Labor told of $31bn NBN risk

A SECRET review of the NBN prepared for the Gillard government almost three years ago estimated it would leave taxpayers up to $31 billion worse off and warned of major risks in the plan, many of which were later realised.

The Weekend Australian has learned that the review by investment bank Lazard found the project would confront construction problems leading to cost increases for the building phase.

It also found that the project - once touted by the former Labor government as ideal for "mum and dad investors" - was so risky that no private investors would stump up the capital.

It is believed Lazard had raised concerns about Telstra's involvement under a multi-billion-dollar deal transferring many risks associated with the project from Telstra's books to NBN Co, while leaving Telstra with the option of competing against the NBN - yet still receiving funds from it - after 20 years.

Significantly, The Weekend Australian has learned that Lazard's calculations concluded that taxpayers would own an asset, NBN Co, with a negative net present value - the difference between the cash a project is expected to achieve and its costs - as high as $31bn.

Net present value calculations are done specifically to take the risks involved into account.

The advisers said the project had significantly underestimated the cost of its capital, and provided alternative figures, but in the end reasoned that this was a theoretical endeavour.

Citing the risk of the project and the long investment horizon, Lazard concluded that "no investor group other than the government" would provide equity finance to NBN Co while key planks of the business case were plagued by uncertainty.

The information clearly suggests that Lazard's views of the project were very different from those of NBN Co, which used Goldman Sachs as an adviser. The Goldman Sachs conclusions have never been made public.

The Coalition came to office promising it would build the NBN more quickly and at less cost to taxpayers by scaling back Labor's "Rolls-Royce" fibre-to-the-premises model and using Telstra's existing copper network for the final few hundred metres to many homes. The government has ordered a strategic review of the project that will report next month on the cost of the project, how long it will take to complete, and how savings can be made by changing the plan.

The Australian revealed in November 2010 that Lazard was due to deliver a review of the deal to the Gillard government.

The Lazard review was commissioned to examine the heads of agreement between Telstra and NBN Co and raised concerns about the agreement.

Its broader assessment of the project is understood to have been so damning that it would have raised alarm bells nationally if it had ever been made public. On the Telstra deal, it found inadequate allowance for the cost of the company being relieved of its universal service obligations as part of its involvement.

The Rudd and Gillard governments long refused to do a cost-benefit analysis of the project.

It is understood that Lazard likened the NBN to a venture-capital project, but one of a sheer magnitude that had never been attempted in Australia.

It warned that 30-year estimates of revenues and costs were inherently speculative and the projected customer take-up and average return per user were likely to be proven optimistic in such a competitive industry.

Lazard is understood to have warned about the competitive threat posed by wireless internet, which could limit take-up - a major driver of revenue needed to repay the government's equity contribution to the huge project. It pointed to anecdotal evidence that 20 per cent of premises could ultimately be wireless-only.

In doing so, it echoed Labor's corporate advisers, Greenhill Calliburn, which warned in 2011 that some consumers "may be willing to sacrifice higher-speed transmissions for the convenience of mobile platforms".

NBN Co has long argued that wireless services were "complementary" to fibre.

It emerged in 2011 that Telstra had agreed that it would not promote its wireless internet services as a substitute for fibre for 20 years.

Later that year, pressure from the competition watchdog, which warned that the agreement had the potential to undermine competition for wireless voice and broadband services, forced NBN Co to back down on its attempt to restrain Telstra from promoting its wireless internet services as a substitute.

On construction risks, Lazard raised warnings that the size of NBN Co's contingency fund could be insufficient. This year, NBN Co revealed that the contingency fund was worth roughly 10 per cent of the project's capital expenditure, or $3.6bn.

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Federal Government has welfare rorts in sights as eligibility tightened

HANDOUTS will be slashed and eligibility tightened as the Abbott Government eyes off welfare wastelands draining the budget of billions of dollars.

Social Services Minister Kevin Andrews has given his strongest indication that a crackdown on welfare is coming - and in his crosshairs are the 822,000 Australians receiving the disability support pension.

Mr Andrews has begun a review of the system with government agencies and the not-for-profit sector in a bid to curb a welfare blowout. The review will help guide the extensive reforms, which could be rolled out as a matter of urgency.

Those on a disability pension - now one in 20 working-aged Australians - face being booted off the entitlement and moved on to Newstart, which is less money and requires people to more actively look for employment.

Some doctors could also be stripped of their ability to assess patients as concerns grow about some overworked or lazy medicos not properly scrutinising claims.

It comes as the Government and the Human Services Department have been tipped off about people claiming the disability pension while being involved in physical criminal activity.

Key details of the Government's 2013 disability support pension report, exclusively obtained by The Sunday Mail, shows that just in the past financial year alone, $15 billion was paid out to almost 821,738 recipients - a 22 per cent increase in 10 years (673,334).

