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Corporate scandal and the Gobi
connection
By Nobuyuki Takahashi
The influential Japanese business federation
Nippon Keidanren has revised its Charter for Good
Corporate Behavior for the first time in six years to
clarify the responsibilities of top executives in the
wake of certain "misconduct cases", notably a
high-profile one involving the country's largest trading
house, Mitsui and Co Ltd.
Yet that case went
beyond the conduct of corporate executives and touched
on the wisdom - or lack of it - behind the overseas
development aid (ODA) policies of the Japanese Foreign
Ministry, specifically an allegedly inappropriate deal
involving diesel generators for Mongolia - generators
for which the people who were supposed to benefit from
them could not afford the fuel, and which threatened to
damage the country's delicate desert environment.
At a news conference this month announcing the
charter revisions, Nippon Keidanren chairman Hiroshi
Okuda remarked that the changes were needed because in
"most of the misconduct cases we observed, the attitude
of the companies involved was insufficient and
regrettable".
At the end of September,
Mitsui chairman Shigeji Ueshima and president Shinjiro
Shimizu both resigned, forced out by public concern over a string
of scandals involving publicly funded projects, of which
the most recent was the Mongolia project, in which
bribery was suspected. Despite their resignations,
however, the company's board of directors on September
26 approved letting them stay on its advisory committee.
On October 8, the trading house, which has a history
spanning more than 300 years, held a news conference to
explain its new policies for tackling ODA issues,
including setting up an internal surveillance committee
and staying out of the business of official aid for the
time being.
According to the Tokyo District
Public Prosecutor's Office, the alleged bribery
consisted of Mitsui and Co Ltd handing cash to a senior
officer of the Social Infrastructure Department of the
Mongolian government in Tokyo last summer. The Japanese
Foreign Ministry had offered to grant aid to Mongolia to
provide diesel power generators in four phases since
1997 through major Japanese trading houses. The new
generators were to replace old ones supplied to rural
villages by the former Soviet Union. The alleged bribe
of more than a million yen was meant to secure favor for
Mitsui's bid in the second public tender for Phase 4 of
the aid program. Mitsui and Co Ltd, which had lost bids
for the first three phases of the aid program, won the
race among Japanese trading houses for both public
tenders for Phase 4 with its bid of 1.6 billion yen
(about US$13 million) and supplied 150 generators to 73
villages.
The Tokyo Prosecutors' Office
eventually dropped the case after the Supreme
Prosecutors' Office denied the charge on the grounds of
small amount of the alleged bribe. Yomiuri Shimbun,
however, on September 13 reported that Japanese
political and business circles had suggested that an
indictment might "undermine the competitiveness of
Japanese companies while the Japanese economy is in
difficulty". The main argument on the case was the
interpretation of Article 11 of the law preventing
unfair competition, which prohibits providing profit to
a foreign civil servant in return for unjust business
earnings. Reportedly the interpretation of the Supreme
Prosecutors' Office was that the transaction was not in
return for "unjust business earnings".
Neither
Mitsui and Co nor the Foreign Affairs Ministry is
accepting inquiries on the case. However, a new
development in the investigation indicates that not only
the alleged bribery in Tokyo but the entire project of
supplying diesel generators to 189 sums
(villages) under the Foreign Affairs Ministry scheme
with several billion yen of public funds is under
question.
An engineer with a decade's experience
of projects in Mongolia said that the running and
maintenance costs of diesel power generators could
squeeze the budgets of poor rural villages to the point
that they would have to cease operating them.
In
Mongolia, only major cities enjoy an integrated
electrical-supply system. Remote areas, especially the
sums, are isolated from the power grid. The
introduction of a market economy encouraged foreign
investment but also increased the poverty gap. Therefore
utility fees for water and electricity constitute a
heavy burden on consumers, especially in poor remote
areas. An official with the Legal Affairs and
Coordination Department of the Mongolian Ministry of
Nature and Environment said that the high fuel and other
costs entailed by operating diesel generators causes
many problems.
Meanwhile, Hajime Tekeuchi, a
wind-power consultant for Japan Wind Development Co Ltd,
visited Mongolia three times to conduct a comprehensive
study on power generation with a few to solving the
country's energy problems. Representing Japan's
Institute of Professional Engineers, Tekeuchi reported
that the Japanese-supplied diesel generators in Mongolia
operate for only a few hours a day, sometimes at less
than capacity.
Tekeuchi's feasibility study on
introducing privately operated wind power generators in
rural Mongolia came back negative because of the issues
of maintenance and affordability by indigenous
consumers. However, he pointed out that since wind power
generators require no fuel, after initial investment
costs their general operating cost could substantially
reduce the financial burden on electricity consumers.
According to the Japanese Foreign Ministry, it
was the Mongolian government that asked Japan to
implement a fourth phase of grant aid to set up diesel
generators to solve the power shortage in rural areas.
However, the same Mongolian Nature and Environment
Ministry official who complained about the problems with
existing diesel generators also said: "We are very
interested in introducing solar and wind power systems."
Mongolia's desertification problem is well known,
as the Gobi desert ecosystem covers 40 percent of the
total land area. The Mongolian government approved a
National Action Program in 1996 to combat
desertification. As part of that program, the government
launched a scheme to provide electricity to rural
households through the use of solar energy during the
2000-10 period, according to a national report titled
"Implementation of the UN Convention to Combat
Desertification in Mongolia".
(©2002 Asia Times
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