Tag Archive for: SSN AUKUS

National defence and the RAN (part 3): structuring the fleet for deterrence by denial

Part 1 of this series examined how the RAN could contribute to Australia’s new strategy of deterrence by denial as expressed through the 2023 defence strategic review (DSR). Part 2 analysed the RAN’s primary tasks to execute that strategy. This final post addresses the primary force structure the RAN needs to accomplish those tasks.

Deciding on the navy’s force structure is largely a process of common sense in maximising the impact of current and foreseen technologies and techniques within the available budget. But first must come the hard intellectual effort of deciding what’s to be achieved and why, how it can be done and with what. Long, hard-earned experience has revealed some useful rules to guide the common sense.

The fewer classes of ships and submarines and onboard weapons and systems the RAN possesses, the simpler and more cost-effective it will be to manage construction and lifecycle costs. Preparing and sustaining their crews will benefit too.

Building in batches, retrofitting upgrades only where relevant and sensible, and de-risking future classes by adopting an evolutionary process should be normal. Vessels should start with margins appropriate for a lifecycle involving their change and growth. Nurturing and aligning the supply chain are fundamental to minimising the challenge. The US approach to its Arleigh Burke–class destroyer illustrates the process.

For Australia, geography is the defining factor for designing its force. Almost everywhere the RAN will operate is a long way from its bases. Vessels must cover great distances economically at a reasonable speed and with sufficient volume to carry enough consumable items, including ammunition, to remain on operations for as long as possible. Artificially small crews will not suffice. Support ships are an essential part of high-endurance forces.

Being able to hit sooner, harder and further away than the other side matters. Naval combat involves attrition, and it’s best if the adversary suffers the most. Our primary platforms and systems and their crews are valuable, so they also must be as defensible and survivable as possible.

The DSR warns that the future Australian Defence Force must address a ‘current bias towards platforms’ and says a platform that can’t be crewed or that doesn’t have weapons to fire at a range to achieve the desired operational or strategic effect won’t serve us well in the current strategic environment. The navy needs multi-role platforms that are as self-contained as possible, incorporating advanced sensors, communications and other systems for networked warfare and delivering lethal effects in all domains, against the right target, and as part of an integrated force. They can also be controlling nodes for future large and small unmanned vessels as they become more practicable in the future.

Nuclear-powered submarines (SSNs) with extensive range, endurance and high speed are a self-evident solution for Australia, but their real costs will be eye-watering. Submarines are offensive weapons and very hard and expensive to counter. They will create real challenges for an adversary if present in the numbers needed.

Submarines aren’t the only capability contributing to deterrence, and it remains to be seen if other capabilities have to be given up to pay for them. Current defence budgetary planning seems deficient in that respect. The DSR, for instance, suggests a trade-off with surface combatants, but it’s not clear what that trade-off might be.

Affecting all these considerations are the questions of what rates of effort are to be achieved, for how long, and against which threat. These factors are fundamental to the size of the force and its capabilities, not to mention its cost. The DSR is silent on this aspect, but it notes that the ADF needs to increase its preparedness for operations, which brings additional cost. Options such as multi-crewing are possible to keep ships and submarines in a distant area, if difficult to manage in practice, but eventually maintenance will require a return to home ports. Preparing to deploy and reconstituting ships on return require additional resources to keep a unit on station.

A rule of thumb of three to one is sometimes quoted, which should be interpreted as being a baseline for the conduct of hostilities because it misses the peacetime requirement for advanced training support, system updates and upgrades, and extended maintenance where ships and submarines are out of service for a year or more. A better ratio in peacetime would be five or six to one, which will permit efficient and sustainable management of the force and its workforce and provide the surge and higher availability demanded in hostilities. The same is true for aircraft.

Naval operations in a hostile environment require continuous airborne early warning support and in situ or immediately on-call combat air support. Australia has a major weakness in this respect because its F-35 joint strike fighter and Growler electronic attack aircraft are confined to land-based operations, and its fleets of E-7 airborne early warning and control aircraft and P-8 surveillance aircraft are too small to be on task in multiple locations continuously. The DSR is silent on how these issues will be overcome. It’s of note that the Japanese Maritime Self-Defense Force is converting its helicopter-carrying destroyers to become F-35B (V/STOL) capable. The RAN’s Canberra-class landing helicopter docks can operate SH-60 helicopters but, unlike their Spanish equivalents, were not constructed to operate F-35B aircraft.

