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Monday, 29 February 2016
Page: 1349

Senator XENOPHON (South Australia) (17:47): The 2016Defence white paper sets out a medium- to long-term defence strategy based on reasonable hypotheses about the future, like the geopolitical outlook. There are a number of good things in the pages of the document which are welcomed, and I join my colleagues in congratulating the defence minister, Senator Payne—and indeed Senator Johnston as the former minister—and of course those within Defence for the work they have done.

But I do feel obliged to raise the serious concerns I have around submarine building and naval shipbuilding. Whilst recommitting to 12 future submarines is welcomed, there is not much else for Australia's shipbuilding industry or taxpayers to sing about in the defence white paper. Starting with submarines, the white paper failed to rule out an overseas or hybrid build of the boats, thereby failing to uphold the coalition's pre-election promise to build them in South Australia. It beggars belief that the government is still considering exporting the better part of this $50 billion project overseas.

Moving on to naval shipbuilding, there are two 'knowns' in the white paper. The first is that Australia's three air warfare destroyers are currently being built in Adelaide. They will be all but completed in 2018. The second is that the future frigates that will replace the current Anzac class frigates will commence their build in 2020. Between the wind-down of the AWD, something that has already commenced, and the spin-up to the future frigate sometime after 2020 lies the so-called 'valley of death' in shipbuilding jobs. The valley will reach its nadir between 2018 and 2020, when ASC shipbuilding will have what their CEO described at a recent Senate estimates hearing, in answers to questions from Senator Wong, as essentially a 'skeleton workforce'. From 2018 onwards, there will only be about 100 shipbuilders remaining. That is a skeleton workforce.

This is bad not just for the current employees of the company that will be out of work and, with all the other multiplier effects, for subcontractors but for Australian taxpayers as well. In 2013, Defence penned the Future submarine industry skills plan, in which Mr Warren King had a key role, which recommended we avoid a 'valley of death' at any cost. It stated in its executive summary:

The impact of rebuilding from a low base for the current Air Warfare Destroyer and Landing Helicopter Dock ship projects was substantial and expensive.

It went on to say:

With the cost of all planned naval projects being somewhere above $75 billion, a proficient and productive shipbuilding industry would produce overall savings to the Defence budget in the tens of billions of dollars.

Again, in 2015, the RAND Corporation stated in its study Australia's naval shipbuilding enterprise:

The premium to build in Australia could be lower than the 30 to 40 percent range if Australia adopts a continuous build strategy to avoid rebuilding an industrial and management capability with each new ship program, starts with mature designs at the onset of production, and minimizes changes during production. With such measures (and a cultural shift in industry toward continuous improvement), we can envision this premium being cut in half.

So there are efficiencies in the tens of billions of dollars for taxpayers in relation to that.

A very superficial analysis is that it is a bit like putting together modular furniture! Mr Deputy President, if you have ever been to IKEA and bought some flat-pack furniture, it takes you forever to put it together the first time around, if you are like me. Even if you can put it together, once you have done it two, three or four times, by the fourth time you are a whiz at it and you have great efficiency in putting it together. In some respects, it is the same with shipbuilding or any form of manufacturing. This is evident in the results achieved in the air warfare destroyer program. At a recent Senate committee hearing, the CEO of ASC revealed that, at 71 per cent completion, ship 2 was coming in at 39 per cent less than the cost of ship 1; and, at 46 per cent completion, ship 3 is coming in at about 50 per cent of the cost of ship 1. We are now losing that capacity through the government's approach to naval shipbuilding—a patchwork approach.

There is a requirement for the Navy to build 12 offshore patrol vessels. On 4 August 2015, the then Prime Minister, the Hon. Tony Abbott, travelled to Adelaide to announce a continuous build program. To avoid the 'valley of death', he stated:

The frigate build will certainly start in Adelaide. That doesn't mean that other yards can't have a role, but certainly the Corvette—

the OPV—

build is likely to start in Adelaide. It will stay in Adelaide until the frigate build starts in 2020 and then it's quite possible that the Corvette build could shift.

But it appears that the Turnbull government has rejected that solution.

Australia needs to take a strategic approach to naval shipbuilding and sustainment. In order to benefit from the efficiencies and productivity advantages that a continuous build approach is predicated on, the continuity must occur in the one location. The only sensible strategy is for naval ships to be built efficiently and well in the one location in Adelaide and for the sustainment work, which is considerable over the 30-year lifespan of a ship, to be carried out at the RAN's operational bases at Sydney, Perth, Cairns and Darwin. That is what must happen for the sake of taxpayers, for the sake of efficiency and for the sake of avoiding the 'valley of death'.

The coalition may respond to this by suggesting that it was the Labor Party not making any decisions on shipbuilding that caused the valley and that they are just living with the consequences. There might be some element of truth to what they are saying, but it is not the entire truth. The government has had opportunities to plateau the valley, but has not taken them. It excluded Australian shipbuilders from tendering for the Navy's future supply ships. The government claimed that Australian shipyards could not do the build, but this statement is at odds with the ASC's unsolicited proposal in 2013 to build three supply ships for the price of two.

A supply-ship build would have stemmed the loss of skilled workers that is happening as I speak. Unfortunately for those workers, these shipbuilding jobs have been exported, using Australian taxpayer funds, to South Korea or Japan. Secondly, it occurred when the government down-selected the Pacific patrol boat solution to either Cairns or Perth based companies. That job could have gone to Techport in South Australia and plateaued the valley. The government failed to do that.

The defence minister mistakenly suggested that the defence white paper gave Australia's shipbuilders certainty. That is not correct. After two years of waiting for a white paper that would clear the uncertainty, the plan announced last Thursday simply perpetuated it. We are left with a mountain of uncertainty overshadowing a valley of jobs death in naval shipbuilding in this country.

Question agreed to.