By Andrew Robb
WOULD Julia Gillard and Stephen Conroy be willing to link their superannuation payouts to the performance of the National Broadband Network?
In essence, this is similar to what they are asking the Australian public to do; namely, invest $50 billion of taxpayers’ money on the promise of long-term payback.
But when a government drops an important report four or five days before Christmas, the bells start ringing.
Releasing just a 160-page corporate plan, when the Prime Minister promised a full business plan of more than 400 pages, immediately confirms suspicions.
These were compounded when Gillard spruiked the document as evidence of the project’s viability while conveniently ignoring the more than 150 risks identified by NBN Co itself.
We should also not lose sight of the fact when the Rudd government first promised to build an NBN the maximum exposure to taxpayers was $4.7bn. Now they are expected to stump up $27.5bn in equity, up from the $26bn “peak investment” identified in the implementation study released in May: all borrowed money.
On top of this, NBN Co will have to raise a further $13.4bn in debt to complete it. Then there is the $16bn that will have to be paid to Telstra under the proposed deal for the telco to shut down its fixed network and migrate its customers across to the NBN.
Gillard’s claim that NBN Co will “well and truly” be able to raise its share of the required private debt is misleading and at odds with the corporate plan.
NBN Co identifies this requirement as a “major risk” with “no assurance that this level of debt could be issued”.
We all remember that when this project was announced in April last year the government made out that Australian mums and dads and other domestic private investors would be knocking themselves over to fund the NBN.
“There couldn’t be a better investment,” Wayne Swan claimed.
This was all false hype and spin to fit the nation-building image. NBN Co says the bulk of its debt will have to be raised overseas because the Australian market is unlikely to provide this level of resource. The company then states in black and white that a failure to raise debt would require revising the funding plan “to assume a higher level of government equity”.
The corporate plan also goes on to state that the failure to achieve budgeted construction costs is a “significant risk”; a shortage of skilled labour, a complicating factor.
Also ignored by the government are the number of serious risks NBN Co has identified to its best-case revenue projections, including the continued uptake of wireless services and the cherry picking by competitors of the most lucrative areas of the market.
The requirement for a cross-subsidy, in which metro users will pay higher prices to subsidise the many unviable parts of the network, also undermines the plan.
And how can we ignore the best-case prediction that NBN Co is hoping for an internal rate of return of just 7 per cent, which the company concedes is lower than you would expect for a commercial business case?
You can get that on a five-year bank term deposit with no risk whatsoever.
What’s more, as outlined in the corporate plan, there are numerous examples where the internal rate of return could fall below the present 10-year bond rate.
For instance, if cherry picking occurred, the internal rate of return would fall to 5.4 per cent. This would place in doubt the NBN’s classification as a public non-financial corporation and its scope to be off budget. Any explicit government guarantee would have the same effect.
There are also the warnings about the dangers associated with the rollout itself, with tens of thousands of people working at heights close to power lines.
Ominously, the business plan warns “the probability of an accident is high”. When you consider the disaster that was the government’s insulation program, you can see why Tony Abbott says the NBN has the potential to be “pink batts on steroids”.
It is no wonder Penny Wong remained silent during the press conference to release the corporate plan, for no finance minister worth their salt could possibly support it.
Conroy made the absurd remark that there was no point doing a cost-benefit analysis because it would be based on a “flawed assumption this is losing money”.
Think of the opportunity cost in other priority areas, the 50 world-class hospitals you could build or the investment in new power generation to ease pressure from rising energy prices.
The dynamic and ever-changing communications sector is the last area in which the government should be investing such vast sums of taxpayers’ money.
No one denies the importance of broadband but there are certainly more sensible and affordable ways of improving services in underserviced regions.
Gillard also needs to clarify her position in relation to the privatisation of the NBN five years after its completion. The Australian Greens, who will control the Senate from July, of course want it to remain a millstone around taxpayers’ necks in perpetuity.
Regardless of the government’s desire, the Greens may get their wish if this project lacks the viability to attract a buyer and taxpayers will be left to prop it up, with its annual operating costs approaching $3bn.
Bear in mind that not even NBN Co thinks this project will break even until 2021.
Gillard and Conroy’s super payouts may be guaranteed, but the failure to do a cost-benefit analysis before spending $50bn on the NBN demonstrates this government is no care and no responsibility.
Andrew Robb is the opposition spokesman for finance, deregulation and debt reduction.