We’ve proposed that the RAN should operate throughout our northern region on a consistent, if not constant, basis. The main purpose is to shore up regional capabilities so that our worst case—protection of our mainland—doesn’t become necessary. A viable peacetime naval task group would consist of at least three or four surface combatants and a dedicated support ship, plus one large ship such as a Canberra class to increase the number of Seahawk helicopters and uncrewed aerial vehicles in the group. In the future, that force should be directly supported by an SSN.

Maintaining such a force continuously in our region would also enable intensive denial operations, and would require approximately 18 major surface combatants and four or five support ships, and a commensurately larger number of helicopters. The number of SSNs required is likely to be closer to 12 than eight because they’re capable of simultaneously supporting a task group and conducting independent operations. At present, eight SSNs are planned to replace six Collins-class submarines.

In the 1980s, Kim Beazley wanted 17 major surface combatants to control choke points across Australia’s north, but they didn’t materialise, and since 1987 the RAN has shrunk. The DSR postulates that a similar operational requirement potentially exists for combat operations from the Cocos (Keeling) Islands to Townsville, but even with the Hunter frigate program Australia will only possess 12 such ships.

The RAN’s three Hobart-class ships ushered in Australia’s move towards the type of surface combatant we need, but three don’t deliver the sustainable combat power required. If the major surface combatant force remains at 12 ships (three Hobarts and nine Hunters), or up to 18 but including six corvettes, the force won’t have the capacity or capability to provide an adequate protective presence for our northern defence infrastructure, or the associated task of long-range precision strikes throughout our maritime approaches. Nor could it adequately protect amphibious deployments into the region, or the range and spread of strategically important shipping. The ill-conceived Hunter-class frigate program should be cancelled in favour of quickly building several updated Hobart class while longer term plans are developed, such as collaborating with the US Navy on its future large destroyer program.

The Cape-class patrol craft are adequate for law enforcement and sovereignty tasks into the future, and the need for the larger offshore patrol vessels should be reviewed. Their capability exceeds the patrol tasks required and they will be needlessly expensive to crew, operate and maintain.

The DSR proposes a highly ambitious strategy well beyond the current capability and capacity of all three armed services. We believe a significant expansion and restructuring of the RAN’s existing fleet is required. The air force and army are in similar positions. Funding the capability sought will require a substantial increase in resources allocated to Defence, but practical challenges will remain, especially the ability to recruit, train and retain personnel.

How many nuclear-powered submarines for Australia?

The September 2021 announcement of Australia’s transition to nuclear-powered attack submarines (SSNs) under the AUKUS program indicated that ‘at least eight’ would be acquired. More recently, the rhetoric has firmed up to eight, with the program director telling a Senate committee in May that there would be three Virginia-class SSNs and five AUKUS SSNs. Vice Admiral Jonathan Mead implied that this was the full extent of the program and that decisions for what followed would be left for a future government.

A decision to stop at eight overlooks critical strategic, industrial and personnel considerations that determine the number of submarines Australia acquires.

Since the 2009 defence white paper, successive reviews have affirmed the need for 12 submarines supported by a base on each coast providing specialised infrastructure, workshops and a submarine squadron staff. While nuclear propulsion provides much greater mobility, a submarine can only be in one place at a time. Once its position is revealed by counter-detection or its own offensive actions, uncertainty over its location is removed and with that, its deterrent value diminishes for a period. Added to the reality of our geography, a force able to deploy at least two submarines on each coast would require at least 12 SSNs to provide ongoing uncertainty (for an adversary) and, if needed, operational impact.

It takes three to four submarines to guarantee having one available for deployment. The ‘rule of three’ was validated by the Coles review, but that doesn’t include any spare capacity to cope with unexpected defects. The UK and French experiences confirm that four nuclear-powered ballistic missile submarines (SSBNs) are required to sustain one at sea—noting that SSBNs operate in a much lower mechanical and operationally stressed environment than SSNs.

