Inside Australia’s $20b sub war

Australia has reportedly welcomed an offer from Japan to jointly build a fleet of new submarines.

Needing improvement ... Australian navy ships need to be more sophisticated. Here, HMAS Waller returns to Fleet Base West at Garden Island. Waller (SSG 75) is the third of six Collins class submarines operated by the Royal Australian Navy. Source: Supplied

THREE of the world's biggest defence companies are gearing up for a competition to supply Australia with a new fleet of submarines for between $20 billion and $30 billion.

With the current Collins Class boats due to retire from 2026 time is running out for a government that is said to favour a sole source buy from Japan, but is being urged by experts to run an open competition for the most important defence contract in the nation's history.

It was no accident that new Defence Minister Kevin Andrews made his first official stop as minister at the ASC shipyard at Osborne in South Australia. The yard will be integral in any submarine plan and is likely to be purchased by a successful bidder (provided it is not Japan) to be used for both construction and maintenance of the new boats.

GERMANY: Puts in its bid for Aussie subs

FOREIGN SUBS: Why they'd cost us close to $30 billion

Tough call ... Defence Minister Kevin Andrews will decide the fate of our navy shipbuilding future. Picture: Supplied. Source: News Corp Australia

The future submarine project will dwarf every other national endeavour including the Snowy Mountains Scheme (about $10 billion in today's money) and the RAAF's new Joint Strike Fighter (up to $16 billion).

It will be the most expensive and complex defence project ever undertaken and it will provide the nation with a vital deterrent and force multiplier for the next 50 years.

By all accounts Mr Andrews is a cautious man who is unlikely to make the errors of his predecessor Senator David Johnston.

Johnston strongly favoured the Japanese Soryu Class boat to replace the ageing but still highly capable Collins Class fleet. The problem is that few people in Defence, and that includes those intimately associated with the project, knew much at all about the Soryu because the Japanese Navy has (understandably) been reluctant to share its deepest military secrets.

One offer ... Japan's Soryu class submarines docked in a Japanese port. Picture: Kikuchi Masayuki Source: Supplied

Given this reluctance and the unstable nature of Japan's democracy and its unwillingness to compete there appears to be considerable sovereign risk in committing so much treasure to the Japanese basket.

As author and academic Derek Woolner wrote recently on the Australian Strategic Policy Institute (ASPI) blog, "The degree of complexity in defence projects tended to increase with acquisition from foreign countries with which Australia had little ongoing interaction."

The Japan option — known as Option 'J' — is fraught with technical and political challenges that many believe outweigh the fact that it is the only option actually at sea and available for the reasonable price of between $600 million and $800 million per boat.

All other possible options from Germany (TKMS), France (DCNS) and Sweden (Saab Kockums) are paper vessels only. TKMS favours a larger version of an existing vessel, Saab is bidding a new type and DCNS an evolved nuclear boat that is already in service.

French nuclear submarine ... The Terrible at the DCNS yard at Cherbourg, France. Picture: AFP Source: AFP

President of the Submarine Institute of Australia, former Collins Class Submarine captain and current ASC executive Andy Keough said the biggest drawback with Option 'J' was that the Japanese had never exported any military technology let alone a submarine. He said a modified Australian version of the Soryu Class was effectively also a 'paper' boat.

"There are also disadvantages with the European options because the Americans [who will supply the combat system] would have problems with both the French and the Germans and their technology," Mr Keough said.

"The Swedes can put anything together and they are closer to the US and have integrated sensitive US technology before such as the air turbine and combat system in Collins, but they haven't built a submarine for a number of years."

A new generation submarine ... the Swedish Kockums A26 in an artist impression. Picture: Supplied Source: Supplied

Mr Keough said the SIA was strongly of the view that there should be an open competition to draw out the best two options for a final showdown.

He said another crucial issue was the knowledge base built up during the build phase that would be vital for through-life support.

"Japanese designers know what the Japanese navy needs, but they have never worked with anyone else. The Germans offer a certain type of submarine and will modify it to the requirements of the customer."

Submarine expert at the Australian Strategic Policy Institute (ASPI) Andrew Davies said the big problem with a competition is that Japan does not see itself as a commercial player like the Europeans.

Weighing in ... Andrew Davies, Senior Analyst and Director of Reaearch at ASPI shares his view. Picture: ASPI, YouTube Source: Supplied

He said if the two governments (Australia and Japan) could make the Soryu Class option work then there possibly wouldn't even be a competition. The Howard Government ignored all options when it decided to buy the US-built Joint Strike Fighter.

"This is government-to-government and the Japanese are not interested in a commercial competition. This would be their first submarine collaboration and they don't see themselves as a commercial bidder."

Dr Davies said three alternatives were being considered under Option 'J'.

The first, and in his view the most likely, was a three way collaboration with the United States that would see the boats built and fitted out in Japan. The second option was building them in Japan and fitting them out in Adelaide and finally, and in his view least likely, was construction under licence in Adelaide.

Australian navy vessels ... HMAS Dechaineux and HMAS Waller conduct manouevres in Cockburn Sound near Rockingham, Western Australia. Source: Supplied

"There are two key reasons why Option 'J' is attractive. Firstly the Japanese submarine is built and is operating and secondly it would deepen defence and security arrangements with Japan."

The possibility of a single source Japanese buy has encouraged the Germans and Swedes to produce aggressive bids for the work. TKMS and Saab Kockums have submitted unsolicited bids that are very attractive on price as well as technology and workforce transfer. Germany's Thyssen Krupp Marine Systems, that builds submarines for several navies, got the ball rolling with a public $20 billion bid for 12 boats that could be built in either Kiel, Germany or at ASC or both.

European competition ... the German built HDW Class 214 submarine from TKMS. Picture: Supplied. Source: Supplied

Saab followed suit with a "very competitive" bid that would probably include ownership of ASC and guarantee long-term jobs and skills transfers. The company is playing catch-up but has hired some of the best submarines brains around as it sprints towards a new Swedish submarine industry.

DCNS is waiting quietly in the wings until it can examine detailed requirements for the new boats.

Collins Class builder ASC also went public with an estimate of $21.4 billion for up to 12 submarines. That put to rest government spin (after it broke an election pledge to build them in Adelaide no matter what) that the cost of a local build would be more than $40 billion.

The SA Labor Government has produced independent economic modelling that shows a local build would deliver the nation $20 billion bonus to net GDP and 120,000 man years of work during the life of the project. It also estimated at least $5.5 billion of tax revenue from the project.

These are compelling numbers and they will weigh heavily on the minds of the bean counters in cabinet as they decide during the next few weeks whether or not to go to the market.

THE PLAYERS AND THEIR MARKETS

*DCNS-France, Brazil, Pakistan, India, Chile and Malaysia

*Saab Kockums — Sweden, Australia

*TKMS — Germany, Brazil, Greece, South Korea, Portugal, Turkey, Israel, Singapore and South Africa.

*Kawasaki/Mitsubishi Japan — Soryu Class Japan only

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