NBN blames pandemic for $6.7bn funding blowout as execs rake in bonuses

NBN Co has blamed the Covid-19 pandemic in part for a $6.7bn blowout in funding, as executives raked in almost $3m in bonuses last financial year for “significantly” overachieving targets.

At the start of the Covid-19 pandemic, when office workers and school children were sent home to work and study, NBN Co moved to cushion the boom in demand for capacity on the NBN network by offering an additional 40% broadband capacity to retailers for free.

No extra funding was required to implement this change, just that NBN Co would have to forgo the extra revenue it would have received from retailers, and should have been represented in lower revenue, rather than higher peak funding requirements.

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But NBN Co’s chief executive, Stephen Rue, has in part blamed this offering for the peak funding of the network now going out to over $57.7bn, more than $6.7bn over the most recent peak funding limit.

The funding had to be raised by NBN Co from the private market, due to the federal government declining to provide any more funding to the project beyond the $29.5bn equity, and a $19.5bn loan.

A total of $4.5bn of this is funding for installing new fibre to homes and businesses unable to achieve higher speeds on older technology used in the network, but Rue told a Senate estimates hearing on Monday that the remaining $2.2bn extra funding was divided between extra costs for regional Australia, funding for improvements to the company’s IT systems, and costs incurred in responding to the Covid-19 pandemic.

“There’s other expenditures as well for example we needed because of the additional capacity we needed because of the additional demand for data. We needed to put more capacity in the network so all of that adds up to just over $200m,” he said.

When asked how forgone revenue from the broadband capacity given for free could be counted an additional cost for the NBN, a spokesman for NBN Co did not provide an on-the-record response.

Rue also blamed a $600m in additional funding being required for an extra 300,000 premises NBN Co didn’t factor in to the original construction plan due to what he said was incomplete geospatial data used to figure out where every home and business was located in Australia.

Despite the extra costs outside the existing $51bn in peak funding, NBN Co executives have still taken home significant bonuses in the last financial year.

While Australia Post’s executive team took home $3.7m in bonuses in the last financial year when the company made $7.5bn in revenue, NBN Co’s executives took home $2.91m in bonuses last year, according to the company’s financial report.

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The bonuses were awarded off the back of “significantly overachieved” targets in connecting homes, people signing up for services, and the company’s annual earnings. The NBN Co board paid executives 95% of the short-term incentives on offer for this achievement.

The earnings before interest, tax, depreciation and amortisation (EBITDA) before subscriber costs is all the money NBN Co makes excluding costs incurred by NBN outside of the company’s core activities.

The figure also excludes the payments made to Telstra for transferring customers onto the NBN from Telstra’s fixed line network as part of an agreement signed in 2011.

While NBN Co “significantly overachieved” in its targets, NBN Co’s revenue, from which the earnings number is derived, had been significantly written down from its earlier targets made in previous corporate plans. The final result of $3.8bn was $100m up from what had been set in the last corporate plan, but was significantly lower than the $5bn originally set as the target in the 2017 corporate plan.

Labor senator Kimberly Kitching noted in Senate estimates last month that a “pattern” had emerged with NBN Co writing down its forecasts for revenues as time went on. In 2018, for example, NBN Co forecast revenue to be $5.4bn in 2021, but in the current corporate plan, that has been now revised down to $4.5bn. Kitching noted it would be hard for NBN to miss.

“It’s dropped by nearly $1bn, and you’ve just said that it’s going to be very hard for you to miss that,” she said. “I want to know what that does and whether that is done for an ease in achieving executive bonuses.”

Rue said that this was normal, and blamed pricing changes NBN Co had brought in, as well as other delays.

“If you have a look in those plans, you’ll see that there were contingencies put in those plans for unexpected events that might occur in what ended up being a 10-year build of a network from 2010 to 2020. So it’s normal to put contingencies in,” he said.

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Rue himself earned $1.1m in bonuses for the financial year ending 30 June this year.

He said the financial component in determining bonuses was only a small component, and denied that the financial targets were easier to achieve in order to meet these objectives.

“Like all short-term incentive plans, they’re based upon that particular year’s performance, and not just the financial performance. In fact, financial performance is a small part of it. It’s more on the customer experience and the completion of the build.”

Unlike other government-owned entities like the ABC and Australia Post, NBN Co does not publish information on bonuses paid to the entire organisation outside of its executive team, so it is unclear how much in bonuses were paid in total.

At the end of June, the NBN was available to 11.7m homes and businesses, and 7.3m of those were signed up for a service.