It might be being designed and sold by the government and the Press Gallery as an exciting new era of nuclear-powered submarines and a new Anglophone agreement to confront China, but today’s submarine announcement is cover for the most staggering piece of project mismanagement in Australian history, in our most important portfolio.
The government’s contract with France’s Naval Group for a new generation of submarines has been torn up. Presumably Scott Morrison delivered this news personally to Emmanual Macron during his lightning visit to the Elysee in June, or he should be prepared for some ferocious blowback from the French. We’ve already handed $2 billion, plus change (plus ça change, more accurately), to Naval Group for the design phase of the new subs. That’s gone down the drain. It was a tiny downpayment on the $90-billion odd it was going to cost to build the things at Australia’s low-efficiency, small-scale shipyards, but it’s not a trifling amount.
Why has the contract failed? Because building a generation of submarines to a highly modified design in Australia was always going to be profoundly difficult, and because the French were naturally eager to build as much of them as possible in France — not just for French jobs, but because they could deliver them more cheaply there. In the five years since the government announced the contract, that tension has never been resolved.
The whole debacle had its genesis in Liberal leadership tensions: Tony Abbott had the correct idea to purchase the vessels off-the-shelf from overseas — probably Japan — at a considerably lower cost. But his persistently bad polling, especially in South Australia, and the need to shore up the support of South Australian MPs in a coming leadership battle with Malcolm Turnbull, saw him change his mind and plump for building them locally — despite knowing that would add 30-40% to the price.
So, yes, we’ve already wasted billions and will waste many more, all because of an unsuccessful effort by Tony Abbott to save his leadership. Of such things is history made.
There’ll also be a break fee, of course, for tearing up the contract. A figure being touted is $400 million. If Naval Group is happy with such a small sum, that will be very surprising indeed — especially if Morrison blindsided the French, who now join the Japanese in having been dudded by Australia’s village idiot-level defence industry policy.
But even though we’re back to square one five years later: we’re stuck with the problem of politics: Morrison insists what is now being examined is that the new nuclear-powered American submarines will be built locally, meaning exactly the same problems as with Naval Group have just been kicked down the road. Congressional representatives and senators for Connecticut and Virginia, where the Virginia class boats are currently built, are probably already thinking about making sure as much of Australia’s subs as possible are built there.
And if the cost of the local build under Naval Group was huge, just wait. In 2018 ASPI’s Marcus Hellyer estimated that buying the Virginia class boats off-the-shelf from the US would cost about the same as the Naval Group build — though it would depend to a degree on the Australia-US dollar rate. The Americans could build the boats faster and cheaper, but the subs are much bigger than the ones we were getting from Naval Group (and need much bigger crews, which will be a problem down the track).
But if we’re building them locally, it means, give or take, a 30-40% premium on the off-the-shelf price — meaning we could be looking at a substantial price rise above the $90 billion we were already looking at.
Maybe the Americans will give us mates’ rates — after all, the US boats will help us more effectively play deputy sheriff against China in the Indo-Pacific — except for all the places across the Pacific that nuclear vessels can’t dock. Like New Zealand. Or Hobart.
And this is all before you get to the problem of how the entire concept of whether you can have nuclear-powered submarines without a domestic nuclear power industry has never been tested. Or perhaps, as some pro-nuclear defence analysts have argued, having some nuclear-powered subs is a good backdoor way of introducing a domestic nuclear power industry in Australia. Morrison insists the subs decision is unrelated to a domestic nuclear power industry. With a backbench clamouring for nuclear power, is he any more believable than normal on this?
A domestic nuclear power industry, as Crikey has reported for so many years, would be inordinately expensive and require massive government funding. But if we’re already spending $120 billion on nuclear subs, why not spend a few tens of billions more? It’s only taxpayer money, which the Coalition appears to regard as mere plaything.
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