Successive Defence White Papers have argued for an increase in the size of Australia's submarine capability to meet future strategic needs. Recent media speculation, however, suggests that the upcoming Defence White Paper will advocate for eight submarines with a later option for four more. If this is correct, it is a curious response to recent developments in the South China Sea.
In his post of 6 October ('Opportunity Cost in Australia's Future Submarine Decision') Stephen Grenville is happy to leave strategic considerations to the experts. I would argue that you can't reach a sensible decision on the matter of where and how many submarines to build unless you consider the strategic, economic and industrial arguments in concert.
The strategic implications of increasing the size of Australia's submarine force is the logical starting point. I have argued elsewhere of the strategic necessity for 12 submarines, why eight is not enough to provide the necessary strategic impact or a sustainable and continuous presence to monitor and act in the South China Sea, and why the program should be initiated as a rolling build of 12 to achieve best value for money.
We should heed Dr Michael Fullilove's Boyer Lecture vision for Australia to think big and act big on the global stage, and to be 'an ambitious country, with the instruments that enable us to influence the balance of power in Asia'.
Having made a decision to allocate funds to increase the size of Australia's submarine capability, the primary economic consideration should be achieving value for money. Here, the priorities are:
- The required capability.
- Minimising financial and strategic program risks.
- Minimum cost of ownership.
- Maximising economic, strategic and industrial benefits.
Submarines are not a commodity we can import at will. There is no existing production line for the large conventional submarine that our geography requires and successive Defence White Papers have concluded we need. We will have to pay to establish it, whether overseas or in Australia.
None of the countries being considered for foreign construction (Japan, Germany, France) is inexpensive for shipbuilding, and the balance of evidence suggests the cost between Australian and international production is comparable. As the Kokoda Foundation's Paper Sub Judice - Australia's Future Submarine found regarding the cost of the Collins build, 'a thorough analysis of comparable programs confirms that...there is no cost penalty for an Australian build.' Recent offers from overseas designers to construct 12 submarines in Australia for around $20 billion reinforce the point.
The financial risk and strategic benefit are best managed by maximising Australia's capacity to sustain the submarines through the 50-year life of the class. This is reinforced by the strategic benefit of Australia controlling the building line should our needs require additional submarines at short notice.
There will be no cost saving by relying on overseas sustainment for a bespoke Australian submarine. Experience with the Oberon Class supports this; it was expensive and strategically imprudent, as illustrated by the Oberon submarine spares drought during the Falklands War. It is also worth noting that a local build provides greater cost certainty because it minimises exposure to currency movements.
There are also industrial and economic arguments supporting this approach.
If we were to build eight submarines, there would typically be a four-year gap between completing the eighth and starting work on a successor class. This would create an industrial 'valley of death', which would be expensive economically, industrially and politically. The argument for a rolling build of submarines is stronger than surface ships, given the complexity of construction, specialised industrial skills and lack of overseas production lines. A timely decision to keep start a rolling production program can avoid the valley of death and thus higher costs. The production facilities are also likely to have a higher level of self reliance.
Moreover, since there will be no significant cost difference between buying eight or 12 submarines until we commit to the ninth boat in the late 2030s, there will be no budget impact for at least 20 years. I would argue that a $20 billion acquisition program spread over 28 years and the consequent sustainment cost of an additional $40 billion spread over the 50 year life of the class is an affordable and warranted insurance policy for uncertain times. If the situation changes for the better, that is the time to switch back to a smaller submarine force.
Recent arguments by Professor Goran Roos on the benefits of leveraging off a local build to boost Australia's economic complexity support this approach. The Collins build program has fostered a viable sustainment industry that has given Australia an economic, strategic and industrial advantage in this specialised area.
To sum up: a force of at least 12 submarines provides a critical strategic impact, one that is appropriate for the challenging maritime environment we face. Now is not the moment to walk back to eight submarines. We should confirm earlier Defence White Paper decisions and commit to 12 submarines built in Australia to ensure we achieve best value for money for Australian taxpayers while delivering the capability for the minimum cost of ownership.
Photo by Flickr user ARTS_fox1fire.