Industrial issues are significant factors in the cost of ownership and effectiveness of the force. Australia intends to build the AUKUS SSNs in Adelaide. That is thoroughly commendable, but we should expect delays and difficulties as we learn how to do it. In all shipbuilding programs, the time and cost of successive vessels reduces as the workforce and processes are optimised. Typically, based on Australian (and global) experience, the third submarine will cost some 40% less than the first, with much smaller reductions anticipated as later submarines are built.

This only works if the building program is continuous. Stop–start shipbuilding is a well-known recipe for prolonged delays and grossly inflated costs, as demonstrated by Britain’s Astute class, which, according to a House of Commons Defence Committee report in early 2010, was already by then 57 months late and 53% over budget.

Once we have mastered the complexities of building SSNs, as I am sure we will, we shouldn’t stop building.

Australia is planning on a three-year interval between delivery of submarines, driven by the time it will take to generate a crew from our small submarine personnel base and limited sea training capacity in operational Collins-class and US and UK submarines.

Construction of the first submarine will take longer and reduce to a steady state after three or four are built and the workforce has made its way up the learning curve and processes have been optimised. The building process is a production line—at any time, submarines will be in different states of completeness. Construction time doesn’t determine the drumbeat for delivery; rather, construction starts in sufficient time to achieve the delivery drumbeat.

Three years is a slow drumbeat industrially. Shorter would be more efficient but is currently not feasible because of personnel limitations. The personnel training limitation should ease once Australia has at least six SSNs at sea. The drumbeat could then be shortened. A slow drumbeat is more expensive due to idle production but is also likely to contribute to a loss of skilled workers; witness the UK’s experience at Barrow in Furness because of the slow Astute drumbeat.

A construction program building eight submarines at a three-year drumbeat would take 21 years. Submarines typically have a hull life of 25–30 years. Thus, this production line would have nothing to build for four to nine years, and would then be then back into stop–start shipbuilding.

A force of 10 SSNs at a three-year drumbeat with a planned 27-year life is the minimum to provide a continuous-build program, avoiding the stop–start situation. A force of 12 could achieve a shorter drumbeat in the later stages when the personnel restrictions are not so severe.

Decisions on the final size of the force must be made now, at the program’s inception. They drive industrial issues such as the size of facilities, production-line technology, the supply chains supporting the force and the ordering of long lead items such as the reactor. The decision cannot responsibly be left for a future government.

My study of British, French and US submarine-crewing policies, summarised in my 2018 ASPI report, concluded that a force of 10 SSNs with 10 crews was essential to generate the minimum critical mass of experienced personnel. A smaller force will not generate sufficient highly experienced personnel to oversee the safe technical and operational aspects of the program. That calculation assumed one base and one submarine squadron. Two-ocean basing with an additional 200 highly experienced squadron staff, a key link in the operational and safety chain, would require at least 12 SSNs.

Britain’s Royal Navy has six or seven SSNs and four SSBNs operating from one base in a single squadron. Its personnel situation is dire. High wastage rates and shortfalls in many critical categories have reportedly necessitated drafting non-volunteers to submarine training and cannibalising parts and crew to get even one submarine to sea. At times, the RN is unable to achieve even one. Is that where Australia is heading?

The issues are undoubtedly more complex than simply the size of the force, but it reinforces the point that a force of eight SSNs requiring six to seven crews is below critical mass, vulnerable to personnel shortfalls, will struggle to sustain two SSNs deployed, and won’t be able to sustain two-ocean basing.

Even more problematic is whether Australia can achieve an operational, sustainable and deployable SSN capability from eight boats made up of a mix of Virginia and AUKUS designs. The mix of classes adds to the complexity, cost and risk because it entails two supply chains and differing major onboard equipment, spares, and training systems and simulators.

Australia requires at least 12 SSNs to sustain two-ocean basing with two deployable on each coast in the good times. A force of 18—nine on each coast—would be more resilient, reliably providing two deployable SSNs, with three available in the good times.

Eight is plainly insufficient on all counts.

