Government gives NBN Co more time to pay off its loan

NBN Co will have an additional three years to pay off a loan from the government intended to plug the gap between the cost of the NBN rollout and the cap on the total equity contributions from Canberra. However, the government would not reveal the financial impact of the decision.

The Mid-Year Economic and Fiscal Outlook (MYEFO), released today, revealed that the government would modify its $19.5 billion loan agreement with NBN Co, extending its term by three years to the end of June 2024 and allowing the company to source up to $2 billion from private debt markets.

The MYEFO document states that the “financial implications of this measure are not for publication ... due to commercial sensitivities.”

The government capped its equity contributions to NBN Co at $29.5 billion — the figure that the Coalition originally claimed would be sufficient to deliver a ‘multi-technology mix’ (MTM) network. The MTM approach replaced the former Labor government’s approach to the NBN, which was based on only using fibre to the premises (FTTP) for the network.

Following the Coalition’s victory at the 2013 election, a review of the NBN concluded that the cost of delivering an MTM network would involve peak funding of $41 billion.

However, in August 2015, NBN Co revealed that the MTM rollout was more expensive than originally anticipated — with the company’s updated corporate plan estimating the network would cost $46 to $56 billion, with the NBN Co leadership aiming for $49 billion.

The plan revealed NBN Co’s intention to raise private sector debt to make up the gap between government funding and the cost of the network. Instead, however, in November 2016 the government announced it would loan NBN Co the money to complete the network.

A statement issued by communications minister Senator Mitch Fifield at the time said that the government's “equity contribution of $29.5 billion to NBN Co ... is expected to be fully utilised in the current financial year.”

“nbn's 2017 Corporate Plan assumes it will source private debt funding for the remaining $19.5 billion needed to complete the rollout,” the statement said.

“To help ensure that nbn can fully focus on the remaining rollout as it significantly ramps up, the Government has decided to provide the remaining funding required to complete that rollout through a Government loan to NBN Co Ltd on commercial terms.”

A 2016-17 MYEFO document stated: “A Government loan on commercial terms represents the most cost effective way to raise the necessary debt and secure funding to complete the rollout of this important national infrastructure project. The loan is expected to be provided to NBN Co over four years.”

“The measure includes estimated revenue of $1.574 billion over four years (including $0.325 billion in 2020-21) from the interest paid by NBN Co (based on market conditions applying on 9 November 2016). The loan will be re-financed by NBN Co on external markets in 2020-21,” the document said.

In August this year NBN Co further revised upwards the expected cost of the network rollout. In an update to its corporate plan, the company said it expected peak funding for the new network to be $51 billion — within the range forecast in its 2017 plan but still $2 billion higher than expected. As a result, it again intended to raise private debt.

The company said that there were three key factors driving up its peak funding forecast.

One is changes to wholesale pricing to reduce congestion, which NBN Co said had a $700 million impact on projected revenue. The second factor is the company’s decision to pause the sale of hybrid-fixe coaxial (HFC) services, which cost it $700 million in revenue. In addition, NBN Co estimated it would spend $200 million on improving the network. The third factor is an $800 million program to address performance problems affecting the NBN fixed wireless network.