Govt doesn’t yet know how to fix NBN funding blackhole


news The Federal Government this morning was forced to admit it did not yet know how the NBN company would fund the remainder of its rollout and operations through to 2020, with public sector funding drying up and an unclear situation with relation to the NBN company’s ability to borrow money privately.

In this week’s Federal Budget, the Government revealed it had 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.

The Coalition Government has maintained since the 2013 Federal Election that it would cap the public’s equity contribution to the NBN project at $29.5 billion, and that its final payment of $8.8 billion to the company would be its last.

To fund the rest of its planned rollout through to 2020, 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 warned that this may not be as easy as expected, and that the Government may need to step in, either to provide “interim funding support” or to help the NBN company raise the debt itself (for example, through guaranteeing its debts).

Under sustained questioning this morning in a Budget Estimates session, Finance Minister Mathias Cormann said the Government did not yet have the answers on the issue, despite having been aware of the problem for some time.

Cormann stated that it remained government policy to cap public investment in the NBN company at $29.5 billion, and the Department of Finance revealed that it had brought in financial advisory firm Lazard at a cost of $500,000 to assist with determining how the NBN company could raise the rest of the money it needs.

Lazard has been working on the issue with the NBN company and the Departments of Finance and Communications since late 2015 — about six months — but neither Cormann nor the Finance officials were able to confirm the outcome.

“We’re only going to be in a position to make relevant judgements when we cross relevant bridges,” Cormann said, in response to questions from Shadow- and former Finance Minister Penny Wong.

A Finance official confirmed “some work” had been carried out by Lazard.

Cormann said: “The equity cap is in place for $29.5 billion’ our intention is for the NBN to source the remaining funding requirements by sourcing debt from external markets. We’ve raised that very clearly, and we believe, we’re confident that that will be able to be achieved.”

However, the Minister added a rider: “We’re being open and transparent in disclosing that if certain things that we intend to happen, and believe will happen, don’t happen, then obviously we’ve got to make some further decisions.”

Cormann said the Government “can’t possibly predict” at this stage what the outcome of the process might be.

Wong pointed out that there was speculation that the NBN company would not be able to raise the required amount of debt from the private sector, forcing the company back on government support to complete the NBN. The Labor Senator pointed out that the NBN company was only currently expecting to make a return on the Government’s equity investment of 2.7 percent, which would be too low to attract private funding.

In response, Finance Deputy Secretary John Edge stated that the interest rates on debt would not correlate with the internal rate of return figure of 2.7 percent.

Finance Department Secretary Jane Halton said the Department was not in a position yet to comment on the matter, as preparatory work on the debt raising was “not complete”.

You would have thought that the Government and the NBN company would have seen this multi-billion dollar black hole coming and would have done more work on this issue by now … or at least kicked Lazard into gear over the past six months that they’ve been contracted to examine the situation. The fact that they appear not to have done so is quite concerning, to say the least.

Will the NBN company be able to afford to finish its network construction without extra government funding? Right now we simply don’t know.

Image credit: Parliamentary Broadcasting


    • Problem:

      Can’t run a chook raffle in a pub;
      Can’t organise a picnic at a kindergarten;
      Seems to have problems with trouser legs:

      No understanding that governments don’t run profit-making businesses.

      • Well gov’s can run profit making organisations and they used to, e.g. The power networks etc which were quite well run and provided very affordable power plus profits back to the gov’s to spend on other services.

        • I think Gordon was referring to himself?

          I could be wrong there, much like the other resident LibTrolls, they just don’t make a whole lot of sense when they rant.

        • “The power networks etc which were quite well run …”

          Can’t speak for other states, but WA electricity ceased to be well run several decades ago, sometime around 1900 IIRC. These days it’s such a liability the WAgov is thinking of (fire)selling it off… Then there was Bright Networks, started by Western Power, which would bundle FTTP with the LV cables. Killed off by WAgov of course, looked a lot like a TU demarcation dispute.

          In any case, it seems to be general received wisdom that public service should only break even. If it makes a profit, it’s a tax on the peons who use it. But hey, we all want budget surpluses don’t we?

