Chris Ketter (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

I present the report of the Economics References Committee on the future of Australia's naval shipbuilding industry, together with the Hansard record of proceedings and documents presented to the committee. I move:

That the Senate take note of the report.

This is an inquiry that has been going since 25 June 2014. In the previous parliament, this committee tabled three reports on the future of Australia's shipbuilding industry. The committee's first and second reports dealt with the tender process for the Navy's new supply ships and the pre-tender process for the Future Submarines respectively. The third report reaffirmed the recommendations made in the earlier report and also made findings relevant to the wider topic of Australia's future shipbuilding industry, including a recommendation that particular matters be included in the government's Naval Shipbuilding Plan. In this final report, the committee builds on its earlier findings and recommendations and examines the national shipbuilding plan and recent procurement and policy announcements by the government.

I think it's fair to say that the committee remains concerned about the government's management of the Naval Shipbuilding Plan. We're concerned about minimal Australian shipbuilding industry participation in the Future Frigate program. The committee is concerned because the government's request for tender did not require the three short-listed foreign designers, in their proposals, to subcontract to Australian businesses. The committee is concerned about the Future Submarine program. We were disappointed to hear that the strategic partnership agreement between the Commonwealth and Naval Group Australia is still under negotiation and we're concerned that delays related to the Future Submarine program risk a sovereign capability gap. Also, in relation to the offshore patrol vessel program, the procurement process was managed very poorly. The government did not require the successful tenderer to partner with or subcontract to a local shipbuilder.

There's a need for long-term planning on a national basis in this industry. I think most of us would accept that there is a need for Australian sovereign capability. I do want to place on record that the committee was reminded of the tremendous capacity of Australian industry and Australian workers to contribute to the naval shipbuilding enterprise. We noted that the decision on the Future Frigates is imminent, and it is critical for the development of Australia's sovereign capability that Australian shipbuilders have a significant role in the building of the Future Frigates.

I just want to finish by thanking the secretariat for their hard work over that period of time. I also thank all those who assisted the inquiry, particularly those who made written submissions and attended the public hearings. I pay tribute to my colleague Senator Kim Carr and to his office for the important work that they've done in relation to this report.

Rex Patrick (SA, Centre Alliance) Share this | Link to this | Hansard source

I also commend this report to the Senate. The committee has done a fantastic job in covering a whole range of different aspects of naval shipbuilding in Australia. I also thank the secretariat for doing a fantastic job. I note that this is an $89 billion program, so we must give appropriate scrutiny to this program, and I think the committee has done a good job in summarising the program, or at least pulling together the entirety of the program and examining it.

Unfortunately, the $89 billion program that the government is running here is not achieving one of the key things that it set out to attain. The report basically covers this. We were expecting that the shipbuilding program would indeed be a sovereign shipbuilding program. There was an opportunity to leverage off this program not only from an economic perspective but also from a strategic perspective. In that respect, the government has failed. I'll just walk through some of the reasons why I say that; I'd hate to make a statement like that without grounding it properly.

The reality is that we started with the supply ships. We went to tender in 2014, and a decision was made in 2016. The tender did not involve an Australian company at all. We ended up basically contracting out two supply ships for the Royal Australian Navy to be built by a foreign company—a good foreign company. I mean no disrespect for Navantia, but they've taken that job and they've offshored it to Spain. In doing that, they've offshored the opportunities we had to learn in relation to shipbuilding, and we've exported the money. Indeed, in South Australia, we were suffering a significant problem in terms of redundancies at ASC. But we exported those jobs—they've gone—and we're seeing people being laid off as a result of that.

I know an icebreaker is not a naval vessel, but the report does suggest that we might look at this from a broader perspective than just naval shipbuilding and perhaps include some of the other ships that the government contracts. At about the same time as the supply ship contract was offshored, so too was the icebreaker for the Australian Antarctic Division. The lead designer of that project is Damen, a Dutch company, and that job has been exported to Romania. So, whilst we struggle to keep people employed in South Australia, through the valley of death, we now have an icebreaker being built, not with Australian steel, in a far-distant, foreign land.

