Japan's Parliament to Dissolve JNOC

Japan's parliament, The Diet, enacted legislation Friday to dissolve the debt-ridden Japan National Oil Corp. in 2005 and reshuffle the nation's oil-exploration and petroleum-stockpiling policies. The two bills had earlier cleared the House of Representatives and were passed in the House of Councilors on Friday. The legislation, part of Prime Minister Junichiro Koizumi's administrative reform drive, is designed to scale down state-backed functions while maintaining key government risk-cushioning roles, such as providing oil-development funds via the establishment of a new entity.

Under the two new laws, the government plans to liquidate JNOC around March 2005 after turning over its oil exploration and other key functions to an independent administrative entity to be established by March 31, 2004. The government-run JNOC's petroleum-stockpiling operation, another major function now handled by affiliate oil-reserve companies, will be turned over to the government next spring. The government will then disband the companies and outsource the maintenance of stockpiles to private service providers to trim costs.

The new administrative entity, provisionally called Petroleum, Natural Gas and Metallic Mineral Resources Corp., will assume JNOC's functions of investing in new oil development projects and research and development. Unlike JNOC, the new agency will not be able to offer loan waivers for oil projects that have gone sour -- a practice blamed for the huge debts accumulated by JNOC. A ceiling will also be set for the balance of outstanding government loan guarantees. After the transfer of its key functions, by March 2004, JNOC will focus on the management and disposal of its assets, including its stakes in affiliated oil development firms.

An advisory panel to the Ministry of Economy, Trade and Industry will help unload the JNOC stakes under the supervision of the prime minister. METI also plans to set up a special company around March 2005 to take over some of the JNOC stakes in the hope that it will evolve into a major Japanese oil firm. The plan's submission to the ongoing Diet session, however, has been blocked due to concerns over how effectively its assets can be disposed. JNOC has served 38 years as a government body to develop overseas oil fields and promote a stable oil supply.