          • In Victoria and SA the power networks provided more than just power, they trained most of the state electricians and provided a decent amount of profit back to both states.

          • Nah, in WA the gov just told Western Power what to charge, then skimmed the cream off. Then they allowed Western Power to be taken apart in the courts for failing to spend money on maintaining infrastructure and causing fires.

            Sometimes it’s hard to tell whether we have Labor or Liberal in the driving seat. I’ve always felt the Feds should have a Department of State Government with the ability to sack overly smelly governments and put Commissioners in to run the show for a season or two…

  1. The Govt doesn’t give shit about the funding black hole other than using it to ensure the death of the NBN.
    Turnbull continues to prosecute the directive he was given by Tony Abbott …. Destroy the NBN.

  2. Whenever I hear “It’s our intention” or “We’re confident” I immediately think that the speaker is talking bullshit.

    • Yeah. It was my intention to win Powerball last night. I was only one number off as well. With the $40,000,000 payout, I had all the 0’s covered, I just needed that $4 in the front…

  3. The Government may well find it is convenient to gift the NBN to Telstra and News Corporation.

  4. Who the hell want’s to loan to a company hell bent on using outdated, rotten copper as part of their “21st century” telecommunications infrastructure project. Enlighten me

  5. Typical, libs make a mess of infrastructure and don’t know how to fix it, well I do, kick this mob out!

  6. If they change their plan (eg from FttN to FTTdp), then they change the funding requirements, and can justify spending more than their ‘guaranteed’ $29.4b. Its just a politically loaded decision, and if they want to do it (ie change funding because of a change of planning), its one they wont state until after the election.

  7. Can MT remind us again why we wasted all that time or strategic reviews and contract renegotiation when it didn’t figure out how to pay for it all. Atleast under Quiqley the business case was starting to pan out with ARP up on predictions and build costs broadly on track.

    Would you be happy to invest in a business that was setup to sell ice cream cones then decides after buying the ice cream machines and fridges (ice cream infrastructure) decides ice cream is too expensive to make and then starts buying all the gear to for snow cones, while telling the vendor don’t worry about warranty support we are going to maintain your second hand snow cone machines our selves.

  8. Can’t help but cynically think that I don’t think the LNP expected the NBN to still have been here or at least in a form that required further capitalisation, such as being privatised.

  9. Ah. Yes. The real end game of the LNP government.

    I think we all know that the ‘special task force’ solution will be something along the line of an ‘equity injection’ by Telstra. $10 billion or so will probably get the NBN across the line, and will be pocket change for Telstra.

    Probably get them a 30% chunk or so…

  10. More of the same 3-ring circus from these clowns and their clown-in-chief…speaking of clowns, maybe Richard could write up a plan for them!!

  11. I can’t help think, while this might not have been specifically planned, in the event it did happen, the coalition could use it as an excuse to hand off construction to telstra and other private industry. The coalition would simply giving them ownership of the sites they built and sell off pre-existing sites cheaply, slowly downsizing and dissolving NBN into telstra over the years.

  12. Big surprise. Liberal’s finally realise that private enterprise does not want to invest into a network infrastructure that has less structure than a pig’s breakfast. With the “arguably” bad design and indisputable uncertainty created, primarily by the Liberal party, who would seriously consider investing anything into the project?
    Including private sector contractors required to perform the rollout, who have needed to go and find work elsewhere while the political footballs are kicked around.

    “Oh I have a big project for you, next year… maybe, but you have to guarantee you have no other commitments while I decide whether it will proceed and how little I will pay you.”…. FTTN/FTTdP/FTTH isn’t the only problem. Who’s going to put it in the ground/air/alternate_dimension.

    • Big surprise. Liberal’s finally realise that private enterprise does not want to invest into a network infrastructure that has less structure than a pig’s breakfast.

      Even though they are starting to realise private enterprise don’t/won’t invest in infrastructure like this, they’d still rather die in a ditch than admit the ALP was right in doing the NBN the way they did.

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