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RES! CTED RESTRICTE) -POKLEN & Couns 6 RC AL
FM TunYO
TO ISKBY 041000Z FCO
TELNO 672
OF 040946Z DECEMBER 98
AND TO IMMEDIATE CABINET OFFICE, DSS, HM TREASURY, DTI
CABINET OFFICE PLEASE PASS TO PS/NO. 10
FCO FOR PS/MR FATCHETT, SHEPHERD, DUS, SHARP, NEAPD
FCO TO PASS TO DSS FOR PS/SECRETARY OF STATE
HMT FOR PS/MR BYERS, ROBSON
DTI FOR SCHOLAR, MACINTYRE, CII, MACDONALD, DG, FRASER IBB
SUBJECT: FUJITSU, ICL AND PROJECT HORIZON: CALL ON AMBASSADOR BY
VICE CHAIRMAN OF FUJITSU
SUMMARY
i. Call by Naruto to discuss problems of Project Horizon. Increase
in cost of project due to delays. Potential problems for ICL and
Fujitsu if Project fails. Serious situation against 9 December
deadline requiring early action
DETAIL
2. Naruto, Vice Chairman of Fujitsu and Chairman of ICL, called on
me today to present me with a letter outlining the serious financial
difficulties surrounding Project Horizon and the problems for
ICL/Fujitsu. Copy of letter by fax. Sakai. Senior Vice President
of Fujitsu and Yurino, Director of ICL UK also attended.
3. Mr Naruto stressed the difficult and serious crisis Project
Korizon faced:
- Cost of Project had inereased from 185 million pounds to 600
million pounds. To date, ICL, supported by Fujitsu, had spent over
200 million pounds on the project. ICL and Fujitsu would have to
raise the remaining funds through bank loans. Due to delays in
setting up the project, ‘ICL yisked losing 500 million pounds by the
year 2000. Loss of this scale against an outlay of 600 million
pounds was unsustainable.
- Naruto and Fujitsu were worried that HMG did not fully understand
the seriousness of the situation. From the very outset, the Project
had not been given the attention it deserved. Fujitsu were
particularly frustrated that the Benefits Agency (BA) had failed to
provide ICL with the necessary data to implement Project Horizon.
They believed BA were now dragging their feet over this and appeared
to want to stop the project altogether since they wished to switch
the delivery system from the Post Office (POCL) to the banking
system.
- Fujitsu and ICL pelieved that the project was crucial to the
modernisation and future health of POCL. They could not understand
why the BA were not making more effort to resolve current problems.
~ Attention in Japan to PFI had led to 2 seminars organised by the
LDP, poxtraying Project Horizon in the UX as a model for Japan.
Naruto feared for Fujitsu’s domestic reputation if the Project
failed.
- Naruto repeatedly stressed that failure of the Project will have
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serious repercussions for Fujitsu’s international standing, lead to
maint internal difficulties within Fujitsu and the collapse of ICL.
4. On the reference in Naruto’s letter to a deadline of 9 December,
he said that ICL had advanced 3 proposals in London to find a way
forward:
a) to delay roll-out from 2005 to 2010 (DTI idea) or 2008 (DSS
idea);
b) to reduce unit costs;
c) because of the inflation in the overall price, to secure some
Government guarantee for the extra funding needed.
5. As well as the letter which is being faxed, Naruto showed me
internal communications from ICL in London. These addressed
Fujitsu’s views of the reasons for a delay of three and a half
years:
a) BA had been opposed to the Pathway approach, and POCL had been
unable to exert sufficient control in ensuring BA stuck to the
original Pathway solution.
b) Both BA and POCL had tried to interfere in the Pathway design
in a manner infringing normal PFI procedures.
¢) BA no longer wanted the POCL solution and wanted delivery
through the Banks.
6. I emphasised to Naruto that I was not (not) personally involved
in the extensive dealings over Project Horizon, which were now at
Cabinet Minister level. But I undertook to report his letter and
his comments to London. Given the current 9 December deadline, I
would be available at home over the weekend to speak to him if
necessary.
CONCLUSION
7, The contents of the letter and the tone of Naruto’s approach
make it quite clear that we have a major and potentially damaging
problem on our hands. I do not (not) think he was simply trying to
make our flesh creep, by warning of the threat to IcL’s future
viability. Fujitsu and Naruto in particular, have worked for 18
vears first to prop up and then to put ICL on a healthy footing.
Naruto certainly meant what he said when he warned of this now being
under threat.
8. Failure of Project Horizon and of ICL’s role in it would also
knock a hole in the credit we get here for PFI/PPP initiatives.
The Fujitsu/ICL role in Project Yorizon nas been seen as a template
for high level political study here of this approach to large-scale
public projects. :
9. Finally, whatever the implications for plans for social security
penefit delivery (on which it is not for me to comment), any threat
to ICL’s continued viability would have profound implications for
jobs in the UK and for bilateral ties. Given Naruto’s points at
Dara 5 above, we have to expect that Fujitsu and ICL would publicise
their criticisms of the Project’s management. That would be
damaging to the hitherto benign and mutually supportive style of the
relationship between EMG and Japanese companies invested in Britain.
The waves created would be damaging politically at home and to the
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‘UK’ position of strength here vis-a-vis our European competitors.
Th. is already being weakened by perceptions of distancing from the
cer. -e of Burope over the single currency. We can do without more
trouble.
10. I should be grateful both for background on the current
position and for any instructions you may have for action here with
Fujitsu.
WRIGHT
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