NBN committee eyes sooner debt funding

James Hutchinson | Jun 26, 2012 7:00 AM
$13.4 billion now, not later.

The parliamentary committee overseeing the National Broadband Network rollout has urged NBN Co to approach the private market for funding sooner than planned in a bid to "ensure a maximum return" on Government investment.

In its third report in the past year, the joint committee recommended the network builder "progress consideration" of private equity funding, which is expected to make up approximately a third of the total $40.9 billion funding the company outlined it would need to build the network.

The Federal Government has committed $27.5 billion to the NBN Co build, with the builder receiving a total $2.48 billion as at the end of last year.

Budget estimates show future funding for the build, which is not included in the budget bottom line, would include $5.8 billion over the next financial year, peaking at $6.6 billion in 2013-2014.

NBN Co has stated plans to raise up to $13.4 billion of funding from debt markets over the next decade, lobbying for a lengthy regulatory framework in order to improve investor confidence in the network.

However, it has also said it plans to completely rely on government funding until at least 2015, following the next federal election and by the time core aspects of the build — the fixed wireless and satellite networks, as well as the Tasmanian fibre build — are complete.

The committee argued answers from the Department of Broadband showed that current legislation did not preclude bringing forward NBN Co's approaches to private debt markets, and could speed up the time taken to pay back Government funding.

"The existing legislative framework and 'very limited options' for bringing forward private investment in NBN Co need not slow progress in gauging investor interest in the NBN or in exploring the cost/benefit of different capital structures for the NBN," it stated.

The Government has pushed against bringing forward private equity timeframes, however, which it said were much more expensive than public debt.

The committee's recommendation could be bolstered by NBN Co chief executive Mike Quigley's recent revelations of higher-than-expected take-up figures for the highest tier broadband product, leading to a higher average revenue per user.

"We are very comfortable with the assumptions we made in our corporate plan," he told a Senate estimates hearing in May.

"In other words this data is de-risking the corporate plan."

But the committee's recommendations, based largely on statements from Quigley and departmental executives, could be unsaddled by updated figures and assumptions in the second corporate plan, which could be released as early as this week.

A media spokesman for communications minister Stephen Conroy did not return requests for comment at the time of writing.

"Any revisions to NBN Co's rollout targets will need to be closely monitored as any delays in this regard may push back projected timeframes for debt financing arrangements and private equity engagement (in the form of a direct interest in the share capital of the NBN), with possible implications for Government equity funding," the committee stated.

'Start the conversation'

Committee chair and independent MP, Rob Oakeshott, told iTnews the committee hoped to spur NBN Co on to "start the conversation" with private financiers.

"I think it's an important conversation to start to have publicly because it helps with this fundamental rate of return question," he said.

However, he said attempts to talk honestly about the network's planned seven percent rate of return on the build were "very fluid", with the department and NBN Co unwilling to explain the assumptions behind the initial and updated corporate plans.

While Oakeshott did not question the rate of return figure itself, he said he wanted proof that it was right to keep the initiative off-budget.

"It's more a case of not being able to see a clear evidence trail on that rate of return figure. Not questioning it one way or the other, just this whole conversation around pricing is a really difficult one to nail down, both at a wholesale and retail level," he said.

"It's a frustration of a friend trying to defend the project but still being unable to nail down some of those basic arguments to justify the case.

"If there's a solid rate of return behind it, you'd think the private sector would be interested and therefore, let's bring them to the table."

Committee problems

The committee, established as a Government compromise to secure votes for key NBN legislation last year, has so far struggled to gain key information from the Government or NBN Co on priority issues, or spur on policy or process changes to do with the network.

A recommendation within the committee's second report for NBN Co to prioritise a fibre network extension process was repeated in the latest report update, and appears to have fallen on deaf ears apart from an insistence from the network builder that it would release such a policy "soon".

The report also recommended the department and NBN Co "review the efficiency" of replying to committee questions on notice and submitting responses to meet deadlines set by the committee.

The Government has so far, however, been unwilling to do so. Its official response to the committee's first report was submitted seven months after the report's tabling into Parliament while the response to the second report was made available five months later.