In this the final instalment of my series on the recently signed Telstra/NBN Co deal, I will highlight what I believe are the interesting and/or important parts of the last of the eight individual agreements – the Commonwealth Guarantee (CG).
All descriptions are taken from the Telstra release to the ASX.
As a summary, the CG as described is:
“The Commonwealth Guarantee is a guarantee by the Commonwealth in favour of Telstra in relation to NBN Co’s obligations under the IID, SA, ISA, and AD (Guaranteed Agreements).”
The CG is an interesting agreement between Telstra and the government, which more or less provides Telstra with confidence that they will receive the payments specified in the IID, SA, ISA, and the AD – the four agreements signed between Telstra and NBN Co. Quoting directly from the Telstra ASX release again:
“The Commonwealth has guaranteed to Telstra the payments required to be paid by NBN Co to Telstra in connection with the Guaranteed Agreements. The amount that the Guarantee covers represents our estimate of NBN Co’s potential aggregate liabilities to Telstra, at any given time while the Guarantee is on foot and in circumstances where NBN Co, for some reason, does not meet its commitments to Telstra.”
To me, the screams Telstra playing hardball. It sounds like Telstra have said in tidying up all of these agreements “hey, this whole arrangement is too good to be true – can we get this in writing?”
The CG remains in place – leaving the Commonwealth liable for maintaining the agreed NBN Co payments to Telstra – until such time that NBN Co has achieved a specified – (not defined in the ASX release) – credit rating, through which NBN Co would be able to guarantee the payments, based on its ability to borrow against that credit rating.
For the CG to terminate, one of two project milestones must also be met.
Either the Commonwealth has provided to NBN Co working capital up to $27.5b – (subject to change with respect to variations in NBN Co business plan), or the Minister for Communications declares the NBN complete and operational.
I believe this has significant ramifications for any change of government policy – (and indeed, any change of government) – that might see the cessation of the NBN project.
Under the assumption that the Telstra shareholders approve the entire deal later this year, and the commencement date of the agreements is reached, this may lock in a big financial settlement towards Telstra if the project is halted.
This may be a hurdle that an incoming Coalition government – who have indicated they would halt the project – may find is too high to jump. Time would only tell if that came to pass. It would certainly generate many issues.
Is it as high as $27.5b? Probably not – but it will be significant.
What a tangled web we weave!