Australian submarines: France wins $50bn contract

Malcolm Turnbull admitted a “premium” to be paid for building a new fleet in Australia rather than overseas.

The Shortfin Barracuda submarine the French company, DCNS, will provide to Australia.

Malcolm Turnbull has admitted the “premium” to be paid for building a new fleet of submarines in Australia rather than overseas but has declared the impact would be “extremely manageable” amid questions over the cost of the landmark decision.

The Prime Minister told ABC TV’s 7:30 program that all three bidders for the mammoth construction program had estimated a “rough order of magnitude” in cost difference for the local building program.

The comments, to be aired tonight, came after federal cabinet formally decided to commit the $50 billion program to French firm DCNS, with the first of twelve submarines to be built early next decade.

“We have a sovereign defence force and we should have a sovereign defence industry with construction here wherever possible within Australia,” Mr Turnbull said in the interview.

“All three bidders nominated an order of magnitude, what’s called a rough order of magnitude, between building overseas and building in Australia.

“Such premium as there is is extremely manageable,” Mr Turnbull said, but he would not go into detail on that point.

While mathematicians refer to an order of magnitude as a tenfold difference in values, The Australian was told that Mr Turnbull’s remarks did not mean a tenfold difference in the cost of local versus overseas construction.

The Prime Minister also revealed he had spoken to his Japanese counterpart Shinzo Abe to assure the key ally of the strength of the bonds between the two nations, despite the decision to choose the French bid.

“In all of my discussions with Prime Minister Abe, including the most recent one, each of us shared our unwavering commitment to our strong, special, strategic partnership with Japan, which will become stronger in the years ahead,” Mr Turnbull told 7:30.

Asked about the Japanese statement that the outcome was “deeply regrettable” Mr Turnbull said the response was understandable.

“We can clearly understand their disappointment at not being successful in the competitive evaluation process,” he said.

Japan demands sub answers

The Japanese government has asked Australia to explain why it decided not to pick a Japanese design for a new fleet of submarines, choosing instead a proposal from France’s DCNS.

“The decision was deeply regrettable,” said Japan Defence Minister Gen Nakatani. “We will ask Australia to explain why they didn’t pick our design.”

Australian officials informed Japan of its choice on Monday, explaining that the French design best fitted its unique needs, Nakatani said.

The Prime Minister Malcolm Turnbull this morning named France as the winner of the $50 billion submarine bid, pipping Germany and Japan to build the next generation of submarines for the Royal Australian Navy.

The Australian understands that Mr Turnbull called France’s president Francois Hollande last night to inform him that the French company DCNS had won the giant contract.

It will now be a difficult task for Mr Turnbull to explain the reasons to the Japanese who believe they were blindsided because an expectation that they would build Australia’s submarines was built up under Tony Abbott’s leadership.

The then prime minister was forced to open it to international competition after a rebellion by Coalition MPs from South Australia who feared the prospect of the submarines being built in Japan would cost several of them their seats.

Japanese Prime Minister Shinzo Abe had a lot at stake, having invested considerable domestic personal political capital in Japan’s parliament changing its interpretation of its pacifist constitution to allow the export of military hardware.

That was done in large part to accommodate Australia.

The prospect of a stronger relationship with Australia has gained considerable support within the Japanese people.

Japan’s government, in partnership with a consortium headed by Mitsubishi Heavy Industries, offered an evolved version of its 4000-tonne Soryu-class submarine, to be lengthened by 6m to 8m, mostly to provide the space for additional fuel and batteries to increase its range and for roomier crew accommodation.

However Mr Turnbull downplayed suggestions the selection of the French submarine would offend Japan and its close ally, the United States, noting the involvement of American submarine experts in the competitive process.

“Both Prime Minister Abe and I, and our respective governments, and I believe our respective nations, are thoroughly committed to the special strategic partnership between Australia and Japan which gets stronger all the time,” he said.

Turnbull says despite Japan losing subs bid, Aust & Japan still thoroughly committed to strategic r'ship and it gets stronger day by day

— Phillip Hudson (@PhillipMHudson) April 26, 2016

Mr Turnbull, formally announcing the contract details in Adelaide, said the decision had followed a “thorough” and “objective” process and would generate 2800 Australian jobs.

“The recommendation of our competitive evaluation process of the panel, the department of defence, the experts who oversaw it, was unequivocal, that the French offer represented the capabilities best able to meet Australia’s unique needs,” he said.

“These submarines will be the most sophisticated naval vessels being built in the world, and they will be built here in Australia; built in Australia with Australian jobs, Australian steel, Australian expertise.”

Mr Turnbull predicted the submarines would continue to be serviced in Adelaide, and further ships built, for at least the next five decades.

”We do this to secure Australia, to secure our island nation, but we do it also to ensure that our economy transitions to the economy of the 21st century. That we have the technology and the skills and the advanced manufacturing and the jobs for our children and our grandchildren for decades to come.”

Defence Minister Marise Payne said all of the proposals were of “very high quality”, but the government had “unambiguous” advice that the French option met Australia’s “unique requirements”.

“It reflects the fact that we are a maritime-based trading nation and both our national and economic security are linked to the maritime environment of our region,” Senator Payne said, noting about half of the world’s submarines will operate in Australia’s region by 2035.

“We need submarines with considerable range. We need the capacity to remain undisturbed and undetected for extended periods, we need submarines that are quiet, that have advanced sensor technology to detect other submarines.”

Hundreds of construction workers will benefit as a new submarine yard is built at the ASC shipyard. Then will come at least 1200 new jobs as construction work begins for the new undersea fleet.