One-third of the disability pensioners claim they cannot work full time because they severely depressed, anxious or a debilitating mental illness. While having a "bad back" was often cited as the reason for not being able to work, the greatest category of people now claim to have a psychological illness.

Fears are growing that too many recipients are getting too much money because they are on the wrong type welfare benefit because they have been able to game the system. A single disability pensioner gets a maximum of $751 plus a $61 supplement a fortnight. A single person on Newstart gets $500.

Mr Andrews told The Sunday Mail the safety net would be there for people who had a genuine a disability.

"The Coalition Government is committed to improving opportunities for Australians with a disability participate in work," Mr Andrews said.

"We are consulting with stakeholders including employers to seek their ideas on ways to improve opportunities for Australians with a disability to participate in work. "

It is likely reforms will go beyond disability payments and include a broadening of quarantined payments for areas outside indigenous Australia.

Australian Medical Association president Steve Hambleton said doctors knew their patients well. "Doctors have got no reason to second guess their patients," Dr Hambleton said.  "Doctors aren't the policeman of the department; they are the advocate of the patient.  "GPs don't have private investigators ."

About 270,000 people are on disability pension in NSW, 200,000 in Victoria, 163,000 in Queensland, 76,000 in South Australia and 64,000 in Western Australia.

Human Services Minister Marise Payne said the Coalition is serious about tackling welfare fraud, including people wrongly claiming the Disability Support Pension (DSP) or any other payment.

"My department has sophisticated data-matching and fraud-detection systems, so if you cheat the system, chances are we will catch you," Senator Payne said.

"The DSP is only available for people with a permanent, fully diagnosed medical condition likely to last more than two years."

The former Gillard government introduced policies to get more people on the disability pension to work more hours.

The Department of Human Services received more than 55,000 tip-offs through the Australian Government Services Fraud Tip-off Line in 2012-13.

Ms Payne urged anyone who was aware of others cheating the system to call the anonymous Australian Government Services Fraud Tip-off Line on 131 524.  "This information helps to make the system fairer for everyone," she said.

Fast facts about DSP

 * To be eligible for a DSP you must have a permanent, fully diagnosed, treated and stabilised medical condition likely to last more than two years without any significant improvement.

 * You also must have participated in a Program of Support (unless exempt), where trained allied health professionals tailor a program to help you find and maintain work.

 * Claimants must have a minimum score on the Impairment Tables. These tables are designed to assess impairment in relation to work. They consist of a set of tables that assign ratings in proportion to the severity or impact of the impairment on function as it relates to work performance.

Medical eligibility for DSP is assessed by experienced allied health professionals using clear guidelines to assess DSP claimants' work capacity.

 * A doctor's certificate advising the medical condition of an applicant for Disability Support Pension is just one piece of evidence that is assessed by the Department of Human Services in regards to a person's eligibility for DSP.

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Sri Lanka confirms people-smuggling deal

THE Sri Lankan government has confirmed an arrangement is being negotiated with Australia to tackle people-smuggling.

Sri Lankan Minister for Media, Keheliya Rambukwella, told journalists in Colombo on Saturday the deal was a memorandum of understanding between the two navies.

"There is an arrangement, an MOU to be signed between the two naval forces," the minister said.

"All the details have been discussed and once it is signed it will be made a public document."

Prime Minister Tony Abbott, in Colombo for the Commonwealth Heads of Government Meeting, will meet with Sri Lankan President Mahinda Rajapaksa later on Saturday with people-smuggling set to be on the agenda.

Foreign Minister Julie Bishop is understood to have discussed the new strategy with her Sri Lankan counterpart when she was attending a meeting of Commonwealth foreign ministers in Colombo this week.

The coalition took to the federal election a policy of intercepting all identified asylum seeker vessels travelling from Sri Lanka outside the Australian sea border and arranging for the immediate return of all passengers.

The key to the policy is ensuring what have been described as "safe transfer arrangements" involving the Sri Lankan government.

Mr Abbott told reporters in Colombo on Friday that Australia had "good and close co-operation" with the Sri Lankan government and navy.

"I'll be thanking the Sri Lankans for the co-operation which they have extended to us on this important issue and I will have more to say about this in the next day or so," Mr Abbott said.

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How minority government built a legal wall to save Craig Thomson

FOR more than 15 years, former Health Services Union leader Michael Williamson had been gathering mates, favours, files and influence. Now, as he contemplates jail for defrauding the union of millions of dollars, Williamson must wonder whether it was all worth it.

By 2009 it had all come together for Williamson, who had focused on amassing power. Nothing captures his hubris like his words to the HSU 2010 national conference: "I am the president of the federal ALP, member of the ALP industrial committee, executive member of the ACTU, vice-president of Unions NSW, vice-president of the ALP NSW branch, trustee of First State Super, director UE Pty Ltd, director IPO Pty Ltd, member of the Australia Day Council and Unions NSW finance committee," Williamson told his disciples.

