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Wednesday, Feb. 27, 2008

FAST TRACK TO CONTROVERSY

JR Tokai generates friction with costly maglev train


Staff writer

Concerns about huge estimated costs and future profitability are casting a shadow over Central Japan Railway Co.'s long-term project to build a magnetically levitating train system.

News photo
A maglev train runs on a test course in Yamanashi Prefecture. The train's developer, Central Japan Railway Co. (JR Tokai), hopes the high-speed transport will pay off in the future. CENTRAL JAPAN RAILWAY PHOTO

The project to run the world's fastest train between Tokyo and Osaka would be a big step for the railway, known as JR Tokai, which is eager to expand current passenger capacity. It also aims to hedge any risk caused by natural disasters by shortening the nation's most crowded rail route, which is now 515 km. The planned maglev route is 290 km, on which the trains would run at 581 kph.

"It's a project to give a dream to the public in the 21st century," JR Tokai Chairman Yoshiyuki Kasai said in a recent speech in Tokyo.

But JR Tokai's Dec. 25 announcement that it will pay ¥5.1 trillion of the estimated cost for the first phase connecting Tokyo and Nagoya raised caution because the original plan called for the carrier to share the cost with the government, analysts said.

The news hit JR Tokai's share price the next day. It tumbled by 20 percent within the four business days following the surprise announcement. As of Tuesday, it stood 9.73 percent lower at ¥1.02 million than the Dec. 25 closing price.

"JR Tokai does not care about shareholders," said a transportation-sector analyst at a Tokyo branch of an overseas brokerage who asked not to be named. "I wonder if the project is really worth doing by a listed company."

Such criticism follows JR Tokai's forecast of a lower profit in the future.

Its pretax profit is expected to average about ¥140 billion for 10 years beginning in 2026, after posting a pretax profit of ¥70 billion in 2026, the railway said Dec. 25. The carrier logged a pretax profit of ¥236.65 billion in the business year that ended last March and has forecast ¥260 billion for this business year to March 31.

"The company has the responsibility of explaining the lower profitability. But it has not yet fully explained this to shareholders," the analyst said.

JR Tokai has not released clear estimates of its profits for 2036 and beyond.

"We don't release any specific figures regarding when the profit will come back to the current level," said Katsumi Miyazawa, director and general manager of public relations at JR Tokai. But he added that the railway expects profits to edge up above ¥140 billion beginning in 2036.

The railway continues to pursue the maglev project aggressively.

"We should carry out our mission . . . by reinforcing the infrastructure throughout the 21st century, while logging stable profits and paying stable dividends," Kasai also said in the recent speech.

It has been about 40 years since the state-owned Japanese National Railways started the project. JR Tokai, one of the six railways created by the JNR privatization, took over the project in 1987. It began testing full-scale maglev trains in 1997.

Maglevs use powerful magnets that allow them to skim along its guideway without touching it, reducing friction and increasing speed.

If the project is completed, it would take about 1 hour to reach Osaka from Tokyo, compared with more than 2 hours by bullet train.

JR Tokai decided to pay the estimated cost for the Tokyo-Nagoya section on its own because the government's priority is to build a nationwide bullet train network, including more than 1,000 km of future construction. It was reported earlier the government wanted JR Tokai to wait until that network is completed.

Frustrated by the government's lack of support, JR Tokai decided to go it alone.

Analysts, however, are unsure of the ¥5.1 trillion cost.

One uncertainty in the estimate is the cost to drill a tunnel through the southern Japan Alps, whose strata, under the pressure of two huge plates, are more prone to warp and crumble than those of other mountains.

The mountains are also sandwiched between two major faults, whose surrounding ground has numerous cracks with water in them, said Tsutomu Otsuka, an associate professor of geology at Shinshu University in Nagano Prefecture.

"So it is necessary to conduct a careful investigation to avoid the belt of cracks and water," Otsuka said, adding that such a study would take years of test boring, simulated earthquakes and electromagnetic examinations.

Another factor that could increase the cost is tunneling deep below the Tokyo and Nagoya metropolises.

JR Tokai plans to seek permission under a law that allows companies dealing with public services to tunnel 40 meters down or deeper under cities because higher subterranean levels are too crowded.

By tunneling deep underground, companies do not have to buy the real estate for the rail line, but they still bear the digging costs, according to the Land, Infrastructure, Transport and Tourism Ministry.

Other problems may also arise.

"Besides the expected costs, there could be safety problems pertaining to the planned drilling deep underground. We don't know yet what could happen if there is a fire in a deep tunnel or if a tunneling accident occurs," said Takahiko Kishi, a transportation industry analyst at Mizuho Investors Securities Co.

Including the Tokyo and Nagoya areas, 80 percent of the route between the cities will be underground, according to JR Tokai.

Local governments may also oppose the planned route, which is different from the one they had requested.

Nagano Prefecture, in particular, is expected to oppose the planned route, which runs straight between Tokyo and Nagoya. The prefecture wants the line to skirt the southern Japan Alps and run closer to Nagano's Suwa Lake resort, so that it will help stimulate the regional economy.

"In terms of the time and costs, the straight route may be good for JR Tokai. But for local governments, what's important is regional development. We have to reach a consensus on that point," said Hidechika Takagi, an assistant director in Aichi Prefecture's public transportation division who is also in charge of a secretariat for community associations promoting the maglev system.

The calls by governors to construct stations also pose a challenge to JR Tokai because the more stations that are built, the longer it takes to reach a destination and the less profitable the new system would be, according to analysts.



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