Lack of clarity on dry dock decision

Well before Scott Morrison came west to announce a $4.3 billion investment in a large vessel dry berth at the Australian Maritime Complex, the state government had proposed building the exact same facility.

The rationale for the ‘dry dock’, as it is commonly referred, was in part about responding to a major strategic shortfall in Australia’s shipbuilding and maintenance capacity.

Broadly put, dry docks act as large basins that can be flooded and drained for the purpose of floating in large vessels and submarines for upgrades and repairs.

They are essential pieces of defence infrastructure and Australia has just one, Captain Cook graving dock in Sydney, which is scheduled to undergo upgrades in 2026 that will take more than a decade.

For context, China has 16 dry docks, more than the US and the UK combined.

Building a dry dock was also thought to have benefits beyond complementing the activities of the Royal Australian Navy, given businesses in the AMC, a pay-for-use site, would have access to the infrastructure as part of its common-user facility.

As outlined by the Department of Jobs Science Innovation and Tourism in its June 2020 strategic infrastructure and land use plan for the Henderson site, large cruise operators that might otherwise access a dry dock in Singapore, Malaysia or the Philippines could have access to a facility in WA that incurred higher labour costs but was technically superior.

Following the state’s announcement, industry events were held to court support for private funding, while DevelopmentWA undertook early market engagement to gauge whether there would be sufficient commercial interest to proceed with the project.

However, on March 15, fewer than two weeks after WA’s hard border with the rest of the country came down, Mr Morrison leapfrogged the state government entirely by announcing the federal government would foot the bill and have the dry dock online by 2028.

“This is a $4.3 billion vote of confidence in Western Australia’s shipbuilding capabilities, jobs, training and the critical role that Western Australia plays in defending Australia and powering our national economy,” he said.

“This multi-billion-dollar infrastructure investment will transform the Henderson maritime precinct into a world-class shipbuilding powerhouse and demonstrates our ongoing commitment to naval capability in the west.”

There are considerable benefits to the federal government’s commitment, which guarantees money for the project without the need to seek private funding.

It’s in contrast with DevelopmentWA’s plan, which had called for a mixture of public and private funding but would have carried the ancillary benefit of de-risking the state government’s stake. It also would have opened the facility to eventual private ownership and maintenance, as is the case for Captain Cook graving dock, which is leased to Thales Australia.

On price, though, both the prime minister and several cabinet ministers have repeatedly pegged the cost of building the facility at $4.3 billion.

While neither the state government nor DevelopmentWA had ever officially attached a figure to the project, Business News had originally reported it would cost about $500 million, while sources familiar with the process understood it would cost between $1 billion and $1.5 billion.

It’s clear that at least one senior figure in the state government is confused by the figure.

On the day of the prime minister’s announcement, Defence Industries Minister Paul Papalia told state parliament he believed the $4.3 billion figure was “elevated” and was likely inclusive of scheduled upgrades to surrounding infrastructure.

The prime minister’s office was queried on this matter in mid-March and did not return a request for comment.

To some extent, the lack of coordination on the announcement represents a tension in the state government’s relationship with its federal counterpart following Defence West’s sustained campaign for life-of-type extension, or full-cycle docking, of Australia’s existing fleet of Collins-class submarines.

Sustainment of these vessels is divided between WA and South Australia, with the WA government creating Defence West in 2017 with the explicit aim of lobbying for all sustainment work to be conducted at Fleet Base West.

That arose from Labor’s identification ahead of the 2017 poll of the need to diversify Australia’s shipbuilding and sustainment capacity, given SA was at the time also set to play a key role in locally manufacturing 12 Attack-class submarines.

Numerous cost overruns and delays appeared to bolster WA’s case for receiving full cycle docking, until the federal government in September moved to acquire nuclear-powered submarines.

SA would consequently have lost significant shipbuilding capability without those works, meaning there was an imperative to keep the works split between the two states.

All the while, key figures, including the prime minister and former defence minister Linda Reynolds, had repeatedly been coy on the matter when asked, initially promising a decision would be made at the start of 2020, only to backtrack after the ‘black summer’ bushfires and COVID-19 became a more pressing concern.

Mr Morrison has since confirmed that AUKUS negotiations had begun in early 2020, indicating the federal government had probably come to a decision on what to do with the Collins-class submarines well before it publicly showed its hand.

That’s likely to have angered the WA government, which is understood to have been hesitant to invest further in defence infrastructure without any federal guarantee because of the full cycle docking decision.

Perhaps more pertinent, though, is that the announcement was made in the context of an impending federal election that increasingly looks unfavourable to Mr Morrison in WA.

