JAPAN OIL INDUSTRY DECONTROL MAY LEAD TO MERGERS
Deregulation of Japan's oil industry could
mean hardship for smaller firms and lead to their merging into
bigger refining and marketing groups, industry sources said.
    They said the relaxation of controls was now under review
by the Petroleum Council, an advisory panel to the Ministry of
International Trade and Industry (MITI).
    A spokesman for a major firm said, "Deregulation would bring
about a reorganization. If it's a by-product of freer
competition, we have no choice but to accept it."
    The Council is due to close its discussions on June 12.
    The sources said the Council was likely to tell MITI it
should end its 50 year-old protection of the industry. It
should cut capacity to 3.8 mln barrels per day, about 75 pct of
current capacity. Quotas should end for crude throughput and
gasoline output, and oil tariffs should be abolished.
    They said deregulation was vital to promote more
competition and efficiency, and most saw it as inevitable.
    "Deregulation is taking place everywhere. Now it's our turn
to see if we can survive cut-throat competition," said a source
at one major Japanese oil company.
    A spokesman for a smaller refiner said, "We'll have a hard
time surviving, but that's something we must go through."
    "In addition to our streamlining and efficiency programs for
the oil division, we will exert efforts towards branching out
further into other lines such as real estate and travel
agencies," he said.
    Larger companies are also streamlining. Nippon Oil Co Ltd
which had the largest share of refined products sales in the
Japanese market in fiscal 1985, cut nine pct of its refining
capacity in fiscal 1986.
    Cosmo Oil Co Ltd, the third largest seller of oil products
in 1985, cut its workforce by some 20 pct last year, a
spokesman for the company said.
    Between 1984 and 1986, on the recommendation of the
Council, 13 oil companies were integrated into 11 companies
within seven refining and marketing groups to improve the
efficiency of the industry.
    Oil industry sources said this structure was now likely to
be streamlined further into five refining groups.
    "MITI means business. It will urge the major seven groups to
merge into five to build up their muscles," a source said.
    A MITI official told Reuters he did not rule out the
possibility of further mergers within the Japanese oil industry
in the event of the relaxation of oil controls.
    He declined to officially confirm or deny that the
Petroleum Council had recommended deregulatory measures but
said that in principal MITI would encourage a move towards
deregulation.
 REUTER
