Friday, November 19, 2010

Australia - Minister has criticised the OECD for its comments on the AUD 43 Bn NBN project

[the australian] COMMUNICATIONS Minister Stephen Conroy has ridiculed the OECD over its warning that the NBN could stymie the development of better internet-based technologies.

Senator Conroy has also rejected fresh opposition demands for a cost-benefit analysis of the $43 billion project, saying no such study could possibly dispute the need for better broadband service.

As his opposition counterpart, Malcolm Turnbull, accused the minister of behaving as though cost was "no object", economist and Reserve Bank board member Warwick McKibbin backed the push for a cost-benefit analysis and a group of smaller communications providers, the Alliance for Affordable Broadband, reportedly wrote an open letter to all independent MPs urging them to support the NBN's referral to the Productivity Commission for analysis.

This would ensure "the right decision is made" and that the NBN's benefits "are actually achieved at the right cost".

Independent senator Nick Xenophon told Fairfax newspapers he would urge his lower house independent colleagues to support the move "if we can make sure it does not delay the NBN rollout".

While Wayne Swan and Kevin Rudd have repeatedly used OECD research and reports to back key Labor positions - including on climate change, retirement incomes and childcare - Senator Conroy yesterday questioned some of the findings on the NBN rollout in the Paris-based body's latest report.

The OECD report, released late on Sunday, backed the delivery of better broadband services but questioned the government's approach of using public money to build an optical fibre network and acting as a wholesaler to telecommunications companies, which will use it to sell retail products to consumers.

The report warned that the approach would create a public monopoly that could inhibit the development of better internet technologies, describing it as a "picking-the-winner strategy".

It was produced by the OECD with the co-operation of the Treasury, which also warned the government in its Red Book - the post-election advice given to an incoming government - that the NBN posed a potential risk to public balance sheets.

Yesterday, as the Treasurer welcomed the OECD's "stunning endorsement of the government's economic strategy", Senator Conroy noted it also endorsed the potential for productivity gains that would be provided by the NBN.

When asked about the OECD's criticism, he appeared to question future-proofed technology" for the next 30 to 50 years.

Last night, Dr Ergas, who worked for the OECD for a decade, told The Australian he had not discussed the NBN with the body, although it would be aware of his views from papers he had written.

"Why Senator Conroy would think the OECD can be listened to when they agree with him and not listened to when they don't agree with him is obviously a puzzle," Dr Ergas said.

And Mr Turnbull said the OECD worked "in close collaboration" with the Treasury to produce its report. "Their concern is considerable and that, of course, is reflected in the advice the Treasury gave the government in its Red Book," he said.

Despite Senator Conroy's questioning of the OECD, the Treasurer earlier seized on the OECD's report to tell the ABC he was "delighted to accept" the agency's work because "the overwhelming majority of the report" backed the government's economic strategy.

Dr Ergas said the OECD had highlighted the challenge of getting the NBN's benefits to match its costs, with its assessment that the NBN could be justified if it resulted in a 0.5 to 1.5 per cent cut in spending on health, education, electricity and transport.

With those sectors adding up to 15 per cent of the economy, the NBN would have to deliver national savings of about $2bn a year to justify its cost. Dr Ergas said an asset delivering a permanent $2bn a year saving would have a current value of $37bn (assuming interest rates of around 6 per cent). "Presumably, that is their estimate of how big the gap is between the costs and benefits of the NBN," he said.

Earlier, Mr Turnbull renewed his calls for a cost-benefit analysis into the NBN, saying the government's failure to have ordered a probe was "one of the most disgraceful abrogations of fiscal responsibility in our nation's history". Mr Turnbull said everyone agreed that broadband was a desirable service but that a prudent government would examine all possible ways of achieving its objectives.

Senator Conroy said a cost-benefit analysis was unnecessary and the government had spent $25 million investigating the viability of the project.

"The financial case is viable," he said. "It is a big plus. There isn't a cost-benefit analysis study anywhere in the world that suggested that the broader benefits is a negative. So you put a plus and a plus together and you get, funnily enough, two pluses."

Professor McKibbin said a cost-benefit analysis was necessary and the government was spending a lot of money "without due diligence". "Don't forget the horizon we are talking about is at least a decade or further into the future and while you can't know what the future looks like, you have to know whether your investment is highly likely to be in a positive pay-off or even any sort of success at all," Professor McKibbin said.

"This is the biggest investment the government has ever taken in the economy and it's got to be subject to evaluation and assessment. What's remarkable about the OECD criticism is that basically our representative is the Australian Treasury. For them to criticise a policy means there is an issue there that needs to be addressed."

Business Council of Australia president Graham Bradley backed the concerns about competition. "The business council has consistently called for a full cost-benefit analysis, including a review by the Productivity Commission, of future benefits," Mr Bradley said.

Stephen Conroy rejects OECD's broadband doubts

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