Establishment of NBN Co Limited
One of the terms of reference for this inquiry was for that the
committee's investigations include:
2. b) the ownership, governance and operating arrangements
of the NBN company and any NBN related entities.
This chapter considers the establishment of the government corporations
which will underpin the company established by the government to build and
operate the National Broadband Network, including legislation, other legal
documents and funding arrangements.
At the time of reporting, no legislation outlining the way in which the
NBN will be rolled out, managed and funded has yet been introduced into the
Parliament. This includes the promised legislation that was to outline the
governance framework for the NBN Co. The only legislation that has been
introduced has been somewhat tangential to the proposal itself, specifically:
The Telecommunications Legislation Amendment (National Broadband
Network Measures-Network Information Bill) 2009 was introduced into the House
of Representatives on 19 August 2009. The Bill would 'enable the Minister to
require telecommunications carriers and utilities to give information to the
Commonwealth about their telecommunications networks'.
This followed the inquiry into a virtually identical bill by the Senate
Standing Committee on the Environment, Communications and the Arts, the report
of which was tabled in the Senate on 17 August 2009.
The Telecommunications Legislation Amendment (Competition and
Consumer Safeguards) Bill 2009 was introduced into the House of Representatives
on 15 September 2009. The Bill seeks to amend the regulatory framework of the
telecommunications industry in an attempt to improve regulation and competition
while the NBN is being built. As discussed in chapter eight, however, the Bill
is not required for the building or operation of the NBN.
Legislation relating to the governance of NBN Co and the installation of
fibre in greenfields developments have been mentioned in various media, 
and were also listed on the Department of Broadband, Communications and the
Digital Economy's website. The government has since stated that these bills
will not now be introduced into parliament until 2010.
Establishment of NBN Company
As noted in the committee's previous report, the Minister for Broadband,
Communications and the Digital Economy, Senator the Hon Stephen Conroy,
announced the establishment of the NBN Company Limited (NBN Co) on 7 April 2009.
The company was prescribed as a Government Business Enterprise (GBE) in
August 2009, and has two shareholders: the Minister for Broadband,
Communications and the Digital Economy, and the Minister for Finance and
Although the legislation to provide the governance framework of the NBN
Co has not been forthcoming, a Constitution for the company has been
established. The Constitution of NBN Co remains very basic, and offers little
indication of the way in which the company is to be operated or of its
The NBN Co Board
Under clause 12 of NBN Co's Constitution, the Board of the company was
established and given the power to appoint the CEO, in consultation with the
Commonwealth. Company directors are appointed by the Commonwealth under clause
5.4, for a maximum term of three years, and are eligible for reappointment.
The remuneration package for directors is set by the Remuneration Tribunal.
On 24 July 2009, Mr Michael Quigley was appointed as the 'Executive
Chairman' of NBN Co.
Mr Quigley is an electrical engineer with substantial experience in the
telecommunications sector; his appointment was reported in The Australian as
'giv[ing] the [NBN] project some much needed credibility'.
Mr Quigley is presently both the Chairman and the Chief Executive
Officer of NBN Co.
At the Supplementary Estimates hearing in October 2009, Senator Minchin raised
concerns about this model from a corporate governance perspective, and was
informed by the minister that Mr Quigley would be performing both jobs:
...just in the start-up phase. We thought that it would work
best in this manner but I am a fan—as you have heard me say many times on
corporate governance—of a chair and an executive being separate figures. But
just in the short term—for three months or six months—we are just seeing how we
go. But there is no question we will move to a chair and a CEO as separate
In terms of timing, the minister told the Environment, Communications
and the Arts Committee that the arrangement is not anticipated to last longer
than 12 months.
Clause 5.4.1 of the NBN Co constitution provides that there is to be a
minimum of three and a maximum of nine Company Directors. At the Supplementary
Estimates hearing, the minister stated that there are currently five board members,
plus the minister, and that the minister is hoping to fill two more positions in
the near future.
NBN Co staffing
Details of staffing numbers were provided at the Supplementary Estimates
hearing in October 2009. At that time, the NBN Co had 13 full-time employees
and 25 contracted staff, whose locations were spread between Sydney, Canberra
The Committee is disturbed by the preparedness of the government to
commit to the $1.95 million annual salary of NBN Chairman, Mr Michael Quigley,
when the viability of the project remains unknown and Implementation Study is
yet to be completed. Compounding this, the government has also agreed to $450,000
in total annual fees for the five part-time NBN Co directors, in
addition to the exorbitant annual salary of $450,000 recently announced for the
new NBN Co Government Relations Manager, Mr Mike Kaiser.
