NBN: Not so expensive but not as soon as we'd like?

The City of Sydney has an Energy Master Plan for 2030, they'd  like to halve their Carbon Dioxide (CO₂) emissions by using Natural Gas (methane) for in-situ "tri-generation" plus turn garbage into methane to help fuel the process (methane has six times the greenhouse impact as CO₂).

This snippet caught my eye:

In NSW, electricity networks are undertaking capital expenditure of $17.4 billion over the 5 years to 2013/14. This represents $2,400 per person and an 80% increase on the previous 5 year period.

Scaled up to Australia's population, that's over $50B - considerably more than the NBN's $35-$40B.


For me, this puts the NBN investment over ~10 years in perspective:

• It costs $1,500-$3,000 per person for any significant infrastructure nowdays.

• We currently spend about $25B/year ($1,100 per-person) on Defence, a necessary but non-productive expenditure.

• The yearly per-person tax receipts in Australia are $12-15,000, the $200 per-person to build the NBN is a small fraction of this.
• $4B/year could've been raised from taxes, but instead it's been funded by Government Bonds, which have to be repaid, assuming it meets its fiscal projections.

The copper Customer Access Network (CAN) was never installed in one go, but built and upgraded incrementally, always paid for out of revenues. Telstra's CAN was never conceived and built as a single-project like the NBN, but many projects and in-place upgrades with many revisions.

This puts the opposition complaints about the NBN in context:

• The NBN is intended as an investment not expenditure, so naturally lies outside the rest of the Federal Budget Balance Sheet which is solely about income and expenditure.

• Whilst it is a large investment in total, the yearly spend, especially per-person, is small, less than we spend on Pizza and fast-food.

• The NBN is an investment risk, there's no guarantee, only a reasonable expectation, it will make a profit or the company be worth anything when sold (2030? can't recall).
• If it succeeds, and on the basis of the O.T.C. paradigm "People Love to Talk" there's no reason to doubt that it won't, then Rudd/Conroy and Gillard/Conroy will be political heros for decades.
• There are different upside and downside outcomes of the NBN investment economically and politically. It will take one or two decades to know them.

• Liberal Party "dries" and economists don't like the lack of Cost-Benefit Analysis (CBA) that led to the NBN, but I find that a furphy.
• What this view fundamentally misses is that Projected Benefits are unknown, uncertain and highly variable due to external factors: things completely outside our control and, like the GFC, sudden and unfoeseen.
• That said, doing one before starting a business is informative, even prudent, but is only a small aspect of an entrepreneurial venture.
• The best business people do CBA's but aren't a slave to them.
• A perfect example from the 2008 crash is the many investment and other businesses who had brilliant Cost-Benefit studies, but failed within six months.
• 'Twiggy' Forrest's Fortescue Metals Group (FMG) is a case in point. A year ago the FMG Cost-Benefit was unimpeachable, the last week has seen the company stock suspended from the ASX whilst they procured $4B in new loans.
• The reason the Projected Benefits weren't realised is simple: the Chinese-driven Iron Ore price collapsed.

• The Coalition face a terrible downside from a hugely successful NBN, one that will haunt them in the electorate for decades. If they were a business, good advisors would be telling the Party to put in place strategies to mitigate the downside:
• The ALP will not only be seen as "Good Economic Managers" but Great Risk Takers, inverting the normal left-wing/right-wing logic.
• Having been so strident in their opposition to the NBN what happens to the current Coalition leadership if  Rudd/Conroy and Gillard/Conroy become political heros from its success? They will become toxic politically, a waste of great talent and potential. 
• The ALP, rightly or wrongly, will be able to claim the high-ground of both "Real Economic Reform" and "A Vision for the Future".

In summary, while the NBN might seem to be "A Great Big Expensive Project", it is a modest outlay per-person and will be seen so in retrospect. Maybe like the Carbon Tax and Mining "Super Profits" scheme are starting to be seen.

Whilst the ALP has taken a risk with the NBN, the Coalition, by deciding to make it a strong point of difference and putting on record many criticisms, has taken on a much bigger downside risk.

If the Coalition gain political power, they will have to address this, either by making the NBN their own ("cheaper, sooner, more affordable") or by ensuring it barely succeeds, if at all. A tightrope I'd not like to walk.