The return on Ruddnet

Let’s assume that the appro­pri­ate dis­count rate is the gov­ern­men­t’s cost of cap­i­tal. We’ll assume that the coupon val­ue of the ‘infra­struc­ture bonds’ issued to fund the $43 bil­lion is 6%. That’s a sub­stan­tial pre­mi­um to the cur­rent 10-year Aus­tralian gov­ern­ment bond rate (about 4.5%). We’ll also assume that the rev­enue ($3.78 bil­lion on our assump­tions) is main­tained in real terms—an unre­al­is­ti­cal­ly high revenue.

The 10-year IRR on this assump­tion is neg­a­tive (-4%). The 10-year net-present val­ue of the invest­ment is also neg­a­tive (-$14.7 billion).

As Turn­bull acknowl­edges, it may be worth­while to do this even if the result is a mas­sive loss to the tax­pay­er. But the terms of the debate must be framed accord­ing­ly: should this choice be placed ahead of, say, roads or pub­lic hos­pi­tals, or more fund­ing for universities?

Update:  For­mer Optus direc­tor Paul Fletch­er also thinks the Rud­dnet pro­pos­al com­mer­cial­ly unvi­able. He con­cludes it is a ruse:

Per­haps the real intent of the deci­sion is to shock Tel­stra back to the bar­gain­ing table — in oth­er words, the Gov­ern­ment is still covert­ly fol­low­ing the sec­ond option which I iden­ti­fied. It will cer­tain­ly work to get Tel­stra talk­ing — although any seri­ous dis­cus­sions will be delayed until after the new chief exec­u­tive is appoint­ed.”   Extract from Paul Fletch­er in New Matilda

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