Op-Ed - AFR , 6 May 2024 - So many things wrong with Labor’s one huge bet on PsiQuantum

If quantum computing is the future and Australia has some of the world’s best quantum researchers and early stage companies, then what could possibly be wrong with the Albanese Labor government – along with its counterpart in Queensland – putting nearly a billion dollars into PsiQuantum, some of whose founders are Australian?

Actually, there are so many things wrong with this decision, it is hard to know where to start.

PsiQuantum is not an Australian company, it is an American company based in Silicon Valley.

Much of the company is owned by American technology investors. While they will benefit from this decision, it is far from certain that the Australian taxpayer will benefit from it.

Venture capital investors typically place many bets across multiple different companies and technologies, and do so only after extensive due diligence into the companies they are investing in.

But now Labor is setting itself up as the biggest, baddest, most risk-loving venture capitalist of all time, with a huge bet on one technology (quantum computing), one particular path to turn that technology into a commercial product (photonic qubits), and one particular company following that path (PsiQuantum).

Photonic qubits might be the winning technology path. But it could just as easily be silicon-based systems, superconducting qubits, ion trap technology, neutral atoms, diamond-based systems, or another pathway altogether.

And it could be that quantum computing never proves up. Certainly there is world-leading research going on in Australia and many outstanding companies trying to take the research from the laboratory to the marketplace.

It is far from certain PsiQuantum’s technology will prove up – and even if it does, that will not happen for years.

But nobody – not even genuine quantum experts who have spent their life working in this field – knows for certain whether it is going to work and, if so, which variant is going to work.

In such circumstances the sensible path is to spread your bets and for governments to provide funding that can support the work of many different researchers and companies.

It is far from certain PsiQuantum’s technology will prove up – and even if it does, that will not happen for years. The company itself says that today’s quantum computers remain “many orders of magnitude away from the size of system needed for fault-tolerance”.

Why then does Labor present this as an investment in Australian manufacturing? There will not be any manufacturing happening for years. You can hardly start manufacturing a product when it does not yet work.

How did we get to this point? It seems to have started with Industry and Science Minister Ed Husic meeting with PsiQuantum in late 2022, and again in Silicon Valley in early 2023.

No doubt he was impressed with what he saw. But there has been a very poor process in getting from those meetings to the decision which has just been announced.

We know PsiQuantum retained a Labor-aligned lobbying firm co-founded by Richard Marles’ former chief of staff, Lidija Ivanovski.

We know that PsiQuantum was briefing investors months ago that it was in advanced discussions with the Australian federal and state governments.

We know that only a small number of companies were invited into an expression of interest process. They were required to sign non-disclosure agreements, and at least some indicate privately they felt the specifications had been written so that only PsiQuantum could meet them.

This looks like a government bedazzled by a particular company, directing the Department of Industry to find a way to fund them, and the department concocting a sham process when in fact the decision had already been made.

PsiQuantum says its “mission is to build and deploy the world’s first useful, fault-tolerant quantum computing systems”.

The National Quantum Strategy, released in May 2023, says “the Australian government will … be bold and ambitious … building the world’s first error-corrected quantum computer in Australia”.

Had the government already made up its mind at that time to throw a large amount of public money at PsiQuantum?

And how good a commercial deal has this bedazzled government negotiated on behalf of the Australian taxpayer?

Prior to this announcement, PsiQuantum had raised over $US660 million in four funding rounds going back to 2016 (spread across more than 20 investors). We now know the Australian taxpayer is tipping in almost the same again – in one single transaction.

What are taxpayers getting in exchange? Is there an equity stake in the company? If so, what does it value the shares at, and how does this compare to their value prior to the announcement?

By how much has the value of existing shares in PsiQuantum – held by existing investors such as US venture capital funds – jumped as a result of this announcement?

How much is being provided in grants to the company – that is, money which does not need to be repaid? How much is being provided as a loan? What is the term of the loan? What is the interest rate? Has the Australian government taken security over the company’s assets?

We know very little about this, with Labor saying only that the money is a combination of equity, loans and grants. Taxpayers have a right to know much more. Labor says this spending will deliver 400 jobs. At $2.35 million per job, this is a very, very expensive subsidy.

It is hard to avoid the conclusion that this government has let its enthusiasm get ahead of its judgment, deliberately avoided using normal processes of good government, and as a result exposed the Australian taxpayer to large and unnecessary risk.

Paul Fletcher is the opposition spokesman for science.