news The Federal Government has revealed that it has put together a special taskforce to determine how to fund its modified rollout of the National Broadband Network, with the project’s costs ballooning and the public purse running dry of funds to support it.
When the NBN project was initiated under the previous Labor administration with its previous Fibre to the Premises model, it was estimated that the project would cost about $44 billion in total, although Labor’s projections at the time showed that the NBN company would eventually recoup those costs and bring a modest return on the Government’s investment.
Before the 2013 Federal Election, the Coalition had promised to deliver the NBN project faster and cheaper, through using technically inferior Fibre to the Node technology and Telstra’s copper network. It pledged to spend only $29.5 billion on the NBN, with any remaining capital to be borrowed from the private sector.
However, higher than expected costs associated with the project, especially Telstra’s copper network and the integration of HFC cable infrastructure from Telstra and Optus, appears to have thrown a spanner in the works.
In this year’s Budget statements, the Federal Government said it would provide $8.8 billion to the NBN company in the 2016-2017 financial year, including $0.4 billion moved from the previous year.
The Government noted that this level of funding was expected to exhaust its NBN contribution.
“The Australian Government has committed $29.5 billion in equity to NBN Co Limited (NBN), which is expected to be fully utilised by the end of the 2016-17 financial year,” the Budget says.
The Budget notes that the NBN company is expected to raise debt from external markets of between $16.5 billion and $26.5 billion (with a base case of $19.5 billion) to complete the rollout of its network.
However, the Budget also warns that this may not be as easy as expected, and that the Government may need to step in.
“NBN is currently undertaking the necessary preparatory work on the proposed debt raising,” the Budget states.
“In the event that NBN is initially unable to raise the necessary debt on acceptable terms, interim funding support may be required,” the Budget states.
This, in turn, could have an impact on the Government’s own underlying financial position.
“Were it required, additional Government financial support for NBN would have implications for the fiscal position, for example by increasing assets and liabilities on the balance sheet and, depending on the nature of support, could have positive or negative impacts on the underlying cash balance,” the Budget states.
To deal with the issue, the Government has tasked the Department of Finance, in consultation with the Department of Communications and the Arts and the Department of the Treasury, to seek independent expert advice on strategies to meet the NBN company’s future funding requirements.
Should the NBN company decide to cancel the NBN project, as unlikely as that would be, the cost of doing so (the NBN company’s “termination liabilities”) are currently estimated at $9.4 billion to the Government.
Notably, the NBN company’s individual directors would not be held personally responsible in such a case, with the Government having provided an indemnity liability against such a case.
Other NBN-related costs detailed in the budget include the fact that the Comcare agency needs to continue to monitor remediation activities relating to the dangerous asbestos substance found in some Telstra pits and pipes used as part of the NBN rollout.
Opinion/analysis to follow separately.