14/04/2011 - 00:00

Academic creations have no business case

14/04/2011 - 00:00

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Higher-than-expected construction costs are hurting the government’s great infrastructure project – the NBN.

AUSTRALIA’S two-speed economy has, until now, been separated by geography. Not for much longer. A single project is bringing together the best and the worst of the country with potentially disastrous results.

The National Broadband Network is supposed to be an investment in modern communications infrastructure, which will unite Australians via a high-speed cable that can carry a zillion bits of data, video and conversations.

That’s the theory. In practice, the NBN is emerging as a project suffering from the worst of both worlds – high construction costs caused by the mining boom in Western Australia and Queensland, and low demand caused by economic stagnation in the south-east of the country.

Without a dramatic change in the way it is being built, or a massive fresh injection of taxpayers’ money, the NBN will go the way of other grand Australian infrastructure projects – half-built, or not built at all.

No prizes for thinking railways in the 19th century when it comes to half-built Australian infrastructure.

With the NBN, the half-built option means that a communications system designed to pull Australia together might actually push the country further apart by going no further than the south-east corner of the country linking Sydney, Melbourne and Canberra, because that’s where the votes are.

The not-built option is the one confronting the Australian government because, as the current owner of NBN Company, it will soon be asked to put up more money, or walk away – a dreadful choice for a government under pressure.

What’s happened is that NBN management, based in the south-east of the country and acting under Canberra’s instructions, has bumped head first into the cost structures of WA and Queensland.

With an overall price tag of $40 billion, NBN’s management team believed it would get highly competitive bids from construction contractors. All they ended up with was a nasty surprise as major contractors filed bids that were 50 per cent higher than NBN expected. How could an organisation have got it so wrong?

The answer to that question is easy. If you’re running a major construction contracting company such as Leighton Holdings you have a choice of jobs on which you can tender, with the obvious preference being those with the highest profit margin – and that means iron ore and petroleum in WA, coal, copper and gas in Queensland.

It is to the resources states, with their high-profit industries, that you send your best professionals and best equipment – with tightly constrained government work running a poor second.

That’s what happened when NBN of the east coast met the resources world of the west coast; and it is not going to get any better for the telecommunications project because the NBN has an inflexible (government controlled) budget, and it cannot work with the client to negotiate a bit of extra cash because of the politics involved.

But an even more important reason for the NBN facing a crisis is that it has a very weak business case. NBN’s designers assumed widespread community and business uptake, but that will not be achieved without the government changing the rules and forcing every Australian to use an over-priced communications white elephant.

Out of touch

THE lack of business sense at NBN should not come as a total surprise; after all, it was created by a government dominated by people who have never run a business.

Being a former union secretary or academic is particularly poor training when it comes to matching income with expenses, or in producing something that people want to buy, rather than being forced to buy.

But before accusing the Australian government of being an orphan when it comes to wasting taxpayers’ money there is an equally poor example taking shape in Perth thanks to the WA government’s agreement to host the next meeting of the Commonwealth Heads of Government, CHOGM.

If ever there was a spectacular waste of time and money it is CHOGM, a gathering of irrelevant leaders from inconsequential countries who don’t care how much they inconvenience others.

No important decisions will be made at CHOGM. It will come and go leaving nothing but a bad impression on Perth people, and a large bill. High security measures will cost millions and keep the people actually paying for the lavish lunches and chauffeured limousines as far away as possible from the party.

In terms of wasted money it is a toss-up between the NBN and CHOGM – two textbook examples of politicians being totally out of touch with the people who elect them.

EU crisis

SPEAKING of failed business cases, we are also watching (from afar) what some critics have suspected would be the biggest ever failed experiment in nation building – the collapse of the European Union.

Portugal’s request for a bail-out is the third example of an EU member collapsing in less than a year, coming after the financial failure of Greece and Ireland.

Sadly, it will not be the last European domino to fall because the European ‘business’ was built on a set of false assumptions, including a belief that countries that have fought each other for 1,000 years would suddenly forget the past, or that the lazy sun-lovers living around the Mediterranean would suddenly work as hard as the rigidly disciplined Germans.

Britain, more by good luck than good planning, will be the only EU member to emerge unscathed from the slow-motion train wreck happening now because it opted out of the common currency, the euro, and is re-building its fortunes with depreciated pounds that have boosted export competiveness, and created jobs.

Today, the NBN is the wfront-runner for the award of biggest government failure. Soon, the grand EU experiment will snatch that title, and if you can’t see a common thread you’re missing the point that both the NBN and the EU are academic and political creations with no underpinning business case.

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“I think we have more machinery of government than is necessary, too many parasites living on the labour of the industrious.”

Thomas Jefferson

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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