And while the prime minister was keen to get in front of cameras with Premier Mark McGowan just two days after his Henderson appearance to announce more funding for Edith Cowan University’s new city campus, neither the premier nor any state government minister appeared with their federal counterparts to tout the federal government’s dry dock proposal.

It’s understood the state government wasn’t given forewarning of the news.

According to Peter Dean, chair of defence studies at The University of Western Australia, the political optics of the decision are hard to ignore in the context of the upcoming election.

Increasingly, he sees the prime minister’s rhetoric as undergirding his hopes of a ‘khaki election’, in which the Liberal Party would notionally benefit from its perceived strength on defence and national security issues.

Up to now, most of this has either been through announcements that have either lacked substance, won’t be substantively litigated for years to come (such as September’s AUKUS agreement), or question the opposition’s credentials on issues of foreign policy.

“This was all about laying the landscape for a national security election,” Professor Dean said.

“What I think we’ve seen [is the federal government] moving to more immediate, here-and-now tactical announcements that are also linked back to jobs and the economy.

“This announcement is not well beyond the forward estimates.

“This is much more of a here-and-now project.”

Indeed, this project will be needed in the near term, with Defence’s 2020 Force Structure Plan noting Australia needed an additional facility to complement Captain Cook graving dock.

In February 2021, Infrastructure Australia similarly identified the need to update the AMC’s capacity to allow for out-of-water maintenance and construction of vessels – which a dry dock could provide – within the next five years.

On top of that are the commercial benefits likely to flow through to WA’s shipbuilding sector in the next decade.

“This has been in the works [for years], and it’s also strategically a good move to make this decision now and get this under way as quickly as possible,” Professor Dean said.

“There’s potential for commercial opportunities beyond just the naval shipbuilding industry.

“People are looking at this as something that will be positive infrastructure, a job creator and something that will be economically viable.”

It’s important to note that nobody who spoke to Business News for this article disagreed with the premise that Australia needs a second dry dock, or the merit of building it in WA.

To the contrary, most argued that a second facility was needed far sooner than the federal government had indicated, based on the assumption Captain Cook graving dock would be offline for maintenance from 2026.

Mr Papalia raised this issue with reporters shortly after Mr Morrison’s announcement.

“I’m a bit concerned, because as I understand it [Captain Cook] is shutting down in 2026 for an extended maintenance period,” he said.

“This one isn’t going to be built by then.

“That’s a bit of a concern because we won’t have a place to dock large vessels or indeed nuclear submarines in that gap period.”

Budget notes and previous ministerial statements indicate the project won’t start in earnest until the second half of 2023 and won’t be operational until 2028 at the earliest.

That leaves a two-year capability gap during which Australia won’t have onshore access to a dry dock.

Australian Strategic Policy Institute senior analyst Marcus Hellyer foresees serious complications for the Navy in the near-term if that timeline is followed.

“You can probably plan a large maintenance activity in advance, or an upgrade to the LHD [landing helicopter dock] could maybe be planned in advance to align with the availability of one of those dry docks,” Mr Hellyer said.

“The issue is we’ve got that two-year period.

“If we’ve got any unplanned defects, then we may have to somehow get the ship all the way to Singapore, which is fine if Singapore is available.”

Further complicating the matter is that the project will be funded entirely by the department’s integrated investment program, which, in practical terms means funding can be distributed on a year-by-year basis, as opposed to the four-year projections required of projects funded through the budget process.

Management of the program, including the department’s governance, approval framework and public reporting of it, is currently being reviewed by the Australian National Audit Office with its findings to be tabled in June after the federal election.

Labor’s defence industries spokesperson Matt Keogh indicated the opposition supported the dry dock but criticised the lack of funding for it in the FY2022/23 budget.

“All of [the federal government’s announcements] are so far into the future they’re all about getting an announcement with no actual detail and are not actually going into the budget,” Mr Keogh said.

“From an industry point of view, not only does it mean that the government’s fixated off well into the future, but not actually looking at what's required now.”

Most of these complaints are of detail or the lack thereof. Indeed, as Mr Keogh points out, the opposition hasn’t made specific commitments on defence acquisitions because it isn’t able to cite details that are available to the federal government.

With the government having made the announcement when it did, however, Mr Hellyer believes there’s a risk of good strategic decisions being poorly announced.

“There’s no legislation or practice that requires the government to announce anything, or to announce it in a timely fashion,” Mr Hellyer said.

“That’s just setting things up for politicisation.”

To resolve the issue, he suggested more robust disclosure of decisions pertaining to defence acquisition programs, including legislated timeframes from when the department hands its business case to cabinet and approval is given.

“That avoids some of this speculation about politicisation,” Mr Hellyer said.

“It would also require the government to announce it, and so that would mean the Australian public would know that significant decisions have been made about substantial amounts of money.”