Japan Prosecutors Raid Contractors in Maglev Probe

Updated on
  • Prosecutors search offices of Kajima, Shimizu as part of probe
  • Collusion suspected in contracts on $80 billion rail line
Bloomberg’s Stephen Stapczynski reports on a probe linked to a $80 billion magnetic-levitation rail line in Japan.

An investigation into collusion in Japan’s construction industry widened as Tokyo prosecutors raided the headquarters of Kajima Corp. and Shimizu Corp. in a probe linked to a $80 billion magnetic-levitation rail line.

Spokesmen for the two companies confirmed that their offices had been searched by the Tokyo District Public Prosecutors Office and the Japan Fair Trade Commission, after local media reported overnight that the two, as well as Obayashi Corp. and Taisei Corp., would be raided over alleged anti-monopoly violations in contracts for the maglev project.

While uncertainty over how the investigation would impact the project as well as companies involved remains unclear, it has raised doubts about possible delays to the country’s highest profile infrastructure project since the bullet train was first developed in 1964.

The contractors, who make up four-fifths of the "super general contractors" that dominate Japan’s construction market, are suspected of coordinating their bids for the project, according to the Sankei newspaper. Managers met once a month to discuss progress on the project, the report said, with each ending up with an equal share of 70 percent of contracts.

Having initially investigated Obayashi in relation to a single contract on construction emergency exit, prosecutors are now investigating if wrongdoing extended to the maglev project as a whole, the Asahi reported. 

Kajima spokesman Atsushi Fujino said that the company was fully cooperating with the investigation. Shimizu spokesman Kiyoshi Maruyama confirmed the raid, but said he had not confirmed the charges. Shares in Kajima fell 2.6 percent, Shimizu slipped 2.3 percent and Taisei dropped 2 percent, while the Nikkei 225 Stock Average climbed 1.4 percent.

Centerpiece Project

The 9 trillion-yen ($80 billion) maglev project, one of country’s centerpiece infrastructure projects, is being developed by Central Japan Railway Co. The first leg linking Tokyo to Nagoya, a city in Japan’s industrial heartland, is scheduled to open in 2027, using magnetic power to float the cars above ground, eliminating the friction of steel tracks.

Central Japan Railway Co.’s maglev train.

Photographer: Kiyoshi Ota/Bloomberg

Decades in development, with a test line first opening in 1997, the maglev will whisk travelers at up to 505 kilometers (314 miles) an hour, more than halving the journey time between Tokyo and Osaka to just over an hour, when the second leg of the project is complete. JR Central will bear the immense cost of the project, with the government providing loans to help bring forward the opening of the second stage of the project.

Click for more on Japan’s long-standing problem with project bidding practices

Japan’s government is pitching the technology for export to other countries, and frequently takes visiting foreign dignitaries on rides at a test line near Mt. Fuji. JR Central is pushing it to the U.S. for a project to link Washington, D.C. and New York, which it says would link the cities in one hour.

Transport Minister Keiichi Ishii last week declined to comment on the possibility the current investigation would delay the project.

"The most immediate impact will be on the contract tendering and award process, which will likely be delayed," Denise Wong, an analyst at Bloomberg Intelligence, said by e-mail. It will take time for JR Central "to put in place a new system to prevent bid-rigging in future contracts."

(Adds background on investigation, project.)
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