Select Committee on Transport Written Evidence

Memorandum by the East Japan Railway Company (FOR 121)


  I was very honoured to receive your letter regarding the inquiry undertaken by the Transport Committee.

  As you know, the first railway in Japan started operations between Shimbashi (Tokyo) and Yokohama on 14 October 1872, and it is no exaggeration to say that the development of Japan's railways would not have happened without the support of Mr Edmund Morel, the railway engineer who came to Japan as the first construction engineer chief, and other engineers and technicians from your country.

  Against such background, it is my pleasure to express my views on railway privatisation in Japan and present business schemes for the revitalisation of the railway business in your country; the birthplace of railways. At the same time, I hope to be able to contribute to the various issues that have been reported regarding your railways.

  First, speaking frankly, I believe that from the perspective of independent and autonomous management, in principle administration should not intervene in the management of train operating companies. In the case of Japanese National Railways (JNR), some of the reasons for its failure were the various restrictions placed on its management; in other words, loss of management independence.

  Another important point is that "train operations" and "infrastructure" should be operated in an integrated manner from the point of safety, service and cost reductions; even if the infrastructure is owned by the public sector.

  Regarding safety, railway companies are composed of an accumulation of various technologies and systems, and the railway business is, therefore, a technological industry. Thus, by integrated management of train operations and infrastructure, it is possible for train operators to implement technical innovation at their own instigation and thereby further increase safety. Also, co-operation between the train operation sector and the infrastructure management sector becomes ever more important for safety measures and management. Correspondingly, by dividing these functions into separate business entities co-operation becomes insufficient, and prompt responses to train delays and steps aimed at accident prevention will become less possible.

  As for services, train operators have many opportunities to come into direct contact with customers through their train operations, and can, therefore, promptly identify user needs, but track operators who merely construct and manage the infrastructure tend to be detached from market needs. By integrated management of both, it is possible to implement autonomously and freely measures that accommodate user needs, and provide better services to customers. Also, I feel that too many train operating companies is one of the causes of services not improving.

  Regarding cost reductions, railway transport is facing intensified competition from road and airline transport, making reductions in costs a significant management issue. By integrating the functions of train operators with infrastructure management and maintenance, an awareness of infrastructure maintenance cost reductions could work well by actively promoting technical innovation and directly benefiting from the results. I also believe that developing companies with public-sector characteristics will not only decrease technical innovation but also slow the speed of cost reductions.

  The materials attached cover JNR and the East Japan Railway Company (JR East) and are broadly composed of three parts: JNR reform; the management environment, and capital investment (Shinkansen construction).

  First are the problems faced by the nationalised JNR, and the solutions they chose. The method the Japanese government selected was to divide and privatise JNR. Passenger companies were to be managed in a unified form for conventional lines, meaning that individual companies would manage both the infrastructure and train operations, but that for construction of new Shinkansen lines, construction and operations would be managed separately, and divided by region. This largely relaxed the regulations placed on JNR because it was a public corporation under direct government supervision. Through this form of division, companies not only co-operated with each other but also competed with each other, thereby drastically improving business management. Furthermore, the two major issues JNR had needed to solve, namely "surplus employees" and "long-term debt" were faced by requiring the new companies to bear as much responsibility as they could under the new scheme, while the government's overall responsibility was clarified, with both parties bearing a share of the costs accordingly.

  Second is the management environment surrounding railways in Japan. There are many mountainous areas in this country and only 30% of the land is convenient for living. Thus much of Japan's population is concentrated in plains along the coasts and lives in densely populated zones connecting large cities. Consequently we believe that the strength of the railway network of JR East is its position as a provider of both metropolitan and inter-city networks. In metropolitan areas, the point is how to secure an advantage against competitors such as road transport, and for the inter-city network it is how to achieve competitiveness with airlines. Even now we are working on further improvements of transport service quality such as the challenge of achieving Shinkansen operations of 360km/hour and the construction of a through service network with conventional lines, not to mention our constant goal of safety improvements.

  Finally, regarding capital investment, you have asked how costs of new construction are shared between the public and private sectors. There are many cases where public assistance from central and local governments have been applied, such as Shinkansen construction, enhancement of transport volume, increases of speed and improvement of barrier-free facilities. In the construction of new Shinkansen routes and Shinkansen services with through connections to conventional lines also, we are working on the establishment of a scheme with the assumption of public assistance which would not impair the railway operator's management ability.

  While central and local governments tend to make investment decisions from the perspective of the establishment of a transport system, JR East proceeds with projects when we agree on cost burdens within a profit margin that is the base for a private company. Specifically, in these cases where government and local public bodies become entities involved in the construction and ownership of railway structures, we share the responsibility for the provision of opinions on facility specifications in addition to lease facilities as the operating entity and thus implement train operations. Such lines are already in operation, including the Nagano Shinkansen (between Takasaki and Nagano) and the Tohoku Shinkansen (between Morioka and Hachinohe) which are newly constructed Shinkansen lines, and also in the opening of Shinkansen routes with through services to conventional lines such as the Yamagata Shinkansen (between Fukushima and Shinjo) and the Akita Shinkansen (between Morioka and Akita).

  I have made mention of the situation faced by JR East so that it may serve as a reference to you. I am, of course, aware that you know that the railway business requires substantial capital investment and a long-term outlook in order to get results and recuperate investment. The reference materials exceed the amount required by the Committee, but I would appreciate it if you would forward them to the Transport Committee of the UK Government. I hope that through discussions in the Committee and elsewhere in your country, a bright vision of the future of the British railway network will be presented and that we can exchange opinions on a wide range of issues regarding both mutual development and the development of railways throughout the world.

Masatake Matsuda


November 2003

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