DCNS is offering a 4500-tonne conventionally-powered version of its 4700-tonne nuclear-powered Barracuda submarine, which would be called the Shortfin Barracuda after a predatory fish found in Australian waters.

The French company believes its design is the most advanced, with a pump jet-propulsion system it says is much quieter than a propeller, making the submarine harder to detect.

Malcolm Turnbull with Vice Admiral Timothy Barrett and local member for Hindmarsh Matt Williams after the announcement in South Australia.

German company TKMS offered Australia a 4000-tonne sub of a new design using technology tested in its 2000-tonne boats. With that came a promise of a new industrial revolution and digital manufacturing model for the nation to be introduced on the back of the submarine project.

The German shipbuilder Thyssenkrupp, which unsuccessfully bid to build the Navy’s submarines, said it respected the decision to award the $50bn contract to rival DCNS.

Chairman of Thyssenkrupp Marine Systems Hans Atzpodien said the company would be willing to further contribute to Australia’s naval capabilities as needed.

“We respect the Government’s decision (and) we wish the Government and DCNS success in this important national endeavour,” Dr Atzpodien said in a statement following this morning’s announcement.

“We are committed to Australia and our local customers - also in our elevator, mining & mineral, and material services businesses.”

TKMS Australian chairman John White said the competitive evaluation process undertaken by the Australian government was conducted with “high integrity and professionalism”.

“We are naturally disappointed, but we stand ready to provide support for Australia’s Future Submarines project with our unrivalled experience, leading technology and track record in building submarines in the customer’s own country,” Dr White said.

The NSC has been comprehensively briefed on the options by the Australian Defence Force team responsible for running the competitive evaluation process.

Reaction to the decision

Bill Shorten claimed opposition pressure had forced the Coalition to build the submarines in Australia.

“We’ve made it clear that nothing less than building all of the 12 future submarines for Australia, they need to be built, maintained and sustained in Australia,” the Opposition Leader said in Brisbane.

“It was the resolute opposition of the Labor Party which has forced the Liberal Party back to the table to stand up for Australian jobs and Australian-built submarines.”

But Labor is not convinced DCNS will build all 12 of Australia’s future submarines in Adelaide, accusing Mr Turnbull of leaving open the prospect of a partly-offshore build.

Senior Labor MP Penny Wong has called on Mr Turnbull to rule out a hybrid build before the election, saying DCNS has previously hinted it would like to build one or two of the vessels in France before moving construction to Adelaide.

“I note in today’s announcement, the press release from the prime minister does leave a bit of wriggle room for commercial negotiations,” she said.

“(It) is an announcement in principle, but not an announcement of a contract.” Mr Turnbull stated in his announcement on Tuesday that “the next generation of submarines for Australia will be constructed at the Adelaide shipyard.”

Australian Made Defence campaign spokesman Chris Burns said he was satisfied the vessels would all be built in Adelaide.

He said Mr Turnbull’s announcement could not be compared to Mr Abbott’s promise during the 2013 election campaign to build submarines in Adelaide.

“I put much more faith in this commitment as a decision by government, not just a promise provided at an election,” he told reporters.

Independent senator Nick Xenophon said the announcement was unambiguously good news for SA but more details were needed, including how much Australian steel would be used in the build.

South Australian Premier Jay Weatherill says jobs will start to flow almost immediately following the decision to build 12 submarines in Adelaide.

Mr Weatherill says the decision confirms South Australia will have a high-tech naval shipbuilding sector for decades to come and is an example of the state transitioning from the old to the new economy.

“It is up to us to grasp this opportunity,” Mr Weatherill said.

Victoria says as the largest defence manufacturing state in Australia it should get a fair share of the work to deliver the country’s new submarine fleet.

The state’s Industry Minister Lily D’Ambrosio is calling on Mr Turnbull to ensure Victoria is “heavily involved” in a national approach to the design and building of the subs.

“Victoria is well placed to work on the design, engineering and supply of the submarines and stands ready to work,” Ms Ambrosio said.

Ai Group Chief Executive, Innes Willox, said the announcement was the most important naval acquisition decision for Australia’s defence industry in the past 30 years.

“The final choice must have been a very challenging one given the high quality of each of the bidders. The appointment of experienced French submarine designer and builder, DCNS, offers scope to introduce advanced maritime technologies proven in naval operational service into the Australian Navy,’’ Mr Willox said.

“Our new fleet of submarines will be the most potent weapon in Australia’s military armoury, one incorporating stealth capabilities essential for operating in our increasingly complex regional strategic environment.

“The Federal Government’s decision for the indigenous build of the new submarines acknowledges the agility, skill and know-how of Australia’s naval submarine building and sustainment workforce. Critically, this capability will be further enhanced over many decades as a result of today’s announcement.

“This decision will be a massive boost to Australian industry with more than 1000 companies nationally expected to be involved in associated supply chains over the coming decades. The complex build will also include the welcome incorporation of Australian steel.

“The challenge both for governments and industry will be to ensure that we realise to the fullest extent possible the advantages for the domestic economy. These include the development of workforce skills; integration into global supply chains; technology transfer; and the demonstration both domestically and internationally of Australian capabilities including in advanced manufacturing.

“The Competitive Evaluation Process (CEP) for selecting the preferred design house for the new submarine comes after a long period of indecision by successive governments. It’s to the credit of each of the bidders — French, German and Japanese - that they were able to submit their proposals on time. The Defence evaluation team ably led by highly experienced submariner, RADM Greg Sammut, has worked hard to progress this important program.’’

Additional reporting: Cameron Stewart, Brendan Nicholson,Jared Owens, Sarah Martin