Leaving the decision for a later government will mean greater expense and increase the risk that the program doesn’t produce the needed strategic capability, while stripping funds from other key defence capabilities. A lack of decision, along with Australia’s failure to join the AUKUS SSN initial design effort, indicates inadequate commitment.

A ‘damn the torpedoes’ transition to SSNs could leave us with no submarine capability.

If Australia is not prepared to, or cannot, invest the resources to achieve a viable SSN force, we are better off not continuing down this path.

Where will Australia store its nuclear waste?

Since the announcement of the AUKUS partnership to equip Australia with conventionally armed, nuclear-powered submarines (SSNs), there’s been an intense, and sometimes confusing, debate on how nuclear waste will be managed. Are we debating the development of a national nuclear waste facility or an AUKUS nuclear waste facility?

The government has committed to managing the radioactive waste generated by the submarines in accordance with its nuclear non-proliferation and other international obligations. But it has not mapped out how it will do that.

Defence has acknowledged that storage for this waste won’t be required until the mid-2050s when the Royal Australian Navy’s first Virginia-class submarine is expected to be decommissioned. That gives government about 30 years to deliver the supporting infrastructure.

The site-selection process for a national radioactive waste-management facility has been underway for more than 10 years since legislation passed in 2012. With the recent Federal Court decision to set aside the preferred location near the town of Kimba in South Australia, the process is set to start again. That ruling was focused on the decision-making and consultation process and the potential safety risks involved in double-handling radioactive waste between temporary and permanent storage facilities.

However, as outlined in The Strategist last month, establishing nuclear infrastructure, even on Defence land, demands robust stakeholder consultation, including with First Nations people, and extensive site due diligence, design development and approvals (planning, environmental and regulatory).

Australia’s only facility producing and storing radioactive material is managed by the Australian Nuclear Science and Technology Organisation at Lucas Heights. That facility is nearing capacity. Nuclear waste from hospitals, universities, research labs, mining and defence sites is stored at more than 100 sites across the nation.

Australia doesn’t have a clear national approach to the temporary storage and permanent disposal of this waste, and a permanent, sustainable, whole-of-government solution is urgently needed.

Low-level and intermediate-level waste ranges from medical equipment to clothing contaminated by exposure to radioactivity. High-level waste is a byproduct of nuclear reactors and is expected to include the decommissioned radioactive fuel rods from the SSNs. In addition, Australia has had radioactive-waste-swap arrangements with the British and French that will increase pressure on Australia’s long-term nuclear waste-disposal solutions.

Radioactivity is emitted by nuclear waste until it decays into more stable forms, which can take hundreds of thousands of years. The US Environmental Protection Agency warns that high-level waste will remain dangerous for at least 10,000 years.

With proper maintenance, the life span of a storage facility is typically about 50 years. The Lucas Heights facility was designed to store intermediate-level waste for up to 100 years. It was constructed in 1989 and has 66 years of life remaining.

Considering Australia’s increased low- and intermediate-level waste requirements, and the new high-level waste requirements arising from AUKUS, there seems to be an overall deficit of about 9,900-plus years in nuclear waste storage.

That makes this an atypical infrastructure investment decision for government. How can we guarantee that whatever construction is chosen will remain sound in hundreds, let alone thousands, of years? Decisions made today will impact future generations.

Australia can look to Finland, which is developing long-term repositories capable of storing up to 6,500 tonnes of high-level nuclear waste. The Finnish facility has been designed to store nuclear waste for at least 100,000 years, encasing spent nuclear fuel in copper canisters to be placed in tunnels drilled into bedrock 430 metres below ground and 420 metres below sea level.

Unlike our European counterparts, Australia has the advantage of abundant land for such a facility. It has been suggested that a site in Defence’s 120,000-square-metre Woomera Range Complex in the northwest of South Australia may ultimately be chosen for Australia’s nuclear waste. As with any other location, that would require extensive due diligence and consultation.

To prevent a recurrence of the errors made during the Kimba site-selection process, the government should take a page from Finland’s playbook, which addressed the concerns of affected populations and stakeholders by being transparent and engaging in active consultation from the outset.

