Reforms in IR a tough choice, but Important: CMD, Japan National Railways, in an Interview

Yoshiyuki Kasai, Chairman of Japan Railway, speaks about the organisation’s turnaround post privatisation

Yoshiyuki Kasai, Chairman, Japan Rail

Railway reforms have proven to be a tough choice for most countries. India is in not different. However, we can learn some valuable lessons from those who have successfully accomplished this. Japan is one such example. Japan Railways kicked off its privatisation process in 1987, when the organisation faced a crisis similar to that of Indian Railways — the entity was too big and had taken on too much debt to build unprofitable lines under political pressure. Yoshiyuki Kasai, chairman of Japan Railway Central (JRC), played a key role in the restructuring and privatisation of Japan Railways, and authored a landmark book on the subject, Japanese National Railways: Its Break-up and Privatisation. JRC, a listed company in Japan that runs the famous bullet trains, is an offshoot of the privatisation process. During his recent trip to India, Kasai spoke about the flexibility that the reforms brought in. Excerpts from the interview.

What led to the restructuring of Japanese Railways, and what was the result?

Privatisation happened because the management of Japan National Railways was failing. Two major changes came in through restricting or privatisation. Policy decisions on capital expenditure and wages were (earlier) taken by parliament. But now, these decisions are taken at our discretion.

Earlier, the labour union thought it was okay to not work hard as they would get their wages anyway. After privatisation, we halved the number of employees of the demoralised labour force (from roughly 400,000 to below 200,000) and with that the management improved dramatically.

We also improved the efficiency of labour unions. Now, we can take many strategic decisions on our own, with agility.

What were the other changes?

We introduced a series of measures to upgrade and renew assets, which have changed the face of Shinkansen (bullet train) completely. For instance, it travelled at 220 km per hour. Now, it travels at 270 km/h, with 300 km/h in Sanyo section. We implemented anti-seismic measures to prevent derailment during earthquakes. Maintenance operations were modernised.

We also introduced new stations and high-rise buildings near stations that accommodate hotels, restaurants, department stores. They are our affiliated business but not our core business.

You have been trying to introduce high-speed train in many countries. What has been the progress so far?

In the US, we have identified two locations — the North East Corridor (NEC) between Washington DC and New York, and between Dallas and Houston in Texas. The plan is to introduce the superconducting maglev for NEC and high speed rail for Texas. We will be the technology partner, not own, construct or operate it.

Even a developed country like the US has fiscal concerns while adopting high-speed rail solutions. Do you have a low-cost solution for developing countries like India?

Initial investments might seem huge, but this is a system that can be used for 50-100 years. The Tokaido Shinkansen will be celebrating its 50th anniversary this year. So, making investment in low-cost, low-grade technology that would not last long is a poor investment decision.

Infrastructure solutions such as high-speed rail are the foundation of a nation’s economic activity and political activity as well. Instead of looking at it from the cost perspective, you should consider whether it will contribute to the economic development of the nation and politically integrate the nation. This decision will have to be taken as a national strategic intent.

The Tokaido Shinkansen connects not just Tokyo and Osaka, two big cities in Japan, but many others.

So, I compare it to an artery of the human body — a crucial input — and an infrastructure that supports the country. We cannot operate such a system merely with a profit motive. We have to look at how the system contributes to the future of the nation.

You said profit is not your core motive. But your company is listed, making you answerable to your shareholders…

Our policy vis-à-vis shareholders is to maintain a stable dividend payment, and we believe that it is our responsibility to meet their expectations. In fact, our shareholders are not the short-term, speculative kind of shareholders, who buy today and sell tomorrow. We cherish long-term shareholders and we also look at our future shareholders, say our shareholders ten years from now.

So, first we maintain a stable dividend payment, and then if any surplus is left, we invest in Shinkansen, and new research and development such as the superconducting maglev trains. That is how we balance the two aims.

Was the strategy of having only dividend payment made clear to investors prior to listing? What was the response?

Whenever we come out with plans for the future, we disclose it to our shareholders in advance. If they don’t find it attractive to subscribe to our shares, then they probably don’t need our shares.

After privatisation in Japan, and the break-up of railways, three (listed) railways were born, Japan Railways — East, West and Central. If you compare shares of these three entities, our shares are much higher than other JRs. This explains the support by our shareholders. Shareholders who buy today are not looking at immediate returns, but also the future potential, growth opportunities.

And stakeholders are not just the shareholders — they include general public, passengers, users. We try and maximise the benefit for all stakeholders. If you look at our track record, what we have done so far is supported not just by shareholders but also stakeholders.

What has been the level of government subsidy?

No subsidy or support. Rather, we pay taxes of approximately $1.5 billion per year to government in the form of corporate tax and real estate tax. At the time of privatisation, we inherited huge debts from the Japan National railway.

After privatisation, did the passenger fare levels go up?

The fares have stayed at the same level over 27 years. We made capital expenditures and improved levels of service.

Although we have not increased our fares from the time of privatisation (with two exceptions — when consumption tax was imposed or increased), our revenues have increased by 50 per cent and transportation capacity has increased by about 40 per cent.