Settlement Corporation 23.7

{ Disposal of long-term liabilities (in trillions of yen)

• JNR’s long-term liability 25.0 • Responsibility of new companies 14.5

JR East 6.6 • Deficit from pension funds, etc. 5.0 Others 7.9 • Liability of Japan Railway Construction 4.5 Public Corporation • JNR Settlement Corporation 22.7

• Burden of funds for the three smaller 1.3 Selling of land 7.7 island railway companies Selling of stock shares 1.2 • Others 1.4 Remaining burden for the Japanese government 13.8 • Total 37.1 Total 37.1 Regulatory Changes

JNR JR

Governing law Japanese National Railways Law JR Law

Status of Public corporation (semi-governmental organization) Corporation with special status (Subject to the Civil Code corporation and Commercial Law) Free in principle; moving into a new field of activity is Scope of Enumerated restrictions operations subject to approval by the Minister of Land, Infrastructure and Transportation Authority to make Deciding the scope of investment is subject to approval investment by the Minister of Transport To be independently decided decisions Operational plans are subject to approval by the Minister of Authority to Subject to approval by the National Diet Land, Infrastructure and Transport. (Balance sheets are decide budget only to be attached.) Decision on the amount ceiling is subject to approval by Borrowing and the National Diet; Subject to approval by the Minister of Land, Infrastructure bond issues other matters are subject to approval by the Minister of and Transport Transport President is appointed by the Cabinet; Decided at the shareholders’ meeting. (Appointment of Authority to Auditing Board members are appointed by the Minister of representative directors and auditors is subject to approval appoint Transport; by the Minister of Land, Infrastructure and Transport.) executives other appointments are subject to approval by the Minister of Transport

Authority to In principle, wages are determined by law. Through negotiations between workers and management determine wages Fixed total wage amount. Methods for concluding Through open competitive bidding in principle Independently decided contracts Authority to determine Subject to approval by the National Diet Independently determined railway fares Note: As part of the reorganization of ministries and agencies, which took effect on January 6, 2001, the Transport Ministry merged with other agencies to become the Ministry of Land, Infrastructure and Transport. Achieving full privatization

Amendment of the JR Law

The following are major items which are made subject to approval of the Minister of Land, Infrastructure and Transport under the provisions of the JR Law: ⎯Appointment of representative directors and auditors ⎯Procurement of fund ⎯Appropriation of profit ⎯Sale of important assets

In December 2001, the JR Law was amended so that the law would no longer apply to JR East, JR Central and JR West.

Sale of stock shares

In October 1993, the company was listed on the stock exchange, and 2.5 million shares were sold.

In August 1999, a second set of 1 million shares were sold.

In June 2002, the remaining 500,000 shares were sold.

◎Total revenue from share sale: 1,993.9 billion yen Accomplishing full privatization

The company is now able to act with greater degrees of mobility and flexibility than before. Contribution to the National Finance

JR East

For 17 years since its founding, JR East has not raised fares (except when a new tax was introduced

Of the long-term liability of more than six trillion yen which JR East had inherited, 2.6 trillion yen was repaid during these 17years.

JR companies as a whole

JNR used to receive government subsidies averaging 600 billion yen a year between fiscal years 1977 and 1986. After the reform, the seven JR companies have paid taxes at the annual average rate of 270 billion yen between fiscal years 1987 and 2003.

Compared with the days of JNR, the JR companies have reduced the government’s fiscal burden by about 870 billion yen per year. Management Strategies of JR East Past Business Performance

○17 years have elapsed since the foundation of JR ○Stable income and steady reduction of long-term debt Changes in operating and extraordinary revenues Changes in outstanding long-term debt (Non-consolidated） (non-consolidated) (\100 million) (\ trillion) (\ trillion) Operating Revenues \1.8972 trillion ‘92 （ ） in FY2003 Right axis 5.37 6.0

‘\183.2 trillion in FY2003 5.0 Recurring ‘87 Income 3.03 ‘03 (Left axis) 4.0 2,000 2.2 3.90 1,800 2.0 1,600 1.8 3.0 1,400 1.6 1.4 1,200 1.2 2.0 1,000 1.0 800 0.8 600 0.6 1.0 400 0.4 200 0.2 0 0.0 0.0 (FY) 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 (FY) 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 Improving Productivity

〇Per capita passenger-kilometers has increased by approx. 69.6％ since the company was founded. 〇The number of people engaged in the railway business has decreased by approx. 324％ from 71,800 to 49,400. This has been done not by lay-offs but rather by productivity improvement through technological renovation.

