Monday, July 21, 2014

The never ending story...

Any review - be it a managerial review of strategy or a policy review -needs to be completed both thoroughly and promptly, as each intervening day is an opportunity lost.

The NBN as a project and NBN Co as a company between them have been subject to six comprehensive reviews under the Coalition Government (the Strategic Review, Fixed Wireless and Satellite Review, CBA and Regulatory Review-Vertigan, the Policy Review-Scales, the Governance Review, and the Broadband Availability).

None of the reviews have been delivered within the timescales announced at their commencement, and certainly none have been delivered within the expected timescales in the Coalition's policy.

Today's AFR has a report from David Ramli that the Vertigan Panel is set to miss its 'July deadline'. However, July is only the deadline that has been applied since the statutory component of the report was tabled in the House of Representatives last week.

The policy said the review would be completed in six months. But it took the Minister three months to get around to establishing it, and when he did so on 12 December last year he announced the panel would report within six months. So 12 June was the reporting date, not July. This was confirmed by Dr Verigan at the Senate Select Committee on the NBN on 5 May when he said "The panel has been asked to provide a report to the minister within six months, so our timetable is to hand a report to the minister in mid-June."

If Ramlii's report is accurate - and I have every confidence it is - the panel hasn't even provided the report to the Minister yet, it isn't just a delay in public release.

As I wrote in an opinion piece for the AFR recently a cost benefit analysis was not an issue for Labor because it was not confronted with an alternative. For the Coalition it is critical because they have consciously decided to seek a renegotiation of agreements to access copper - a renegotiation that was not possible until after the original Definitive Agreements were concluded.

A key element in the CBA will be the demand estimates being developed and the consequences on project finances under different technology scenarios. A weakness of the CBA will be that - despite the Coalition policy statement that the CBA would not rely on any work done by NBN Co - the review is using the Strategic Review costs. These costs continue to be assumptions and one can infer from the delays in reaching agreement with Telstra that there may be a gap between the costs assumed by NBN Co and the costs being offered by Telstra.

But these are not reasons for delay - especially since as late as that May hearing of the Senate Select Committee on the NBN Dr Vertigan indicated he was working to the 12 June date.

There are three possible reasons for the delay. The first is that the task is bigger than originally estimated by the Minister, the Department, the Panel of Experts and the professional consultants. The second is that the Minister's Office is unhappy with the initial indications of the conclusions of the analysis and is asking for the tweaking of parameters to get the answer he seeks.The third is that the Minister has realised that having failed to abolish the Senate Select Committee any CBA released in July will be subject to the same level of scrutiny that found the Strategic Review was a contrived and unreliable analysis.

The first of this is the most benign, but nonetheless concerning. After all Mr Ergas did tell the previous Senate Select Committee that given the information provided to the Implementation Study a Cost Benefit Analysis could be completed in a "matter of days." It raises serious doubts about the judgement of one of the Panel of Experts.

The second alternative would be concerning, but not critical so long as there is sufficient information available to interrogate the analysis and independently assess the sensitivity of various assumptions.

That the third possible reason can be contemplated is even more reason why proposals to replace the SSC NBN with a Committee with a Government majority and the CBA outside of scope should be resisted by Senators, as I previously outlined in another place.

It is incumbent on Minister Turnbull to explain this latest delay in his NBN plans and provide clarity on when the CBA and Review of regulation will be released.

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