Can The Coalition Stop The NBN?

A lot of people are asking of the NBN, whether or not the Coalition would be able to halt the project, should they win the next federal election – which is still over two years away, should it not be called early.

The simplest answer is “yes” – of course they could. Regardless of the status of any in place contracts when they came to office, as the government all they would have to do to “stop” the project is pass a piece of legislation to halt the flow of funds from the treasury, and that’s that.

The project would stop.

However, it might be the consequences of doing so that keeps the project alive – whether that be in its current, or a modified form.

“Some involved in the project say by the start of 2012, if the project is still being built, the costs to unwind it will be too high and unlikely to be paid.”

Now, I don’t know if that’s true, but it would certainly not surprise me. Consider Victoria’s yet-to-be-completed desalination plant near Wonthaggi, where taxpayers face an ongoing $20b expense, even if they do not buy any of the water it (will provide).

There are a number of interesting quotes from the desalination plant article:

“Figures compiled by PriceWaterhouseCoopers for the Coalition government show the plant will cost as much as $23.9bn in nominal terms over the next 30 years if the maximum annual amount of 150 gigalitres is bought by the state’s water authority.”

If no water is bought from the plant’s owners and operators, Aquasure, the state will still have to pay $19.37bn for “annual service” payments in nominal terms over the same period.”

“Mr Baillieu said the state was stuck “with a very expensive white elephant” because breaking the contract with Aquasure would cost billions of dollars in legal fees and the sovereign risk for the government would be too high.”

Despite the clich├ęd use of the “white elephant” tag, there is a clear history with government contracts of “special” deals, locking payments in despite potential changes in policy and/or government.

While there is no definite indication of exactly what financial penalties an incoming Coalition government might face for halting – (or even modifying) – the NBN, it seems inevitable that clauses in the about-to-be-finalised agreement between Telstra and NBN Co could amount to billions in contract pay-outs, should indeed the project come to a premature end.

And the project already has made a lot of contractual commitments.

“NBN Co has now executed over 100 tenders with a total potential value of approximately $7 billion.”

Given that the Silcar contract above covers construction only in Queensland and New South Wales, and NBN Co are negotiating with other companies for main network construction in other states, as well as the MDU builds currently out to tender, contractual commitments are expected to top $30b very soon.

Paying out the monies owed could get very very expensive for anyone wishing to halt the NBN project. It might cost just as much to halt it, than it would to complete it.

Spend $36b to receive very little, or $36b to receive a world class telecommunications network?

It might just be here to stay, whether you’re a supporter or not.