Australia PM: Fund To Receive Bulk Of Telstra Sale Money

CANBERRA -(Dow Jones)- Australian Prime Minister John Howard said Friday the bulk of the proceeds from the full sale of Telstra Corp. (TLS) will be poured into the government's planned Future Fund.

But Howard was noncommittal about a demand from the Nationals party that A$2 billion be put aside to protect telecommunications services for customers in rural and regional areas.

The rural-based Nationals party is the junior partner in the coalition government and its support is crucial to the Telstra sale legislation being passed in the federal parliament.

A report in the Australian newspaper said Nationals leader and deputy prime minister Mark Vaile will later Friday use a speech to insist that A$2 billion from the A$30 billion-plus Telstra sale proceeds be quarantined for investment in telecommunications services for people outside the country's major cities.

"We'll continue to talk," Howard said in response to the report.

Questioned about what will be done with the sale proceeds, Howard said "quite a lot of it" will be directed toward the Future Fund, which the government plans to use to meet public service pension liabilities currently worth around A$91 billion.

Howard also rejected claims this week by a Telstra executive that funding to meet service obligations in remote areas of Australia isn't adequate to cover the cost of what needs to be done and isn't sustainable in the long term.

Howard said the universal service obligation safeguards, introduced in 1997, are entrenched in government policy and federal legislation.

"Rural people should understand very plainly that the...obligation is going to stay and Telstra should understand that very plainly as well," the prime minister said.

Communications Minister Helen Coonan is expected to introduce the Telstra sale legislation into the parliament next month.

The divestment of the government's remaining 51.8% stake in Australia's dominant phone company is expected to proceed in 2006, making it the world's largest share sale next year.

-By Veronica Brooks, Dow Jones Newswires;

61-2-6208-0901; veronica.brooks@dowjones.com

-Edited by Graham Morgan

(END) Dow Jones Newswires"

Posted to the site on 29th July 2005