Govt accused of hiding $591m in French sub cancellation costs

Brandon How

The Greens have accused the federal government of trying to hide $591m in asset write-down and re-employment costs incurred from the fallout of the previous government’s decision to unilaterally withdraw from its $90 billion French submarine project.

The agreement with Naval Group would have delivered 12 diesel-electric attack submarines to Australia. The government agreed to pay Naval Group $830 million for breaching the contract, which led to the loss of about 350 jobs at Naval Group across France and Australia.

Among the costs detailed at Senate Estimates, and in the Australian Naval Infrastructure (ANI) 2021 annual report, is more than $300 million in asset write downs for unused infrastructure at the Osborne North Development project, a submarine yard which would have supported the attack-class submarine.

The remaining $291 million was to employ workers affected by the cancellation at ASC, formerly the Australian Submarine Company.

An asset write-down is similar to capital depreciation in that it doesn’t represent additional spending.

ANI managing director and chief executive Andrew Seaton said the “way the accounting standards work is you need to have a clear use for the asset to be able to hold the asset on your books”.

“We have written them down, but I have a full expectation that in the future we might well write those assets back onto our books,” he said.

Infrastructure that was under construction and could potentially be used as the foundation of future projects include the slab, main hull and mechanical workshops, and main consolidation hall. Work to determine if the infrastructure at Osborne North is suitable for nuclear submarines is ongoing.

In total, ANI spent $470 million on the Osborne North Development project. This includes the ANI’s completion of the Combat Systems Physical Integration Facility and partial construction of a Platform Land-Based Testing Facility. However, Mr Seaton said that the latter facility, which would’ve simulated sea environments for the testing of submarine engines on land, will “likely… be demolished”.

The remaining $291 million is associated with the Department of Defence’s Sovereign Shipbuilding Talent Pool, announced at the same time of the program cancellation. The program seeks to re-employ affected workers at the government’s submarine sustainment business ASC.

In 2017, the firm’s infrastructure capability was separated into the ANI while its shipbuilding capability became ASC Shipbuilding, which is now a subsidiary of BAE Systems.

According to ASC chief executive Stuart Whiley, 219 affected staff have moved to the state-owned enterprise. This number is expected to reach 223 “over the next six to eight weeks”.

The talent pool program began around six months ago and has the option to be renewed for an additional two years according to Mr Whiley. From its initiation to the end of September, $28 million has been expended.

Comments on the costs of cancelling the attack-class submarines project were made in response to questions by Green Senator David Shoebridge, who accused the government of trying to hide the costs.

“Only in a bungled multi-billion Defence project would a government even try to hide a lazy $591 million in additional costs. These costs have been ferreted away off the Defence budget, but they will still have to be paid for by the public,” he said.

“It’s the opportunity cost of these funds that really hurts. When we pay an extra $591 million for not building submarines we lose those funds for public housing, schools or income relief.

“While there are strategic arguments for retaining skilled staff, the fact that the ASC contract costs $1.3 million for every job is astounding. The ASC contract is filling a staff capacity gap caused by the bungled handling of the future submarine project.”

At the start of September, a joint South Australian and Commonwealth government SA Defence Industry Workforce and Skills Taskforce was launched to ensure South Australia still has the available skills to support submarine projects.

Do you know more? Contact James Riley via Email.

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