Craig Thomson, who is facing allegations he misused his HSU-issued credit card to hire prostitutes, was Williamson's protege, a valuable and useful investment, the first HSU member elected to federal parliament. In parliamentary terms Thomson was a nobody, yet he was rewarded with the coveted position of chairman of the economics committee from day one. As the credit card scandal broke, Williamson's network went into overdrive to keep their man secure.

Knowingly or not, Val Gostencnik was a key player in that network. Outside the industrial relations clique he's not especially well known. But to insiders he's a formidably connected lawyer - with distinctive competence in matters involving health unionists.

FOR a few months in 2009 it looked like Australia's industrial registrar Doug Williams might succeed in establishing an investigation into the Thomson allegations. July 1, 2009, was the deadline.

Previously confidential documents released under Freedom of Information this year and Williams's extensive on-the-record interview with me have filled in many blanks. What emerges is Fair Work Australia's seemingly conscious encouragement of delays and frustrations to the investigation of a relatively straightforward alleged swindle. It would likely be handled by a local detective rather than a multi-million-dollar government agency - that's if the alleged offender were a suburban accountant, not a unionist with connections.

Now retired, Williams says had his investigation plan been followed, the matter would have been "done and dusted, it would have been wrapped up during the passage of the following year (2010)". That Thomson seems to have been shielded from inquiry should disturb us all. Discovery of how that happened must be a priority for the government.

FWA's "summary of events" for the HSU investigation records this for April 8, 2009: "Industrial registrar advised deputy prime minister's chief of staff Ben Hubbard inquiries were under way into HSU and formal coercive investigation may ensue."

This week Williams told me Hubbard's call was "unusual" and memorable, coming in the dark of night on the rarely used Williams landline. Williams told me Hubbard had only one short, sharp question. "He asked had the name Thomson come up in my inquiry."

Williams was untroubled by the call from the deputy PM's chief of staff. Ministers, even the deputy PM, could not influence him in a role where his independence was protected in law. He told me: "I was a statutory officer accountable independently to the parliament, not to a minister." His replacement, the general manager of the new FWA, is not - they report to the FWA president and are subject to his or her directions.

By June 30, Williams had overseen weeks of preparatory work to set up a coercive investigation. "We had taken considerable care to determine that we had enough material to demonstrate an abject failure of governance in that organisation and that the move on to the investigative phase was warranted, which is why I took that decision before I left."

He told me about previously confidential legal advice from the Australian government solicitor that endorsed his plans. He sought specific guidance on any potential legal issues that might restrict him in reporting apparent crimes to police. "I recall advice from the Australian government solicitor that there was nothing circumscribing me or the organisation taking that kind of action" he says.

On June 30, Williams issued written instructions to his direct report, Terry Nassios, directing him to establish the investigation. He added this unmistakable provision: Nassios's plan should include "actions arising from the inquiries to date, including referrals to police, which can occur on the strength of discoveries which do not require further investigation".

This week he said, "An industrial registrar, a statutory officer, does not issue such an instruction lightly, and it's issued in the expectation that it will be fulfilled".

So why was his instruction ignored? Why did it take another year for FWA to start the investigation? "That is a mystery to me," Williams says.

That mystery may not be so perplexing for FWA commissioner and former law firm partner Gostencnik. He began his career as an industrial officer, or union official with the HSU (known at the time by a different name). After gaining law and economics degrees and a Corrs Chambers Westgarth partnership, Gostencnik worked with Julia Gillard on drafting the Fair Work laws. He gave legal advice to FWA as it investigated Thomson. He "settled" a letter to police in which FWA's GM Tim Lee "regrettably advised" detectives he was unable to assist - or even meet - them if the subject included anything to do with Thomson. It's worth looking at that letter in detail.

On behalf of HSU members, national secretary Kathy Jackson formally reported Thomson's alleged embezzlement of HSU members' money to NSW Police on August 24, 2011.

Forty-five minutes later email records show Superintendent John Watson of the fraud squad wrote to FWA's Lee seeking details about "Craig Thomson and transactions that have been charged against a health services union credit card".

The next day Watson wrote again. Soon after that second letter arrived, Lee chaired a meeting of the HSU strategy group with Nassios, FWA lawyer Ailsa Carruthers and AGS lawyer Craig Rawson.

Lee tabled Watson's letters along with Jackson's letter to Police Commissioner Andrew Scipione, in which she authorised police to contact FWA to retrieve HSU documents police might require in evidence. Jackson herself had lodged four boxes of credit card and other original records with FWA in 2009.

