The Turnbull government's decision on the future submarine represents bad policy. It is bad for the navy, bad for the taxpayer and bad for Australia's future defence. Given the key role the submarine is meant to play in the future of the naval shipbuilding industry, it's also bad news for South Australia.
The navy's requirement is for a uniquely large conventional submarine (SSK) that can undertake force-projection missions far from home. This in itself raises important strategic questions. Is this an appropriate role for Australia? Does the United States want Australian submarines to operate in the South China Sea? In practice, should only nuclear submarines (SSNs) undertake such missions?
But accepting the defence requirement for what it is, the concerns around the decision to acquire the DCNS Shortfin Barracuda submarine are considerable. They relate as much to the very substantial risks involved as to the excessive cost.
In terms of the acquisition costs budgeted by defence, $4.6 billion represents an eye-watering price for an SSK. A nuclear-powered Barracuda costs less than half this in France. A very large Virginia class SSN costs $3.6 billion in the US. Most SSKs cost less than $1 billion.
The French submarine appears to be easily the most expensive of the three proposals submitted under the competitive evaluation process. The German contender, TKMS, offered to build 12 advanced submarines in Adelaide for about $20 billion, the same cost as in Kiel. At about $750 million in Japan, an improved Soryu-class submarine would cost more to build in Adelaide, but far less than $4.6 billion.
Turning to risk, there is a fundamental flaw in the process itself. By eliminating all competition before a detailed design has been produced, the navy faces substantial risks. What if the eventual DCNS design is untenable on technical grounds? What if the price quoted by DCNS, now a monopolist, is unacceptable? Australia could be forced to buy an existing design off the shelf from overseas that might not meet all the navy's needs.
This scenario is possible because the French proposal involves major technical challenges. No one has ever converted a nuclear submarine to a conventional sub before. Many experts doubt it can be done. The hull forms are different. The use of pump-jet propulsion in the Barracuda, while a breakthrough technology in SSNs, may be far less efficient at the low speeds associated with an SSK.
Another technical risk with the DCNS proposal is that, unlike the other two contenders, it doesn't incorporate air-independent propulsion. This propulsion allows an SSK to remain submerged for up to three weeks, albeit moving at slow speeds. Because of improved anti-submarine technologies, which allow SSKs to be detected when "snorting" (recharging their batteries close to the surface), air-independent propulsion is a sine qua non for an advanced SSK in the 21st century.
A major risk with the French proposal is the tardy delivery schedule, with the first submarine not entering service until the 2030s. This will necessitate a major upgrade to the Collins submarines to keep them in service until the 2040s. This involves massive risk. Collins can't be converted to embody air-independent propulsion. Deep diving will become increasingly dangerous as the platform ages. The likely cost of the Collins upgrade is more than $15 billion, but it might not deliver a credible submarine capability.
Given the Australian Defence Force's preference for American weapons and systems, a further risk is the US will refuse to allow the full transfer of sensitive technology to a French platform. The recent comprehensive leak of DCNS's top-secret submarine data is likely to make the US more wary of providing sensitive technologies to France. This means an American combat system, as well as US cruise missiles and torpedoes, may be unavailable.
One popular theory suggests the choice of the Shortfin Barracuda is merely an artifice to allow the nuclear version of the platform to be acquired down the track. Australian Strategic Policy Institute executive director Peter Jennings certainly thinks so: "It's probably a good bet to say that the reason we've gone with the Barracuda is that some of the 12 builds can be nuclear," he said.
No one has ever converted a nuclear submarine to a conventional sub before. Many experts doubt it can be done.
If this is defence's cunning plan, it's highly questionable. First, the Germans and Japanese don't produce nuclear submarines and were taking part in the competitive evaluation process, in good faith, on the basis of a false prospectus. Second, it's also a highly risky approach to replacing Collins. Even if we started now, it would take 15 years to develop the hard and soft infrastructure needed to operate SSNs. We don't know if this will ever be politically acceptable in Australia. We haven't undertaken any process to determine whether a French SSN would be more appropriate to the navy's needs than an American or British design. We might well also need to procure SSKs to complement the putative long-range SSNs, and the Shortfin Barracuda is unlikely to be the best available platform for that role.
Overall, the risks involved in the DCNS proposal are so high as to be unacceptable, particularly in light of the costs involved. A senior defence official told The Daily Telegraph last month: "If you asked someone to devise a new submarine program with the highest risk factors at every stage, you could not have done a much better job. It will almost certainly end in tears and possibly a catastrophe."
Fortunately, it's not too late to change course. To date, the only agreement with DCNS is for the development of a detailed design. The solution is to keep the competitive process alive by extending the competitive evaluation process and resuscitating the other proposals. As the Australian National University's Professor Hugh White has said: "What we need is a competitive project development study phase, in which two or more contenders develop detailed designs and provide tender-quality prices on which a fixed-price contract can be based. That is standard in this kind of project, or used to be." As well as proposing a tender price for building them overseas, each contender would also be required to provide a detailed plan for building the submarines in Adelaide under a fixed-price contract.
Apart from the benefits of re-establishing a competitive process, extending the evaluation process would also help repair relations with Australia's friends in Japan and Germany. There was considerable angst in both countries not only about the process's outcome but, more fundamentally, about the process itself. Defence rejected the German and Japanese proposals for reasons the proponents regard as largely spurious.
Extending the evaluation process wouldn't delay the acquisition. Indeed, our future submarines may be in the water sooner than presently projected. At the same time, the major risks in the current process would be substantially reduced and there is a much greater likelihood that the navy would be provided with the right submarine at an acceptable cost.
Jon Stanford is a director of Insight Economics. He is a past head of the industries division in the Department of the Prime Minister and Cabinet. firstname.lastname@example.org