The unexpected AU$19.5 billion loan by the Australian government to the National Broadband Network (NBN) company will improve the government's fiscal position, the Department of Communications has said, with NBN adding that it could have raised its debt privately, but that the government loan had "more acceptable terms".
When asked by Senator Sam Dastyari during Senate Estimates on Friday how the decision will affect the fiscal position of the government, Communications Minister Mitch Fifield said there will be no impact on the Commonwealth's net debt.
"There will be a positive impact on the Commonwealth Budget on underlying cash balance, and no impact on government net debt," Fifield said.
"The government will get a return ... there's gross debt, there's net debt, but there won't be an increase in net debt."
When queried by Dastyari as to how this could be the case, Fifield deferred to deputy secretary for the Department of Communications Ian Robinson.
"The arrangement has a positive impact on underlying cash and fiscal balance because the government will essentially earn interest on the difference between the government's borrowing rate and the loan to NBN Co," Robinson explained.
"There'll be a temporary increase in gross debt, but no increase in net debt ... there's a range of options that could have a positive or negative impact. That particular arrangement has a positive impact."
When Dastyari commented that it must be "a very clever accounting trick" for the Department of Communications to improve the government's Budget position by loaning money to a government-owned company, with the government then owning the debt, equity, and risk, Robinson said it is "consistent with the accounting standards".
"It's because NBN Co is outside the general government sector, and it's a similar sort of issue as to why equity payments don't go to underlying cash. In this case, the loan will have a return on it, and that return is credited to the Budget," Robinson added.
This is despite the government saying in May during the announcement of its Budget 2017 that having to provide additional equity contributions if NBN failed to raise debt privately would impact Australia's financial position.
"In the event that NBN is initially unable to raise the necessary debt on acceptable terms, interim funding support may be required," the government said in its Budget papers.
"Were it required, additional government financial support for NBN would have implications for the fiscal position, for example by increasing assets and liabilities on the balance sheet and, depending on the nature of support, could have positive or negative impacts on the underlying cash balance."
Fifield, who would not say when the decision was made by the government to loan the funds, said the department had decided to extend the loan because "the government can borrow at better rates".
"NBN demonstrated through the non-public indicative credit ratings that they were in a position to borrow on acceptable terms from external markets," Fifield said.
"That's entirely consistent with the Budget papers. But the government looked at options and decided that it would take the path it took."
NBN CEO Bill Morrow took on notice Senator Dastyari's formal request for the private credit rating awarded to NBN by Standard & Poor's and Moody's -- the rating that CFO Stephen Rue said affirmed that NBN would have been able to raise funding privately.
"The credit rating indicated that NBN Co could raise the funding on terms that were improved from the Corporate Plan assumptions, but there was a more acceptable arrangement in the view of the government by taking the benefit of the government's borrowing capacity," Rue said.
Fifield did not rule out refinancing NBN in 2018-19 with private loans, but said the government is not looking into it at this stage.
The government last week announced that it would be providing the extra AU$19.5 billion needed for NBN to complete its rollout of high-speed broadband across the nation.
NBN was originally given AU$29.5 billion in equity by the government, with the remaining AU$19.5 billion to be sourced through private debt funding by NBN itself once the government's funding ran dry.
However, under the surprise decision by the federal government, NBN will not need to go to market to fund the remainder of the fixed-line broadband project.
"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," Finance Minister Mathias Cormann and Communications Minister Mitch Fifield said in a joint statement.
"In anticipation of a future privatisation of NBN as provided for in the NBN Companies Act 2011, it is expected that this loan will be re-financed by NBN on external markets in 2020-21."
According to the ministers, the government loan on commercial terms is the most cost-efficient way for NBN to raise debt and secure funding without impacting the time frame of the NBN rollout.
Morrow said during NBN's financial results presentation that the company had obtained strong credit ratings from independent credit agencies, indicating a "strong business case", but that the government's decision to provide the remaining equity will allow NBN to focus solely on the rollout.
"NBN has been advised the government will loan the remaining AU$19.5 billion required for the total AU$49 billion base case peak funding forecast. This allows the NBN executive to fully focus on building and operating the network, to bring fast broadband to all Australians by 2020," Morrow said in a statement.
"NBN welcomes the decision which is in the best interest of the Australian taxpayer. With security of funding in place, we are focused on the job at hand of building the network and providing fast broadband access and universal connectivity to all Australians by 2020."