The next project that we saw a contract being awarded to was the Future Submarine project. We went through a CEP, a competitive evaluation process, where we picked out a strategic partner. DCNS was the eventual winner of that CEP. DCNS is a very good submarine company. They're very experienced at designing and building submarines. However, we learnt recently, not just through the committee but also through estimates and a number of other sources that fedinto the committee, including things like FOIs, that the ASC—which is the centrepiece of Australian submarine shipbuilding and sustainment knowledge—has been excluded from the Future Submarine program. Originally, the French company, DCNS, wanted to partner with ASC in Adelaide. It turns out that the government directed the program to go in a different direction. It now appears we're about to sign a contract which commits to Australia having a French company in charge of the build here in Australia. I find that particularly disturbing, because we haven't even got to the design completion yet. That won't happen until 2022. We don't even understand the design and we don't even understand the cost, yet we are committing to having DCNS build these submarines.

Senator Ketter also mentioned the offshore patrol vessels. That particular project was awarded to a German company—once again, another good company, Lurssen; but it is a German company. They are actually subcontracting elements of the build to both ASC and to Civmec in Western Australia, but I point out that the awarding of that contract will have a significant impact on a very good Australian designer and shipbuilder, which is Austal in Western Australia. We seem to be bringing in companies from overseas and giving them large contracts so that they can then compete with these Australian companies on a world stage. That seems to be a very, very odd way to approach things.

The next was the Future Frigates. We were stunned last year in April when it was revealed by The Advertiser, that the three contenders for that particular project were Navantia, British Aerospace, or BAE Systems as they're now called, and Fincantieri—all good shipbuilders and designers; we actually do need a design—but in the tender they excluded the option for the primes, the overseas designers, to engage ASC or Austal as the builders of those ships. I've been in and around the defence industries for a long time and never have I seen a government exclude its own shipbuilders from being the shipbuilder. To me, that's a betrayal. It's a betrayal of Australian companies and Australian workers. It's kind of like saying, 'You can't build a canoe.' So I'm very, very disappointed. Indeed, when trying to find out who in government might have made that decision, the committee was met with cowardice. No-one wanted to stick their hand up and say, 'I made that decision for these reasons.' I found that particular approach pretty disturbing.

We have a situation where we're trying to build a sovereign naval shipbuilding industry. Our previous icebreaker was built in Newcastle by Carrington Slipways. Our future icebreaker will be built by a Dutch company in Romania. We have a situation where our former supply ship, HMAS Supply, which is still in the Navy, was built in Australia by an Australian company. Our next generation of supply ships are being offshored to Spain. You can see we're going backwards. Our previous offshore patrol boats were built here in Australia by Australian companies and now we've abandoned them. We've sidelined those companies and, in fact, are now relying on a German design and they are now directing the build. It's the same with our frigates and destroyers. Our previous frigates, the Anzacs, were built here in Australia by an Australian company, in totality. Our air warfare destroyers were built in Australia by an Australian company, in their totality. But that does not seem to be the case for the Future Frigates. I guess we'll see what happens in the next week or so as the government makes an announcement on that. Going to submarines, our previous submarine, the Collins class, was built in Australia by an Australian company. Our Future Submarines will be built in Australia but by a French company.

We find ourselves in a situation, and the committee's examined the evidence. We are almost unique in the world amongst First World navies and First World countries, basically sidelining our own shipbuilders. We're going to have foreign designers, which is okay—lots of countries do that—and we're going to have foreign builders. Not many First World countries do that. We've taken a massive step backwards in terms of sovereignty. If that was an aim of this particular program, and I believe that it was, and it should be, we have failed. I'm not exactly sure how we turn this around, but we do want to have a situation where the companies that are building our ships are Australian companies that retain the IP, have control over export and can work with the workforce as an integrated unit, and that's not happening here.

Dean Smith (WA, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the tabling of the Senate Economics Reference Committee's report, Future of Australia’s naval shipbuilding industry. Coalition senators recognise that the Australian government, through the 2016 Defence white paperthe Integrated Investment Program and the Naval Shipbuilding Plan—has provided a framework to build a sustainable sovereign shipbuilding industry. Quite rightly, the Commonwealth government views a productive Australian naval shipbuilding industry with an export capacity as a strategic export asset. There's no doubt that investment made in the Naval Shipbuilding Plan will revitalise Australia's heavy engineering and advanced manufacturing industrial capability, particularly in my home state of Western Australia.

