A Japanese maglev train literally flies over its tracks.

Japan Investigates Wrongdoing on $79 Billion Maglev Project

Dec. 11, 2017
The scandal has emerged as the latest hiccup for JR Central’s high-speed rail project, which is scheduled to open its first leg in 2027, and link Tokyo and Osaka upon completion in 2045.

Japanese prosecutors are investigating two of the country’s biggest construction companies, Obayashi Corp. and Kajima Corp., for suspected wrongdoing linked to a public-backed $79 billion magnetic-levitation rail network.

After local media reported authorities were looking into bid-rigging related to construction of Central Japan Railway Co.’s maglev project, Obayashi Corp. said in a statement that prosecutors had raided its office Friday on suspicion it used fraudulent information to obstruct business.

Kajima Corp. staff are also being questioned by the Tokyo District Public Prosecutors Office after receiving queries over its involvement in contracts for the train line, company spokesman Atsushi Fujino said.

The scandal has emerged as the latest hiccup for JR Central’s 9 trillion yen ($79.38 billion) high-speed rail project. Scheduled to open its first leg in 2027, the maglev line will link Japan’s two biggest cities of Tokyo and Osaka upon completion in 2045. As part of Prime Minister Shinzo Abe’s push to export infrastructure technology, the government said last year that it would provide low-interest loans to speed up the opening of the second stage of the project.

“The construction ramp-up has been slow at JR Central and increased scrutiny of the tendering and bidding could delay that further,” Denise Wong, an analyst at Bloomberg Intelligence, said by e-mail.

Obayashi shares fell 7.2% on Monday, the biggest loss in almost four years. Kajima declined 4.1%.

Emergency Exit

Obayashi won four construction contracts for the project in April 2016, according to JR Central spokesman Shinya Nino. The contract under investigation involves the building of an emergency exit at a facility in Nagoya, with completion targeted for Sept. 2019. JR Central isn’t aware of any wrongdoing in the bidding process, Nino said, adding that the company will request an explanation from the companies involved in the investigation.

Maglev trains rely on magnetic power to float the cars above the ground, eliminating the friction of steel tracks. The trains start off running on wheels — the kind used on F-15 fighter jets — until they’re going fast enough for the magnets to kick in and create lift. In 2015, a JR Central maglev train ran at a record 375 mph. JR Central couldn’t say if the investigation will impact the construction schedule.

This isn’t the first time construction companies including Obayashi have been caught up in scandal. Obayashi was punished for bid-rigging on a subway system in Nagoya in 2007, and said in April it was investigated by the country’s Fair Trade Commission for suspected antitrust violations on an Environment Ministry contract.

By Stephen Stapczynski, Kiyotaka Matsuda and Katsuyo Kuwako

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Licensed content from Bloomberg, copyright 2016.

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