When is a government bailout not a bailout? When it’s just a loan, according to Finance Minister Mathias Cormann.
It would cost $29.5 billion and not a cent more to build his version of the NBN, Malcolm Turnbull boasted when he was the opposition communications spokesman. When he came into government, well, that cost blew out. It was costed at $49 billion, but the government would keep its contribution at the promised $29.5 billion. Government-owned NBN Co would have to go out, cap in hand, to the private sector to get them to pay to build out the rest of the network.
This year’s budget contained the very last morsels of equity funding going to NBN Co from the government, and time was running out for NBN Co to start drumming up its own funding to build out the rest of the network. Since the change in management at NBN Co, the company had been preparing to go to market for funding.
Not anymore, according to a press release issued quietly by Cormann on Friday. The government “obtained strong indicative credit ratings” on NBN Co’s business but despite this, the government decided it would be best to just loan the remaining $19.5 billion to NBN Co instead.
Cormann told Crikey in a statement that when the government looked at “all relevant options” for NBN Co to get money from the private sector, it was more cost-effective to have the government just lend the money needed.
But this isn’t an increase in the equity cap from the $29.5 billion, the government insists, because it’s a loan that will be on commercial terms and will need to be refinanced out later on.
The government will retain its equity (being a 100% government-owned entity) in NBN Co, and the $29.5 billion will be paid back to the government over the next few decades, while the loan, Cormann indicated in question time on Wednesday, would be paid back sooner.
The NBN is a now multi-technology mix, and a multi-funding mix. So NBN Co will have to manage making its equity return to the government at the same time it repays the loan to the government.
In addition to that, NBN is overhauling its entire wholesale pricing model after ISPs spent years warning it would effectively punish people who use the network for what it was designed for with higher prices for access. That’s good news for people wanting to stream 4K Netflix, but bad news for NBN trying to make repayments on its loans.
While Turnbull has constantly criticised the former Labor government for its lack of transparency around the NBN, we are told that the two credit reports on which the government made the decision to flick NBN a $20 billion loaner will not be made public. We have filed an FOI request for them anyway.
The whole funding debacle highlights Labor’s mistake in not prosecuting the case that NBN was an infrastructure project, and the rate of return was not as important as the public good. This was made worse when Malcolm Turnbull, trying to look more fiscally prudent, tried to cut the amount of money being spent on the project by government while at the same time changing the technology to a mix that could see much less uptake.