Estimates also heard that the working capital of NBN Co was $60,000,010,
comprised of two separate funding injections of $10 million and $50 million,
plus the start-up capital of $10. The appropriation of this funding was made
under the Building Australia Fund (BAF) legislation following the processes
established in that legislation.
There was a total of $2 billion on which the ministers had the authority
to draw for NBN Co. This was from the original $2.4 billion that formed the
previous Communications Fund, with the minister noting that $400 million of
that had been 'earmarked for the Glasson recommendations'.
Under clause 9 of the NBN Co constitution, the Commonwealth has the
authority to increase the company's maximum share capital.
Future funding strategy
The minister told Estimates that, at this stage, the $2 billion in the
BAF is the maximum equity that the government has agreed to put into NBN Co.
However, Mr Murray, Executive Director of Policy and Governance at the
Department of Treasury explained that:
Even though the government is committed up to the whole $43
billion, the proposal is that 49 per cent would come from the private sector
over the eight-year period. The assumption has been made that the other 51 per
cent would have around a 50-50 debt-equity ration...That leaves you with an
equity funding by the government of about $11 billion.
Taking the $2.4 billion originally provided in the BAF, that leaves the
government a shortfall of $8.6 billion. In order the raise the additional $8.6
billion that the government has agreed to contribute to the NBN, the government
has indicated that it is likely to issue 'Aussie Infrastructure Bonds'.
At this stage, the government has indicated that it is not in a position
to give the committee any further information about the structure or timing of
the bonds. Treasury informed the committee that:
No further indication on the timing of the first issuance of
Aussie Infrastructure Bonds (AIBs) is available from the 2009-10 Budget.
The structure and form of AIBs will be informed by the
National Broadband Network implementation study, including the volume of the
task and the timing of financing requirements. Consideration of AIB issues will
continue in parallel with the implementation study.
At the committee's public hearing on 20 July 2009 in Canberra, Mr Lyon,
the Executive Director of Infrastructure Partnerships Australia warned that:
The use of Treasury issuance in the form of Aussie Infrastructure
Bonds is an appropriate way to raise public debt to fund the public component
of the project, but the use of debt must always be prudently managed within the
context of the broader economic management of the Commonwealth’s balance sheet.
In this regard, Treasury stated that:
An addition of $8.6 billion to the borrowing program, spread
over (say) four years, would represent an increase of only $2.15 billion per
annum. An adjustment of this magnitude would be very manageable.
Despite this assurance from Treasury, the committee remains deeply
concerned at the lack of detailed information regarding the government's
proposal to issue Aussie Infrastructure Bonds. The committee draws attention
again to principles outlined by the Productivity Commission in this regard:
,,,bonds, if structured appropriately, can provide a level of
market-based discipline to the project. To achieve this, the bonds need to be
serviced from income generated by the infrastructure project rather than from
general tax receipts.
The committee highlights that in order for this principle to operate,
the NBN Co must be a commercially viable entity. Alternatively, the Commission
states the bonds could be just another government bond, noting that in this
...the crucial issue is the cost of borrowing via these bonds
compared with the cost of standard Government debt raising. Such bonds may be
less liquid and involve higher transaction costs. ... Should the Government
provide tax concessions on the bonds to make them more attractive to
purchasers, it should fully account for the cost of the concessions.
As clearly expressed by the Commission, the bottom line is the overall
cost of the borrowings, noting that:
...tax concessions may not appear on the Government's balance
sheet. The key issue for Government is the cost of borrowing, taking into
account all concessions.
The committee once again urges for the government to ensure the Implementation
Study remains on schedule for February 2010, and provides in-depth detail of
how the NBN Co will be funded through issuance of AIBs.
Objects of association
At the time of reporting, the objects of association for the NBN Co are:
..to roll out, operate and maintain a national wholesale broadband
network while working closely with the Commonwealth during the implementation
study in order to facilitate the implementation of Australian Government
broadband policy and regulation.
The minister has stated on a number of occasions that NBN Co is intended
to run as a commercial operation, and run profitably.
At Supplementary Estimates the minister agreed with a question put to him by
Senator Minchin that the Directors of NBN Co are have the ordinary fiduciary
obligations to shareholders under Corporations Law.
The committee highlights that these statements of the objects of NBN Co
seem to be directly contradictory with the Constitution of NBN Tasmania
Establishment of Tasmania NBN Co
To date, Tasmania is the only state or territory in Australia in which
the NBN rollout has begun. On 24 July 2009, the Minister for Broadband,
Communications and the Digital Economy announced the establishment of Tasmania
NBN Co Ltd (NBN Tasmania) to rollout the NBN in Tasmania.