Evidence provided to the committee throughout this inquiry demonstrates that the Commonwealth government is delivering on their commitment to a sustainable sovereign shipbuilding industry, ensuring that Australian businesses and jobs are at the forefront of all projects. Milestones in the continuous shipbuilding program are being met. I acknowledge Austal, in particular, who launched the first steel-hulled Guardian class Pacific patrol boat on 30 May this year. Austal are a perfect example of the types of companies we want to see more of in Australia across all defence industries. For many years, they've been Australia's largest defence exporter and in some years have been our only defence exporter. This year alone, they'll sell $1.35 billion worth of vessels to commercial and government clients across the globe, having delivered in excess of 300 vessels to clients in 54 nations since their foundation. In addition to this, Austal are the only foreign prime contractor to sell vessels to the United States navy since the American War of Independence. These vessels are designed in Western Australia and built with more than 2,400 components manufactured by Australian industry.

The plans this government has laid out for a sovereign shipbuilding industry will ensure companies like Austal continue to be successful, along with creating a sustainable future for ASC and their workforce. Throughout this inquiry, Defence have outlined in detail the Commonwealth government's plan to maximise Australian industry involvement across the full spectrum of the naval shipbuilding enterprise, from capability design to complex project management, construction and sustainment activities. This means future Australian governments will be able to plan and execute the design, construction and sustainment of future fleets of major service combatants in Australia using the sustainable indigenous capability we will build through this process.

To achieve the required level of Australian industry involvement in these projects, the Commonwealth government has established the Capability Acquisition and Sustainment Group. Industry days have also been held around Australia with the intent of informing local businesses of opportunities in the supply chain for major Defence projects. Through extensive engagement with local industry on the Future Submarine project alone, 800 Australian companies have registered interest with Naval Group, and 222 Australian companies have registered interest with Lockheed Martin Australia. These companies, along with those who have registered interest in the Offshore Patrol Vessels and the Future Frigate Program, will have the opportunity to enter the international supply chain of major defence primes.

A great example is in my home state of Western Australia, where tenderers for the Future Frigate Program have engaged a Perth based company, Hofmann Engineering, to supply thrusters for the international cruise ship business. Additionally, these companies have entered into an agreement to cooperate in developing opportunities in the $400 million global market for the manufacturing of marine systems and components. Even before the main project has started, the government's emphasis on Australian industry is already creating jobs in our economy. The Australian Industry Capability Program requires tenderers on projects with a value in excess of $20 million to demonstrate how they'll maximise opportunity for Australian industry to participate in the Defence supply chain. The public record shows the government has also strengthened requirements on tenderers to demonstrate how they'll maximise Australian industry capability over the life of the project and build enduring defence industry capability to meet Defence's broader needs in the years to come.

Coalition senators authored a dissenting report on this inquiry because we believe the Commonwealth government has provided the appropriate framework to establish a sovereign and truly national shipbuilding industry in our country, an industry that will build indigenous capability and create thousands of skilled multigenerational jobs. In delivering these plans, coalition senators believe updates on Defence projects should be provided to both the Joint Standing Committee on Foreign Affairs, Defence and Trade and the Senate Foreign Affairs, Defence and Trade Legislation Committee through estimates. I would note, of course, that many projects already are advised to the Joint Public Accounts and Audit Committee. I note the defence subcommittee is currently inquiring into the benefits and risks of a bipartisan Australian defence agreement as a basis of planning for and funding of Australia's defence capability. This includes examining the role of the Australian parliament in overseeing the delivery of long-term defence capability, including the 2016 Defence White Paper, the integrated investment plan and the Naval Shipbuilding Plan.

It's the view of coalition senators that the findings and recommendations should be taken into account by the government before responding to this inquiry. We believe greater longitudinal oversight of the delivery of these plans by the Australian parliament would be an appropriate response to the concerns raised in the chair's report and the majority of recommendations. We further note the Department of Defence have made clear the sustainment of the Collins class submarine is the subject of long-term capability planning and that there are no plans to move the sustainment location. In response to recommendation No. 7, whilst noting the Commonwealth government has developed a framework to ensure Australian industry involvement in major defence projects is maximised, coalition senators agree in principle with this recommendation and believe definitions could be further tightened. Coalition senators on the committee commend the Commonwealth government for the significant work being undertaken to establish a sovereign shipbuilding industry in our country. I seek leave to continue my remarks later.

Leave granted; debate adjourned.