[LINK] Broadband for a Broad Land

Birch, Jim Jim.Birch at dhhs.tas.gov.au
Tue Jan 4 12:24:47 AEDT 2011


Jan wrote:

>And I'm not sure why the government needs a return of 6-7% for this
network investment. I guess it's a way to get the funds from the
commercial bond market, but I thought the government was a
not-for-profit. We are the shareholders, after all. Why does government
run as a business? I can understand why efficiencies are important, but
why ROI? That doesn't pass the common sense test. If it is part of the
'commons', why does it need to make a profit?

The government needs to fund the capital cost of the project from
somewhere and for big projects like the NBN this means borrowed money.
This will occur whether or not the project is public or private, and in
fact, a significant advantage of publicly-owned projects is that
governments rarely default on loans so have lower risk premium than
companies and therefore can borrow at a lower rate.  It's not a big
numerical difference but in the world of compound interest and decade
time scales it can be significant or critical.  If the project can make
enough to pay the annual interest and also pay off the capital in X
years leaving valuable public infrastructure, this is preferable to an
ongoing cost.  It doesn't mean that a project should stand or fail on
this criteria alone because the total cost benefit picture is what is
ultimately counts but it does make the argument a lot simpler.

- Jim


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