The National Oil Corporation Law
Deregulation of the Japanese petroleum industry first began in 1986 and has since been implemented in several stages by the Ministry of Economy, Trade and Industry (METI), the government ministry responsible for overseeing the reforms. The last reforms form part of a three-year plan drawn up in March 1999. The importation of petroleum products was deregulated in 1996.
On June 13 2001 three bills affecting the petroleum industry were passed by the Japanese Diet and promulgated on June 20. The first two laws are scheduled to come into force within nine months of their enactment (one suggested date being January 1 2002). The revisions to the third bill came into effect in September 2001.
The reform measures introduced by the bills include the following:
- the abolishment of the Petroleum Industry Law (128/1962);
- revisions to the National Oil Corporation Law (99/1967); and
- revisions to the Petroleum Reserve Law (96/1975).
The table below summarizes the major changes made to the Petroleum Industry Law and Petroleum Reserve Law. In summary, the main focus of the changes was to remove the inbuilt supply/demand adjustment mechanisms (eg, approval for oil refinery businesses, construction of new facilities and notification of plans for oil products) in order to allow market forces to work.
Some provisions have been taken from the abolished Petroleum Industry Law and inserted into the Petroleum Reserve Law, in order to provide for supply in emergency situations.
| Regulations under the old Petroleum Industry Law | Regulations now the Petroleum Industry Law has been abolished |
| Companies planning to conduct an oil-refining business had to obtain prior approval from METI (Article 4). | Now notification is only necessary under Article 23(1) of the Petroleum Reserve Law. |
| Oil refinery companies (that have obtained approval under Article 4) also needed prior approval from METI before constructing, increasing the capacity of, or reforming oil-refining facilities (Article 7). | Now notification is only necessary under Article 23(2) of the Petroleum Reserve Law. |
| Companies wishing to import oil had to give prior notification to METI (Article 12). Approved importers then had to make an import plan and notify METI of this every year (Article 12(2)). | Now dealt with by the Petroleum Reserve Law (registration system). |
| Notification was also required for sellers of oil products whose sales exceeded a certain level (Article 13). | Notification is only necessary under Article 24 of the the Petroleum Reserve Law. |
| The old Petroleum Reserve (Stockpiling) Law | The amended Petroleum Reserve (Stockpiling) Law |
| Previously regulated by the Petroleum Industry Law, which required METI approval. | Companies wishing to conduct an oil-refining business now only need to notify METI (Article 23(1)). |
| Previously regulated by Article 12 of the Petroleum Industry Law, which required METI approval. |
The registration form lodged with METI must include the following information (Article 14):
METI must notify the applicant once registration is complete (Article 15). If the registration details change, the registered business must notify METI (Article 17). Also, if an operator wishes to end its oil-import business, it must notify METI (Article 18). METI may deregister or issue stop orders against applicants/businesses in certain circumstances (eg, if the applicant registers false details or fails to notify METI of changes in the registered details) (Article 20). |
| Oil refinery companies, oil companies and oil importers (collectively referred to as 'oil companies') were required to submit a five-year plan for oil reserves to METI. The plan included information regarding the reserve amount and details of any new storage facilities. METI was able to order revisions to such plans if necessary (Article 5). | Notification of a five-year plan is no longer necessary. |
| Oil-gas importers were also required to lodge a five-year plan with METI (Article 10(2)). | Notification of a five-year plan is no longer necessary. |
| Each oil company was required to lodge a monthly notice with METI of its actual production results of designated oil products amounts of oil sales or imports, and its basic reserve amount (calculated according to production, sales and reserve for the 12 months following the notice as set out in the METI Ordinance) (Article 6). | Oil companies are still required to lodge a monthly notice with METI stating its basic reserve amount (Article 5). Production, sales and import amounts must still be notified (Article 26). |
| The same obligations as in Article 6 (relating to oil companies) also applied to oil-gas companies (Article 10-3). | These obligations remain unchanged (Article 10). |
| The maximum penalty for breaching METI orders to replenish reserves was a maximum of ¥3 million (Article 15). Lesser penalties of up to ¥300,000 were imposed for failing to lodge various notifications, and up to ¥100,000 for failing to lodge (or falsifying) a notification under Article 11(3) (Articles 16 and 18). These penalties also applied to legal entities (Article 17). | The maximum penalty for breaching METI orders to replenish reserves is up to ¥3 million, imprisonment for up to one year or both (Article 36). New penalties have been imposed in connection with the registration system of up to ¥1 million, up to one year's imprisonment or both (Article 37). Lesser penalties were raised to ¥500,000 and ¥ 200,000 respectively (Articles 38 and 40). In the case of legal entities the maximum penalty has been raised to ¥100 million (Article 39). |
| Oil importers were required to store 70-90 days' equivalent volume of their annual import volume (Article 6(2)). | This requirement remains unchanged under Article 5(2) of the revised law. |
| Oil-gas importers were required to store 10-50 days' equivalent volume of their annual import volume (Article 10-3(2)). | This requirement remains unchanged under Article 10 of the revised law. |
The National Oil Corporation Law
The Japan National Oil Corporation (JNOC) is a government-affiliated corporation regulated by the Japan National Oil Corporation Law. The JNOC was established in 1967 under METI's jurisdiction. The key functions of the JNOC (set out in Article 1 of the JNOC Law) include the following:
- securing a stable and economical supply of oil;
- providing Japanese oil companies with financial and technical assistance in their overseas and offshore ventures in order to promote oil and gas exploration and development activities; and
- implementing Japan's stockpile programmes.
Article 19(1) of the JNOC Law, which sets out the work that may be undertaken by the JNOC, was amended to provide for:
"investment (investment for the purpose of providing the necessary capital to undertake oil collection and natural gas collection off Japan shall be limited to the necessary capital for appropriating the rights and any related rights to collect oil and natural gas from the people with such rights, and the capital required to commence collection in accordance with such rights) for the purpose of providing the necessary capital to undertake oil and natural gas (including oil sand and oil shell) exploration and collection overseas and offshore and also the liquefaction of overseas natural gas."
Before the revision, Article 19(1) of the law provided for:
"investment for the purpose of providing the necessary capital to undertake oil and natural gas (including oil sand and oil shell) exploration overseas and offshore and also overseas natural gas collection and liquefaction."
A new Article 19(1)(9) has been inserted, providing:
"The assignment of oil storage shall take place in accordance with the orders of the minister of economy, trade and industry pursuant to Article 30 of the Petroleum Storage Law (Law 96 of 1975)."
The aim of the revised law is to support the efforts of Japanese oil companies to acquire already-proven oil reserves, rather than exploring untapped oil fields.
The revelation in June 2000 that the governmental JNOC was burdened by more than ¥1 trillion in bad loans was influential in leading to the current revisions.
Further, as part of prime minister Junichiro Koizumi's campaign of reforms targeting government-affiliated corporations, Koizumi has endorsed a proposal by the chairman of the liberal democratic general council, Mitsuo Horiuchi, to abolish the JNOC. This is expected to take place next year. The government is expected to review all of the JNOC's activities and look for ways to spin off useful functions as private-sector businesses.
For further information on this topic please contact Paul Davis or Anne Hung at Baker & McKenzie GJBJ, Japan, by telephone (+813 3403 5281) or by fax (+813 3479 4224) or by email ([email protected] or [email protected]).