The debt-ridden hotels and spas will get a 5-year grace period following postal privatization.

The government will scrap or sell 120 money-losing hotels and leisure facilities operated by Japan Post within five years after the organization is privatized in April 2007, sources said over the weekend.

The government decided that even within the hands of the private sector, these facilities would continue to be unprofitable.

About 70 percent of them are deep in red ink because of excessive investment costs and high personnel expenses, they said.

Some government officials argued that the privatized organization should have no hand whatsoever in operating these facilities to avoid causing instability in the management of the new entity.

However, the government has promised to pay maximum attention on maintaining employment after postal privatization. So it decided to introduce a ``five-year grace period'' during which the government will gradually shut down or sell the facilities, the sources said.

Of the 120 facilities, 97 were built to promote health and welfare for policy-holders of the government-run life insurance programs called Kampo. Many of these facilities are hotels called Kampo no Yado (inn of Kampo).

The remaining 23 facilities, many of which are hotels called Mielparque, were established to promote postal savings.

Japan Post took over the 97 facilities from the former Post Office Life Insurance and Welfare Corp. after it was abolished in March 2003.

Japan Post has entrusted the operations of the 23 facilities to the Postal Savings Promotion Association.

Although the 120 facilities are woefully in debt, their problems are not necessarily from a lack of customers.

Their capacity utilization rate is relatively high; 70 to 80 percent of guest rooms of those facilities are occupied on average.

But the salaries of the employees and the investment to set up these structures have eaten away the profits. The 97 Kampo facilities produced 18 billion yen in total deficits in fiscal 2003. The 23 postal-saving facilities generated 10.1 billion yen in deficits the same year.

Japan Post will abolish or sell 30 of the 120 facilities before privatization in April 2007.

The holding company of the privatized organization will likely set up a temporary subsidiary that will operate the 90 other facilities until they are shut down or sold, the sources said.

Fourteen hospitals currently operated by Japan Post will be directly run by the holding company.(IHT/Asahi: February 22,2005)