A top-down approach to site selection and construction of nuclear waste infrastructure won’t suffice. While the government has stated its intent to ‘consult widely and bring stakeholders, including First Nations people along with us’, it hasn’t shared the proposed roadmap to implementation. Will nuclear waste be stored in a central repository or will AUKUS nuclear waste be managed separately?  What are the basic principles and approaches to consulting with the public, including landowners and First Nations people? What are the governance arrangements, given that the problem cuts across federal and state governments and international regulators and agencies?

Finally, as with all major infrastructure projects, future proofing will be crucial. In undertaking the site selection and design development, it’s important to consider that a future government may decide to adopt nuclear energy as part of a strategy to deal with climate change, or could change its position on nuclear weapons, as the Menzies government did in 1958 when it asked Britain to help Australia acquire tactical nuclear weapons. That push was abandoned with Australia’s ratification of the Treaty on the Non-Proliferation of Nuclear Weapons in 1973.

Mandating Australian industry content for the AUKUS SSNs

British media reports indicate that the UK Ministry of Defence intends to sign a contract with BAE Systems for the ‘detailed design and long lead items’ of a new class of submarine.

I wonder what that contract will say about the Australian dimensions of the project. At the minimum, this should include an Australian presence in the managerial, engineering and naval architecture elements of the design team. The detailed design phase must consider the Australian standards to be applied and local industry content and supply chains. If we miss the starting gun we will never catch up.

Recent discussion on the need to reboot Australia’s defence industry laments Australia’s failures while citing overseas successes. The Collins-class submarines and Anzac-class frigates were Australian success stories. Both mandated a level of Australian content—70% for the Anzac and 60% for the Collins. Both projects exceeded these figures, creating ongoing Australian self-reliance using local supply chains.

Pacific Marine Batteries Defence grew from the initial Collins-class local content requirements. PMB was established on a greenfield site in Adelaide undertaking battery system design work, manufacturing 50% of the first battery set and every Collins-class battery since. The company is now among the largest global manufacturers of submarine batteries, including developing lithium-ion and nickel-zinc-based battery systems, and it has opened PMB Battery Technologies UK.

For the Collins sonars, the prime contractor, Thales, made the acoustics for bow, towed and passive ranging arrays in Australia. Today the bulk of the Collins sonar system—the biggest, most extensive and most powerful sonar suite ever installed in a conventional submarine—is locally produced. Many UK sonars use acoustics manufactured by Thales Australia and its local suppliers. Just one of its many developments was a unique civil geophysical array earning more thab $350 million in exports. Today, Thales Australia exports more than 80% of its locally manufactured acoustic sensors to Australia’s allies, including the UK, US and France.

The ‘wet end’ (transducers, hydrophones, and the like) are predominantly piezo ceramic. Australia provides a viable alternative to the world’s dominant manufacturer of that material, China.

A smaller but also critical example is MacTaggart Scott, which established an Australian company, with support from the Department of Defence, to provide a supply chain to refurbish the Collins’ emergency propulsion unit, towed-array handling system, outboard valves and actuators including the hydroplanes and, more recently, mast-raising equipment.

The initial project office with a team of four has grown to 25 people in specialised facilities.

The most significant change has been the massive shift in Australian industry capability and content. There are around 80 approved suppliers using 80% Australian content during refurbishment flow work down and outwards, contributing to and increasing the number of jobs in defence industry that would otherwise have gone offshore.

MacTaggart Scott Australia is now a successful stand-alone company undertaking refurbishment and supplying new, Australian-built replacement items. It is involved in research and development work adding improvements to the equipment in Australia and is seeking an export licence to supply Australian-built items to overseas customers.

None of the Australian industry policies that have been put in place since the mandated content strategy was abandoned have achieved anything like these successes. Such industrial policy instruments became unfashionable because economists tend to regard local content schemes as a backdoor means of protecting local industry, with the additional drawback that they are less transparent than a tariff or subsidy.

That may be true in industries in which there’s a global level playing field, but it’s clearly not the case in defence industry in general and naval shipbuilding in particular. Most countries support or protect their own defence industries assiduously for strategic reasons but are also keen to capture as much export business as possible. This provides additional income for activities that generally have only a modest output and few growth opportunities, while also giving rise to cost reductions by taking advantage of greater scale.

