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Future of Australia's Naval Shipbuilding Industry Future Submarines

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Future of Australia's Naval Shipbuilding Industry Future Submarines The Senate Economics References Committee Part II Future of Australia's naval shipbuilding industry Future submarines November 2014 © Commonwealth of Australia 2014 ISBN 978-1-76010-112-1 This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License. The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/ Printed by the Senate Printing Unit, Parliament House, Canberra. Senate Economics References Committee Members Senator Sam Dastyari (Chair) New South Wales, ALP Senator Sean Edwards (Deputy Chair) South Australia, LP Senator David Bushby Tasmania, LP Senator Matthew Canavan Queensland, LNP Senator Chris Ketter Queensland, ALP Senator Nick Xenophon South Australia, IND Senators participating in this inquiry Senator the Hon Stephen Conroy Victoria, ALP Senator John Madigan Victoria, DLP PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3540 Fax: 02 6277 5719 E-mail: [email protected] Internet: www.aph.gov.au/senate_economics iii TABLE OF CONTENTS Committee membership iii Acronyms and abbreviations ...........................................................................vii Executive summary ............................................................................................ ix Chapter 1: Introduction .................................................................................... 1 Conduct of inquiry .................................................................................................. 1 Acknowledgements ................................................................................................ 5 Chapter 2: Tender process ................................................................................ 7 Speculation regarding limited tender ..................................................................... 8 Competitive process ............................................................................................... 9 Committee view .................................................................................................... 14 Chapter 3: Competitive tender does not mean a capability gap ................. 17 Chapter 4: Build in Australia ......................................................................... 21 Expertise and skills in Australia ........................................................................... 21 Capability and capacity ........................................................................................ 22 Costs ..................................................................................................................... 25 Economic advantages ........................................................................................... 25 Through-life sustainment and upgrades ............................................................... 28 Submarines and national security ......................................................................... 29 Conclusion ............................................................................................................ 34 Chapter 5: Australia’s new submarine cannot be a MOTS ......................... 37 MOTS ................................................................................................................... 37 Shortcomings with overseas purchases ................................................................ 41 Engagement with Japan ........................................................................................ 43 The Soryu submarine ............................................................................................ 47 Evolved Soryu ...................................................................................................... 58 Comparing capabilities ......................................................................................... 58 Extent of modifications ........................................................................................ 60 Conclusion ............................................................................................................ 61 Chapter 6: What submarine capability does Australia need? ..................... 63 Determining requirements .................................................................................... 64 Critical importance of right decision .................................................................... 64 Special requirements ............................................................................................ 66 Potential suppliers ................................................................................................ 71 French ................................................................................................................... 73 German ................................................................................................................. 73 Collins ................................................................................................................... 74 Conclusion ............................................................................................................ 80 Dissenting Report by Government Senators .................................................. 81 Additional Comments by Senator Nick Xenophon ........................................ 85 Appendix 1: Submissions received to date ................................................................................. 99 Additional information, tabled documents and answers to questions on notice ..................................................................... 100 Appendix 2: Public hearings and witnesses ................................................. 103 Appendix 3: Background to SEA 1000 Phase 1A—deliver Australia's future submarine capability ........................................................................... 107 White Paper—2009 ............................................................................................ 107 Defence Capability Plan ..................................................................................... 110 Defence White Paper 2013 ................................................................................. 114 Election and new government ............................................................................ 116 New or evolved design ....................................................................................... 117 Speculation about Japanese submarine .............................................................. 119 Acronyms and abbreviations ADF Australian Defence Force ADI Australian Defence Industries AIDN Australian Industry and Defence Network Inc. AIP Air-independent propulsion AMWU Australian Manufacturing Workers' Union ANAO Australian National Audit Office AOR Auxiliary Oiler Replenishment ASC ASC Pty Ltd, formerly Australian Submarine Corporation ASPI Australian Strategic Policy Institute AWD Air Warfare Destroyer CDF Chief of the Defence Force CEO Chief Executive Officer CIR Div Capability Investment and Resources Division CGT Compensated Gross Tonnage CPRs Commonwealth Procurement Rules CS Div Capability Systems Division, Capability Development Group DCP Defence Capability Plan Defence Australian Defence Organisation DMO Defence Materiel Organisation DSME Daewoo Shipping and Marine Engineering DSTO Defence Science and Technology Organisation FFG Guided Missile Frigate FMI First Marine International FMS Foreign Military Sales FSC US Federal Supply Codes GDP Gross Domestic Product HMAS Her Majesty's Australian Ship IMO International Maritime Organization JSF Joint Strike Fighter LCS Littoral Combat Ship LHD Landing Helicopter Dock ship LPA Landing Platform Amphibious transport MOTS Military-off-the-shelf MSI Mission Systems Integrator NPOC Net Personnel and Operating Costs NSC National Security Committee of Cabinet PP Production Package RAN Royal Australian Navy RAS Replenishment at Sea RFT Request for tender RINA Royal Institution of Naval Architects SME Small and medium sized enterprises TKMS ThyssenKrupp Marine Systems TLS Through-life support UK United Kingdom US United States of America VERTREP Vertical Replenishment VFM Value for money viii Executive Summary The interaction between Australia's unique geographic, strategic, military and political qualities are perhaps most evident in its choice of submarine. Australia is a geographically isolated middle power with a significant leadership role in the Asia- Pacific region. We have a small but powerful military with a wide-ranging remit, including the protection of far-flung sea lanes that we rely upon for our prosperity. These factors, alongside Australia's decision to opt for a conventional submarine, place Australia in a unique situation. We require a submarine that can travel very long distances, remain on station for long periods of time and perform a wide range of tasks. Australia's future submarine will be a vital part of the Royal Australian Navy's fleet past the middle of this century, so it must provide the best capability at a competitive price for Australian taxpayers. The future submarine project is now approaching a critical stage. It is, therefore, timely that this committee has examined the options available to the government for this vital strategic capability. The committee resolved on 28 October 2014 to report its findings to the Senate. The committee took this step because it feared that critically important decisions were about to be made without adequate public consultation and moreover
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