NBN Co's deferral of $2.6bn of work still unexplained

The government has avoided a detailed explanation of why NBN Co drew down $2.6 billion less than anticipated from its federal debt facility in the past financial year.

In response to questions raised at recent hearings by the NBN joint committee, the Department of Communications declined to attribute NBN Co’s shifting need for debt funding to “rollout delays”.

Instead, the department would only say that “there has been a shift in the deployment profile
for build activity into 2018-19 and 2019-20 with an associated shift in the debt profile for the company, as less financing is required in the 2017-18 year.”

“[NBN Co] has reduced debt requirements in 2017-18 as it is taking on debt later than was originally forecast, and the amounts are shifting to increase in 2018-19 and 2019-20 as this is when the majority of the cash will be required under the current build program,” the department said this week.

“The NBN Co are still forecasting to drawdown $19.5 billion and complete the build by 2020.”

Labor Senator Chris Ketter had sought an explanation from the department last month over shifts in NBN Co’s need for debt funding to complete the project.

He noted that the amount of debt funding NBN Co needed in 2017-18 had fallen from an expected $9.3 billion in the 2017-18 federal budget to $6.7 billion in this year’s budget.

Ketter specifically quizzed departmental officials whether the “underspend” was due to “rollout delays”.

Assistant secretary within the department’s broadband implementation branch, Andrew Madsen, said it was at NBN Co’s discretion to draw down funds from an up to $19.5 billion debt facility as required.

Madsen indicated that the department received monthly accounts for how NBN Co spent its debt funding, and that “business activity” on the project was regularly discussed.

While Madsen said that afforded the department “an understanding of any major adjustments” to the project, it did not provide “an explanation of how [the build] profile has changed in detail.”

That appears to be reflected in the department’s attribution of the $2.6 billion change in requirement for debt funding in 2017-18 to the vague “shift in the deployment profile for build activity”, without further explanation.

(NBN Co's shifting debt requirements from the up to $19.5 billion government facility. Figures in $m)

The lack of detail highlights the importance of NBN Co’s next corporate plan, which is due out at the end of August.

The new corporate plan is likely to provide the most detailed update of the project in over eight months.

NBN Co is still yet to properly detail the financial impact of its HFC sales freeze, repeatedly deferring questions in recent months to the upcoming corporate plan.

The network builder has also been relatively quiet about the progress of its fibre-to-the-curb (FTTC) deployment.

That footprint has grown in recent months - at the expense of the troubled HFC rollout - but an update on how the company is tracking with this new last-mile access technology is also long overdue.

In addition, NBN Co has faced problems this year with the capacity of its fixed wireless network, in particular making sure the entire footprint is capable of achieving the minimum performance set out in the statement of expectations.

The changes in debt funding requirements point to more build work being crammed in right up to the 2020 completion deadline.

That could add to the risk of the project not being completed on time, and to the government’s ability to recoup on its investment in the NBN - both from an equity standpoint as well as its ability to recover the up to $19.5 billion it has loaned NBN Co.

The new corporate plan is likely to confirm that NBN Co substantially missed its targets in the last financial year, coinciding with the need for substantially less debt funding.

Former NBN Co CTO Gary McLaren recently published an analysis showing that “NBN Co have missed both their ready to connect and activation targets by a significant amount in the financial year.”

McLaren’s figures showed NBN Co may have hit only 54 percent of its ready to connect target and 82 percent of its activations target.