For these reasons, both the UK government and BAE Systems will be working very hard in the SSN AUKUS program to minimise Australian industry content to the benefit of British industry. The Australian government must match this vigorously and ensure that Australian industry receives its rightful share of the program.

Mandated percentages make Australian companies immediately more competitive by requiring offshore equipment suppliers to find and transfer technology to Australian partners, or to set up locally. Primes find a local player (like PMB) with obviously high Australian content attractive to boost their overall offer.

Mandated percentages play to the advantage of local industry as both a pull and a push factor in the market. Primes, such as the one Thales Australia was bidding to, wanted a maximum local content percentage as well as best the price and performance, plus the lowest risk.

A mandated percentage is the simplest policy to implement and audit.

The primary objective of this policy is to achieve high operational availability. Armed forces are an industrial product—a submarine without working sonars and batteries, or unable to raise its periscopes and other masts, is confined to harbour. High operational availability is best achieved by an Australian supply chain.

The government must act now to ensure that any contract for the detailed design of SSN AUKUS has a mandated (and enforceable) framework for Australian industry involvement in the design, procurement and production. Given the tight timeline for a decision—the contract is about to be let—we should start with something we know worked well last time we built a submarine as it led to an Australian-based supply chain for over 90% of the sustainment costs. That ensured 60% of the cost of the submarine procurement and production would be spent in Australia. After all, Australia will be building more than half of the submarines to be constructed under this project.

Planning for Australia’s nuclear submarine ‘supergroup’

Bureaucracy is boring. But it also matters. Complex public projects don’t just happen—they demand the dedication of public servants and effective organisational structures.

With the nuclear-powered submarines to be acquired under the AUKUS partnership, Australia has set itself perhaps the most ambitious public-procurement undertaking in its history. To match the scale of this venture, according to a report in The Australian, the submarine taskforce led by Vice Admiral Jonathan Mead will evolve and grow into a new ‘a stand-alone group inside Defence that will draw personnel from across the government’.

In public-service speak, a ‘group’ is usually the largest organisational unit in a federal government department, headed by a deputy-secretary-level public servant or a three-star military officer. That the submarine acquisition is being elevated to this level reflects the magnitude of the enterprise and the fact that it will become a permanent and dominant feature of the Australian defence organisation for decades to come.

Equally interesting, though, is the scope of this new group in Defence. The Australian described it as a multiagency group ‘responsible for all elements of the program, including safety, non-proliferation and regulatory measures, international engagement, education and training, industry development and project management’. Its head will have ‘a direct reporting line to Defence Minister Richard Marles’.

While the exact contours, structure and mandate of the group are yet to take shape, the role of this new organisational arrangement bears examination. Driven by the complexities of nuclear technology, the group’s remit reaches outside conventional defence policy domains into areas such as education and industrial policy that are usually led by domestic policy agencies at the federal and state level. Defence will have to acquire new policy capabilities to tackle these issues—but also develop networks and institutional relationships with a much wider range of domestic stakeholders. Moreover, the government will need to decide the exact limits of Defence’s policy leadership. Education and industrial policy are, for instance, intrinsically linked to labour and innovation policy.

The reported scope of the group also includes policy domains and functions that the Department of Foreign Affairs and Trade would conventionally lead, namely international engagement and non-proliferation. For Defence instead to take leadership of these areas would mark a fundamental shift in the division of labour in Australian foreign policy.

All indicators point to a highly integrated organisational structure, essentially putting everything ‘SSN AUKUS’ under one roof inside Defence. Intuitively, that makes sense: the government wants all the people working on a project to be clearly organised and led, working with unity of purpose. But as a recent report by the Asia-Pacific Development, Diplomacy & Defence Dialogue (AP4D) explains, there are complexities and trade-offs in the degree to which different tools of statecraft are coordinated and the mechanisms employed to do so.

A fully integrated, whole-of-government structure following a unified strategy that cuts across multiple policy areas represents the highest degree of coordination. But achieving this degree of integration is difficult: it is intellectually demanding and resource-intensive, requiring a clearly mandated and properly resourced entity such as a taskforce. Australia has previously used such an approach to respond to discrete issues or crises—for example, Operation Sovereign Borders and the Regional Assistance Mission to Solomon Islands.

