UPDATED: Two months ago Defence Minister Andrews invited industry to respond to the recommendations of the RAND Report into the future of Australian naval shipbuilding. He has since received in spades – via the issuing of mass redundancy notices – industry’s view that the bringing forward of the modest Offshore Patrol Vessel and steel-hulled Pacific Patrol Boat contracts will not be sufficient to sustain the sort of industry and resources required to support the post-2020 Future Frigate (SEA 5000) and Submarine (SEA 1000) projects.
The deluge of progressive lay-off announcements from BAE Systems, Forgacs and the government-owned ASC Pty Ltd (including BAE’s decision to not compete for the patrol boat tender) have had an effect on Prime Minister Abbott in panicking him into two major changes to the schedule of Defence policy announcements planned through to the end of 2015.
The first, as confirmed by Abbott himself at last week’s ASPI Land Forces Conference, was that the government will bring forward the release of its Naval Shipbuilding Enterprise Plan – in advance of the new Defence White Paper, whose release has now fallen back to the end of August. Subsequent documents, such as the Force Structure Review and Defence Investment Plan will now not appear until much later in the year.
Secondly, the presumably never-be-released Winter-White report into naval shipbuilding and its recommendations on the future disposition of ASC Pty Ltd are to be supplanted by a new month-long study, which Finance Minister Cormann has confirmed is being rushed, in part due to official reports that accumulating losses ($35m in 2013/14) on the air warfare build are eating into the company’s reserves, with the likelihood – without additional capital inputs from the Commonwealth – it will be bordering on bankruptcy by the end of the AWD program.
If the atrophy of ASC’s financial position is unable to be stemmed by the new external management team currently being recruited to bring the AWD program back onto the timeline of the most recently extended project cost and schedule, ASC will end up having been effectively denuded of the financial base it needs to independently position for future naval combatant builds.
Minister Cormann has reiterated that ASC Pty Ltd is not for sale, however, those more familiar with the actual workings of how the Commonwealth funds the company – such as TKMS in regard to the Future Submarines and Austal in regard to the Future Frigates – appreciate the strategic advantage they may gain from being first up to offer to purchase the ASC in order to secure either of these programs.
While the Finance Minister may wish to hold onto the core of ASC in order to retain an asset to play for the provision of local support in the Future Submarine game, it does not necessarily mean that ASC AWD Shipbuilder Pty Ltd (known as ASC South) – and a wholly-owned subsidiary of ASC Pty Ltd – could not be carved out of the parent company as part of a deal on Future Frigate construction.
That would leave the Commonwealth holding the ASC North site, which could be re-packaged under either a sale or facility-lease arrangement to ensure the site was cleared out of its existing management, in order to make way for the Future Submarine partner and their local allies, whilst maintenance of the Collins-class boats could be moved to ASC West, at Henderson in Western Australia in order to placate local political interests keen to find jobs for the avalanche of workers exiting resource and energy projects in the North of the State.
The person left holding the can in this case will be South Australian Premier, Jay Weatherill – who is already having to juggle mass ‘smokestack’ de-industrialisation announcements – and state taxpayers who have pumped over $350 million into building the gold-plated Techport ship-lift and vessel assembly facility that spans both ASC South and ASC North at Osborne in Adelaide.
Weatherill is “a little paranoid” with the fear he will be left holding an underutilised facility – due to the Future Submarine build element heading offshore courtesy of a view within Defence that construction of the vessel from first principles is beyond the capabilities of Australian industry to deliver to the cost and schedule currently before it – that he has recently offered to sell the Techport to whomever is successful in either SEA 1000 or SEA 5000, and local industry lobbyists have been revved up to campaign for alternative/commercial work to be secured for the yard.
By shifting existing responsibilities to workers and industrialists located at Techport into newer hands, such a deal may just save the Premier’s bacon from a series of poor ‘Playford’-era industry intervention decisions made by the state, which have worked to position local manufacturers in areas increasingly reliant on subsidies handed out by Canberra – such as textiles, clothing and footwear, the automotive industry, and more recently air warfare destroyer building. Regarding the latter, it is simple economics that the need for an extra billion dollars to complete this project requires another massive transfer of wealth from all Australian taxpayers to South Australia, on top of the billion dollar premium the Auditor-General has previously calculated the project is costing the nation.
Premier Weatherill is now showing signs of grasping out for an alternative economic future for SA, having recently been given a lecture on poor industry policy decisions by BankSA Chief Executive, Nick Reade, who talked to the foolhardiness of decisions to craft future South Australian economic and employment generation prospects on assumptions the Commonwealth will always come forward with rescue packages relating to Defence projects lobbied for by state government authorities, but which subsequently go pear shaped.
Weatherill has in his hands a 10-point plan encompassing plenty of other suggestions as to developing alternative industries where the state could invest its treasure, which backs into forthcoming federal government innovation and industry competitiveness initiatives that Prime Minister Abbott himself says will “focus on Australia’s strengths, not prop up poor performers”. Clearly some improved communications and political divide bridge building between these two entities is required.
Repeating the mistakes of previous industry interventions into the future is just not in the minds of Industry Minister Macfarlane and Defence Minister Andrews. As highlighted by numerous recent favourable references to the recommendations of the RAND review (compared to silence on the Winter-White report), both Ministers have in mind a new model of naval shipbuilding in Australia – one that is less dominated by ship construction per se (in order to save taxpayers the build premiums experienced in recent programs), and more dominated by hybrid approaches that see vessel construction undertaken off-shore – but with the majority of their operational systems and weapons either developed or integrated in Australia while the vessel is alongside a wharf.
This opens up a range of options for ‘alongside a wharf’ operations (especially in other states), so by moving early to off-load the Techport to the highest bidder, Weatherill has taken the first step in indicating to Canberra that he may be prepared to take the political heat from any decision to opt for the hybrid or full offshore build approach that will inevitably reduce the volume of work in SA for future projects, compared with the experience of the Collins boats.
Speaking at the National Press Club on July 8, Weatherill was still arguing for the Commonwealth to honour the undertakings of former Defence Minister Johnston that 12 submarines would be built in Adelaide. With leaks from the Defence White Paper process indicating the number has already been cut down to eight or nine boats, Weatherill observed that “signals on the submarine program are mixed, they change from week to week. I do know the competitive evaluation is being taken seriously by the overseas bidders and fully expect them to play by the rules, including fully responding to the three build options.”
No doubt if the SA Premier is to become more sympathetic to the growing reality of either a hybrid or fully offshore submarine build, he will require something in return. This is where Industry Minister Macfarlane comes in – in the form of funding for a new Naval Technology Systems Integration growth centre shortly to be added to the list of five-preferred areas of future hi-tech industrial activity first listed in the government’s September 2014 ‘Industry Innovation and Competitiveness Agenda’. In a side comment at the ASPI Land Forces conference, Macfarlane quipped “there’s no second guessing required to work out where this will be located”.
Expected in return will be Weatherill having to go soft on criticism of the new ‘continuous build’ strategy – now set to end up at the heart of the Naval Shipbuilding Enterprise Plan – that will see naval shipbuilding activity parcelled out to other states in much larger proportions than previous programs, along with the fact that to meet a 2025 timeframe to start taking Collins boats out of service (whether their replacements ultimately come from Germany, France or Japan) – the Future Submarines will need to be substantively built offshore.