Passenger- kilometers per No. of people 1,000 persons engaged in railway engaged in business railway 3,000 71,800 2,574 80,000 business 2,500 48,500 70,000 60,000 2,0001,518 50,000 1,500 40,000 Per capita passenger 1,000 30,000 kilometer 20,000 500 No. of people 10,000 engaged in railway 0 0 business 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 Improved Safety

Railway operating accidents 376（FY’87） ⇒ 96（FY 03） 400 ’ of 376which those at level crossings 247（ FY’87 ） ⇒ 46（FY（No. of ’03） Changes in accidents accidents）

Railway operating 300 accidents Of them,those at 247 railway crossings

200 Down by Approx. ８１ Down by ％ Approx.７７ ％ 96 100 46

0 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 （FY） 15 Increasing Transporting Capacity

〇By increasing the number of train operations using longer trains, the transportation capacity by trains in the Tokyo Metropolitan area was increased by about 30% 500 ※CorrespondingCongestion to the FY1987capacity of FY2003Metro in Paris. ２３８％ １９４％ 400 (In 1,000 kilometers per day) Average of 17 major stations Change in vehicle - kilometers during morning peak time (Local trains in the Tokyo390. 6Metropolitan Area) 300

298.1 925 in 1,000 kilometers 200 per day

※341,000 kilometers per day 100 for the average of 8 private railways in Tokyo area in 2000. 0 1988/4/1 2001/12/1 Increasing Speed ● Network of five Shinkansen rapid transport lines completed ・In addition to Tohoku and Joetsu Shinkansen lines, Yamagata (1992), Akita and Nagano (1997) Shinkansen lines opened ・Extension of to Sinjo (1999) and Tohoku Shinkansen to Hachinohe ●Introduction of new rolling stocks Tokyo-Aomori 3:59 3:59 ▲９２ （７２７．９㎞） 5:31 Tokyo-Hachinohe 2:56 2:56 ▲６７ （６３１．９㎞） 4:03 Tokyo-Akita 3:49 3:49 ▲７７ （６６２．６㎞） 5:06 Tokyo-Morioka 2:21 2:21 ▲４８ （５３５．３㎞） 3:09 Tokyo-Sendai 1:36 1:36 ▲４１ （３５１．８㎞） 2:17 Tokyo-Yamagata 2:30 2:30 ▲５３ （３５９．９㎞） 3:23 2002年2004 Tokyo- 1:37 1:37 ▲４０ 1987年1987 （３３３．９㎞） 2:17 Tokyo-Nagano 1:21 1:23 ▲１０２ （２２２．４㎞） 3:05 ※Comparisons of fastest trains 0:00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 Dramatic reduction of travel hours between Tokyo and major local cities Ticket office Convenient and User-friendly Stations / Ticket gate

For our customers…

Information centre Train info display Universal signs

Service Manager

Station concierges

Reviewing current layout and design Barrier-free facilities

Remote man-to-man ticketing system Strengthen the Transportation Network in Metropolitan area

Direct through operations with other railway company Introduction of First class cars: offering seting servise

Omiya

Introduction of new commuter trains

Ikebukuro Ueno Shinjuku Kinshicho Nishi-Funabashi Introduction of new Tokyo 成田空港 commuter trains Hamamatsucho Shin-kiba Construction plan Shinagawa for new network

Pre-production of Introduction of next-generation new express trains 横浜 commuter trains Ofuna Haneda- Airport 千葉 "“, the IC card (Super Urban Intelligent

CArd) { "Suica" IC card was introduced in Tokyo and its vicinity in Nov. 2001. Hotels, theaters, etc.

Reservation by Internet and electronic payment Integration with Ticket-less View Card

Hotel coupons and Theatre tickets

Other transportation systems Cash-less

入金／乗車券 ¥10000 ¥5000 Charge／ Ticket ¥1000 ……………………………… ……………………………… 500 100 ……………………………… 50 10 Information services ……………………………… ……………………………… ……………………………… ………………………………

Joint-use tickets Inside ticketing gates

Convenience stores, JR East Menu Station stores etc. IC chip Buy commuter installed in pass mobile phones Buy reserved seat ticket

Electronic Electronic money In station money Mobile Suica

Cell phone Suica MobileMobile SuicaSuica Telecommuni- ＋ cation function Visual display IC

CCellell phonephone asas aa passengerpassenger ticketticket “Mobile Suica” will be usable as and/orand/or aa commutercommuter passpass “Mobile Suica” will be usable as ElectronicElectronic moneymoney asas wellwell asas transportationtransportation ticket.ticket. “Mobile“Mobile Suica”Suica” will will bebe launchedlaunched withinwithin FY2005FY2005 undeunderr thethe cooperationcooperation withwith NTTNTT DoCoMoDoCoMo andand Sony.Sony.