The result does give the Government a mandate for reform and the pace of reform should increase. The issue is whether the Government will focus on areas that will make a difference. 

Koizumi's policies include: reducing public debt, reforming the budget allocation process and implementing deregulation with "no sacred cows". In the near term Koizumi's cabinet will focus on areas of public popularity - IT, urban renewal, the environment, ageing society, education, science and technology and regional revitalisation. While energy is not currently on the LDP priority list, the pro-reformers within the Regulatory Reform Committee (a committee established within the Cabinet Office) are likely to push harder with their reform initiatives, including energy sector reforms. 

Significant hurdles remain for Koizumi notwithstanding the mandate: the reformers still remain in the minority within the LDP ( the status quo faction - former Prime Minister Hashimoto's faction - was the biggest winner from the election) and the Government policies for reform are strongly deflationary, with a danger that Koizumi will quickly burn political capital.

In terms of where we are at in the energy reform process - with the release of the Brattle paper last Spring and the confirmation by the METI Minister in July that the electricity review process would commence two years earlier than expected, the utilities realised that they had lost the initiative in the deregulation debate. They are now seeking to regain the initiative and using their political influence to do so.

It is no surprise that the utilities remain a very a powerful lobby group. TEPCO alone spends an estimated US$ 50 - 100 million pa on its public relations activities here. That does not include the direct political donations to the LDP and the soft donations through their construction programs.
 
In order to get the utilities to agree to the acceleration of the electricity review by two years and to get them back to the table, METI agreed that the review would initially focus on competition reform to encourage new entry into small and medium sized plant development. METI is confident that they can broaden the review once the process commences.  

The provisional schedule is as follows:
Sep - Dec 2001: confirmation of positions of stakeholders and discussion of basic policy direction
Jan - June 2002: discussion of basic framework
Jul - Dec 2002: detailed design of system
2004: likely implementation    

Our focus has shifted from accelerating the process to ensuring that the review covers the right issues. 

I have tentative plans to be in Houston Thursday/ Friday next week with Joe Hirl in connection with the discussions on the possible alliance with Nissho Iwai. Would you be available on Thursday pm or Friday for a more complete briefing?
 
 -----Original Message-----
From: 	Kean, Steven J.  
Sent:	Wednesday, August 08, 2001 9:59 PM
To:	O'Day, Nicholas
Subject:	FW: Japanese Upper House Election Result Report

What do we think it means for the pace of reform?  Is it a mandate?

 -----Original Message-----
From: 	Hughes, Llewelyn  
Sent:	Monday, July 30, 2001 5:00 AM
To:	Kean, Steven J.
Cc:	O'Day, Nicholas; Grimes, Michael
Subject:	Japanese Upper House Election Result Report

Dear Steve,

Please find enclosed a note on the results of the Upper House election held here in Japan on July 29. 

In a nutshell, there were no real surprises. The ruling coalition achieved a comfortable majority of 12 seats, for a total of 136 seats, in the 247 seat chamber. 

I'd be happy to put together a more detailed analysis if needed.

Yours, 


Llewelyn Hughes
Public and Regulatory Affairs
Enron Japan

Ph. 81.3.5219.4500

 << File: Upper House Election Result Report 01 07 30.doc >>