The minutes of that FWA meeting of record were quietly released after an FoI review this year. For the first time we now read this critical legal advice from the Australian government solicitor: "Craig Rawson advised that this letter (Jackson's to police, copied to FWA) would constitute authority for FWA to release HSU documents to police."

But documents were not released and that advice was not taken. Lee directed a vastly different course. The minutes record: "Tim Lee asked Craig Rawson to prepare a letter to the NSW fraud squad and to settle that letter with Val Gostencnik of Corrs Chambers Westgarthof Corrs Chambers Westgarth".

Here was a "senior executive lawyer" from the AGS being second-guessed on a legal question by a line manager.

The question in issue was serious, a request by police for access to potential evidence identified by police as of interest in a criminal investigation.

The target named by police was a former union official, Thomson. The direction not to act on the Australian government solicitor's legal advice came from a former union official, Lee. He enlisted a former union official, Gostencnik, to "settle" that advice in a letter to police.

Later when FWA wanted its investigation into the HSU independently reviewed, it turned to Gostencnik to recommend the reviewer. He suggested KPMG and FWA accepted his recommendation immediately and without tender. The effect was that Gostencnik chose the reviewer to report on the quality of work that had been guided by Gostencnick's own legal advice.

Pressure mounted for the release of the FWA report into Thomson week by week. By April 1 last year it was long overdue. The transmission of the report to a Senate committee (to engage parliamentary privilege for its public release) was still weeks away, but FWA sent Gostencnik the report and its appendices on April 3 last year. Just days later he began an action in the Federal Court on behalf of minister Bill Shorten, seeking orders that an administrator be appointed to the HSU. That action was said to have damaged the interests of Jackson, named in the then unreleased FWA report.

She could not know what was in the full report, but Gostencnik did and Shorten's application compounded its advantage by funding courtesy of the taxpayer. Gostencnik swore a detailed affidavit in those proceedings on behalf of Shorten, displaying exquisite knowledge of the HSU's affairs and its internal who's who.

ABC1's Lateline program reported on Shorten's court move on April 26 last year.

Shorten said on the program:: "I would hope that the warring Jackson-Williamson groups would actually recognise that an administrator is a good step forward."

HSU official Jackson told Lateline: "This (should) not be about putting an administrator in place that suits Bill Shorten ... he wants to make sure that he ends up in a position where he controls this union personally, not as the minister - personally, that's what I'm offended about.

Jackson is alluding to the Labor Party faction and national conference votes held by each union. It's through control of those voting blocks that political careers are made. It's hard to argue Shorten didn't have an advantage in those proceedings by selecting the learned Gostencnik, whose legal library boasted one of the few complete FWA reports into the HSU, information no one else had.

Then opposition leader Tony Abbott said, "What does the government know about the Health Services Union that it wants to put it into administration for? What misuse of money, what maladministration, what potentially criminal activity is the government aware of?"

While Gostencnik was giving legal advice to Shorten, FWA's report into Thomson remained tightly and confidentially held.

Affected parties were shown the elements of the report referring to them and were given time to respond. Until those processes were completed, the report would officially remain a tightly controlled secret.

Three days after Shorten applied for a court-appointed administrator to the HSU, prime minister Gillard fronted the cameras. "I do believe a line has been crossed here and because a line has been crossed, I have acted," she told a media conference, referring to Thomson (and separately to Speaker Peter Slipper).

Gillard had asked Thomson to quit the Labor Party. It had been her call alone and she volunteered that she had not consulted cabinet about the issue.

As The Australian reported at the time, "Mr Thomson's resignation from the party comes as two damning reports on the scandal-plagued HSU are due to be made public in the coming days and weeks. Fair Work Australia has promised to soon hand over its long-delayed report to the Senate's education, employment and workplace training committee."

FWA's general manager would not name Thomson or any other official in connection with the report. General manager Bernadette O'Neill was "not protected against defamation" claims. Her concern for herself would go down poorly in police stations, where every charge, arrest and decision to caution brings the same exposure.

Newspapers in Australia have two edition-free days - Good Friday and Christmas Day. This year, late on Easter Thursday, Shorten announced Gostencnik's appointment as a FWA commissioner. He promoted Gostencnik to director of Fair Work Building and Construction just three months later.

One of Gostencnik's last acts before his appointment to the bench was to draft and file the FWA statement of claim setting out the allegations against Thomson. That legal process is now headed to a mediated settlement by mutual agreement of Thomson and his investigators.

In April 2007, Gillard announced a Labor government would abolish the Industrial Relations Commission and set up a new IR umpire to be called Fair Work Australia. Who knew that Gillard's police force, prosecutor, judge and jury within the one-stop-shop would work so hard for one union official who's alleged to have ripped off thousands of union members.

It is the workers and their money that is at the heart of this, isn't it?

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