news A switch back to an all-fibre National Broadband Network would reportedly cost the Federal Government an extra $8.5 billion and potentially cause a wider Federal Budget black hole, according to a new set of documents which appear to have been leaked to the media late last week.
Neither major side of politics has yet confirmed what broadband policy they will take to the upcoming Federal Election, which Prime Minister announced yesterday would be held on 2 July.
However, late last week both Labor and the Coalition gave strong indications as to what policy they would be pursuing for the poll. Opposition Leader Bill Shorten said in his Budget Reply speech on Thursday night that Labor would deliver Australia a “first-rate Fibre NBN”, while the Government hinted in Senate Estimates hearings that same night that it would not be upgrading its own Multi-Technology Mix policy.
On Saturday morning, The Australian newspaper reported that the Australian Labor Party was facing “a financial nightmare” over its plans, due to what internal Government documents had flagged as an increased cost associated with a change to the current NBN model.
The newspaper reported (we recommend you click here for the full article) that it had obtained a set of internal documents put together by the Department of Finance that showed that the NBN was at risk under a revised Labor strategy of seeing its Internal Rate of Return drop below 2.5 percent.
This could mean that some or all of the cost of the NBN would be placed back on the Federal Budget as an expense, rather than as a capital investment, as the NBN currently sits on the Budget. The Australian put the cost at $8.5 billion, but without publishing its calculations on the issue.
The news comes as the Government itself last week warned that the NBN project may be in trouble financially.
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 NBN, 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 in a Budget Estimates session last week, 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.
Labor’s original IRR for the NBN with its near universal Fibre to the Premises model was 7.1 percent, but that figure has sunk substantially over the past several years, as the Coalition has imposed its Multi-Technology Mix model on the project.
Opinion/analysis to follow separately.
Image credit: NBN company