Executive Summary
Cost and timeframe
Eighteen months into this government’s term, NBN Co is still
too 'uncertain' to divulge how much the multi-technology mix (MTM) will cost or
how long it will take to build. The committee notes that the headline financial
and deployment numbers that have been divulged to date by NBN Co and the
government are dated and unreliable.
The committee found in March 2014 that NBN Co’s Strategic
Review was 'unreliable in the case of all examined scenarios'. Completed in
just five weeks, with no external independent oversight, the committee found
that it contained 'financial manipulations and other irregularities'. Over the
past 12 months, these concerns have been largely borne out, with key NBN Co
management distancing themselves from the report. The committee notes that the
Strategic Review underpinned shareholder ministers’ decision to direct NBN Co
to implement the MTM in April 2014.
The reduced credibility of the Strategic Review for
critiquing fibre to the premises (FTTP) policy options has led to yet another
review (the 'cost per premises review'). NBN Co has released detailed
historical costs for FTTP and fixed wireless—despite the fact that the majority
of the rollout under this Government will be made up of hybrid fibre coaxial
(HFC) and fibre to the node/basement (FTTN/B), for which NBN Co has divulged no
costs. Further, most of the cost increases for FTTP evident in the cost per premises
review may be attributed to higher rates and dispute claims negotiated by
current NBN Co management since September 2013, and changed accounting
practices (such as capitalising operational expenditure). $4.5 billion in FTTP
architecture savings signed off by previous management—attested to by NBN Co
personnel as implemented, and borne out by the Melton 10 trial—also appear to
have gone missing in these numbers. The committee considers that the cost per
premises review should be treated with caution.
The public 'glossy' version of the 2014-17 corporate plan
contains no updated forecasts from the Strategic Review, no forecasts for
financial year (FY)2016 and FY2017 and no details of NBN Co’s financial model
out to 2040 (as per previous corporate plans). Further, forecasts for FY2015
contained in the 2014-17 corporate plan have been politically manipulated. The
committee notes that the independent external review process of NBN Co’s
corporate plan has been cancelled by this government. The public version of the
NBN Co 2014-17 corporate plan should also be treated with caution.
The committee notes that 18 months into this government’s
term, the Australian parliament and the Australian people are being kept in the
dark by the Minister and NBN Co on the cost and rollout timeframe of the NBN.
Recommendation 1
The committee recommends that NBN Co release an unredacted
version of the Strategic Review to enable proper public scrutiny of the
assumptions underpinning Scenarios 1 to 5. The committee considers that there
are no commercial implications to releasing analysis and forecasts relating to
abandoned scenarios.
Recommendation 2
The committee recommends that the government release the
full version of NBN Co’s 2014-17 corporate plan, as was the practice under the
former government, to enable the proper public scrutiny of the project.
Recommendation 3
The committee recommends that the government release the
full version of NBN Co’s 2015-18 corporate plan, when finalised, to enable the
proper public scrutiny of the project.
Recommendation 4
The committee
recommends that the government reinstitute the external independent review
process of NBN Co’s corporate plan to restore the proper probity and
accountability to the project.
Governance
NBN Co refuses to divulge the value of the contracts it has
entered into on behalf of the taxpayer on the basis that it would harm its
commercial prospects, despite the fact that the value of these contracts was
released by previous management without harm. Yet NBN Co is content to release
detailed historical costs of FTTP and fixed wireless—despite the fact that NBN
Co will need to secure contracts to roll out these technologies to 2020 and
beyond.
The Revised Agreements, announced by NBN Co and Telstra in
December 2014, contain numerous concessions, including inter alia:
-
the risk of cost increases in remediation has been transferred
directly to the Commonwealth. The new remediation arrangements may also result
in the transfer of an asbestos risk to the Commonwealth; and
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NBN Co has taken on an indefinite liability to maintain Telstra’s
HFC network, and at the same time agreed to restrictions on its sale. It is
unclear whether these arrangements will result in an effective taxpayer subsidy
of pay TV services.
The committee considers that the minister’s assertion that
these agreements will result in 'no additional cost to taxpayers' is wrong. The
taxpayer has lost value in these renegotiations. The committee further notes
that the NBN Co officer heading up the negotiations on behalf of the taxpayer
still owns Telstra shares.
NBN Co will incur substantial new costs that are not being
divulged by the board or management of NBN Co. This includes new costs from the
Revised Agreements and significant IT costs. On 15 December 2014 Telstra divulged
detailed information to the market on the Revised Agreements, but NBN Co, on
behalf of the taxpayer, issued a two-page press release light on details and
heavy with political spin. This level of secrecy is unacceptable for a
government business enterprise (GBE) accountable to the parliament and the
Australian people.
The committee remains concerned about the probity issues
evident in the appointment of key personnel to NBN Co, identified in the
committee’s first interim report. This includes the appointment of the
minister’s 15 year yachting partner to head up the Strategic Review. The
committee is equally concerned with the probity issues evident in the
appointment of key personnel to the government’s many review processes. This
includes the appointment of strident NBN critics and former Liberal Party
staffers to conduct the Cost-Benefit Analysis.
NBN Co’s 2013-14 annual report contains more probity issues.
It indicates that NBN Co approved a $60,000 contract to CicoMilne Pty Ltd, a
company 100 per cent owned by one of its own board members, Mr Justin Milne.
The Department of Communications also awarded a $14,000 contract to CicoMilne
Pty Ltd. According to media reports, Mr Milne was approached by the Coalition
for an NBN Co position as early as June 2013.
Under the applicable legislation and regulation, GBE
personnel are obliged to be apolitical. GBE boards are also required to
exercise high standards of fiduciary responsibility and transparency. It is the
committee’s view that the government and the board of NBN Co are failing in
their responsibilities to the Australian taxpayer.
Recommendation 5
The committee recommends that
the government investigate the governance and probity issues identified in this
report and the first interim report. This should include consideration of NBN
Co personnel shareholdings, the awarding of contracts to board members, the pervasive
secrecy shrouding the project, and the potential liabilities that have been
transferred to the Commonwealth as part of the Revised Agreements.
Other reviews
The committee considers that the government’s many reviews
of the NBN over the past 18 months—at a cost to the taxpayer of more than $10
million dollars—have been conducted as part of what former ACCC Chair Graeme
Samuels described as a 'political payback' process rather than a genuine effort
to illuminate the policy framework and options available to the government to
roll out the NBN.
The Cost-Benefit Analysis (CBA) conducted by the Government
is deeply flawed and not credible. Compiled by personnel hand-picked by the
minister, including strident NBN critics and former Liberal Party staffers, the
CBA is replete with absurd assumptions and dubious manipulations. The Review of
Regulation was conducted by the same personnel, with predictable results. One
former board member of NBN Co described the Governance Review as a 'witch
hunt', with others noting that 'we generally disagree with the findings in the
[report], and consider a number of them to be unsupported by the facts'. The
'Independent Audit of the NBN Policy Process' has been described by a former
ACCC Commissioner as 'fundamentally flawed in its evidence base' and insulting
and offensive in its dismissal of the evidence. The Broadband Quality and
Availability Report has also been widely lampooned for inaccuracy.
The committee considers that these reviews do not comprise a
suitable evidence base upon which to make decisions about the NBN.
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