NBN Tasmania is a wholly owned subsidiary of NBN Co. Its constitution is
substantially more developed than that of NBN Co, likely because of the stage
of NBN development in Tasmania. Clause 4.4 of NBN Tasmania's constitution
The objects of the company are:
to implement the NBN in Tasmania
consistently with the Commonwealth's plans for the NBN in each other State or
Territory from time to time;
to facilitate the accessibility
and affordability of broadband services for Tasmanians;
subject to relevant legislation,
to set prices for the Company's products and services;
to provide a direct optical fibre
connection to an agreed target number of Tasmanian premises; and
to maximise the public benefit to
Tasmanians through the existence of the NBN as a widely available broadband
network in Tasmania.
There are two sections within those objects that appear to conflict with
the government's statements made regarding the NBN Co and its network
operation. The first perceived conflict is the fact that NBN Tasmania seems to
have the power to set prices for its products and services. Legislation that
(at the time of reporting) is due for Senate consideration seeks to entrust that
power to the ACCC, granting the regulator the ability to set prices up front. The
committee asks the question: how will these conflicting roles be resolved?
The committee also notes that the NBN Tasmania's object of providing
accessible and affordable broadband services appears to be quite contradictory
to the minister's comments about the NBN aiming to be a commercially viable
Mr Andrew Connor, the spokesperson from Digital Tasmania acknowledged
the perception of a conflict.
However, he also pointed out that:
... anyone’s definition of ‘affordable’ is different... As for
the monthly cost, some figures have been touted of $200 per month just for an
internet service, but what you are getting is a platform to provide you with a
wealth of services, which I am sure you know about. I will just run through a couple
of them. If you add up current services into a home, you have phone, internet
for data and pay television, and there are other services we do not even have
yet. When it makes videoconferencing available and when it makes hosting of
your own femtocell for your mobile phone in your own home possible, that is another
value-adding, so it will value-add to the proposition.
The committee notes that the minister has committed to ensuring that
'every house, school and business in Australia will get access to affordable
The committee urges the government to expediently bring forward governance
legislation for the NBN Co to ensure there is consistency between the company
and any wholly-owned subsidiary companies that are currently established, or
those established in the future. The confidence of the industry, the market and
the Australian population is highly dependent on this consistency.
NBN Tasmania flying blind?
The committee is concerned that the roll-out in Tasmania has apparently
commenced in what is virtually an information vacuum. Apart from stating in
which towns the fibre will be first deployed, neither the State nor the Federal
Governments have provided any form of implementation plan.
Although NBN Tasmania has a constitution, there is no structured
Business Plan to inform the public how this GBE will ensure that it will
provide the 'accessibility and affordability' in broadband services to which
its constitution refers. With services due to commence in July 2010, Tasmanians
remain ignorant of the prices they will have to pay to access broadband. Details
of the level of Federal funding for the Tasmanian roll-out are also sketchy,
with the Treasury only willing to state that it had provided for 'an investment
in the early rollout ... in Tasmania' in 2009-10.
Given the size of Tasmania, the anticipated roll-out time of five years,
and the fact that the first services are now not scheduled until July 2010, the
committee is sceptical that the government can maintain the national roll-out
will take only another three years.
The committee is critical of this lack of detail relating to NBN
Tasmania, a company that is already in operation, yet without a business plan,
without an implementation plan and without any future funding guarantee
That the government releases a detailed Business Plan for Tasmania by 31
December 2009 that includes: an implementation plan that details which towns
will be connected by fibre and which will miss out; Commonwealth funding
details for the Tasmanian roll-out; pricing details for Tasmanian consumers;
and the percentage of aerial vs underground fibre connections to the premises.
At this stage, very little is known about the structure of NBN Co, the
legislation underpinning its governance, or the way in which it will be the
investment bonds will be structures and the timing of their issuance.
There is concern about how debt arrangements will be managed and at the
levels of debt the Government will be required to underwrite to fund the
The committee is deeply concerned that these critical details are not
established for a GBE that has been granted responsibility for the government's
largest nation-building infrastructure project.
The committee highlights other worrying indications, including the
apparent conflict in the goals of the parent company and its subsidiaries.
The committee urges the government to expediently provide the
Implementation Study report for public scrutiny. A project of this magnitude
demands transparency and accountability of all decisions, particularly those
relating to the governance and funding of the GBE that has been established to
undertake and successfully complete the project.
That the government expediently bring forward the legislation that will
provide the governance and funding framework for the NBN Co Ltd.
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