Full integration can sometimes, however, be counterproductive. Forcing different actors and tools of Australian statecraft to act within a singular worldview and command structure can diminish the unique strengths and comparative advantages that each brings to bear. There needs to be room for proper consideration of broader foreign policy equities within a structure that is unapologetically mission-focused on delivering defence capability. As the mixed reaction in the Indo-Pacific to AUKUS has demonstrated, Australia can’t assume an overall permissive environment for its strategic policy, so diplomacy is as vital to manifesting the submarines as building a nuclear industrial base. These risks are, however, manageable through effective governance.

There are also other models short of full integration that could be considered. The Office of the Pacific—which comprises a group in DFAT under deputy-secretary-level leadership—is one approach to managing whole-of-government policy by mandating an area to have oversight of all policy and drive overarching strategy in collaboration with a wide range of agencies, including Defence and Home Affairs. This is a level down from ‘full integration’: it broadly aligns actors around overarching goals and promotes information and resource sharing, while also recognising that specialisation and delegated responsibility across government are valuable.

Whatever way the government chooses to organise the AUKUS submarine group, AP4D’s research suggests that effective coordination of the actors and tools of statecraft is determined by several factors: a clear coordinating structure; clarity on objectives and narrative; sufficient resources and a strong ministerial mandate; effective bureaucratic leadership and staffing; and relevant agencies having a collective interest in the issue.

With the group’s head reporting directly to the deputy prime minister, at least one of these conditions is already satisfied. There’s also speculation that it could have its own budget line separate from the rest of Defence, helping ensure stable resourcing. On all the other factors, only time will tell. Most importantly, though, the government must remain open to evolving its AUKUS submarine ‘supergroup’ over time as it learns what works (and what doesn’t) in terms of structure, remit and mandate.

How will Australia pay for the AUKUS submarines?

Australia’s nuclear-powered submarine fleet is going to be expensive. Not only will the initial production cost run into the tens of billions, but there will be significant ongoing outlays for platform sustainment, operational use and shore-based infrastructure. Australia’s share of the cost of the ‘SSN AUKUS’ program will be between $268 billion and $368 billion—far exceeding the forecast expenditure of the cancelled Attack-class build.

Ahead of the May budget and with competing pressures from a range of other policy pledges, the Australian government should consider alternative financing options to pay for the program. One such possibility is establishing a nuclear-powered submarine ‘future fund’ to leverage the benefits of market growth and long-term compound interest while reducing the sovereignty risks associated with foreign debt.

The multi-decadal submarine program provides an opportunity to deviate from the traditional payment of defence capabilities out of consolidated revenue and to explore the viability of a military-oriented extra-budgetary fund.

State-owned investment funds are not a new concept in Australia. The government currently administers six separate accounts to pay for recurrent future expenses associated with initiatives such as the National Disability Insurance Scheme, the Indigenous Land Corporation and natural disaster recovery. The largest of these funds, the $196 billion Future Fund, was established in 2006 with money from successive budget surpluses and the proceeds from the sale of the government holdings of Telstra.

More recently, the federal government has proposed legislation to create a $10 billion housing future fund to pay for social and affordable housing projects, and the New South Wales premier has made an election pledge to establish a future fund for children. With the October 2022 fiscal update showing gross national debt at $894.9 billion, the multibillion-dollar long-term costs of the AUKUS submarine project will considerably increase the government’s cumulative liabilities and has the potential to inflate repayments to foreign creditors.

In the context of acquiring a sovereign nuclear-powered submarine capability, an increase in external debt would be incongruent with the strategic objective of ‘freedom from coercive influence’ in a world where ‘foreign interference is more prevalent than ever’. The prospect of foreign liabilities being used to pay for the submarines is not a distant possibility. In 2020, during the Covid-19 pandemic, the government conducted a record-breaking bond sale that led to Asian buyers (excluding Japan) obtaining more than 17% of the $13 billion in treasuries issued.

Though mechanisms of financing have little relationship to the operational sovereignty of Australia’s new submarines, the broader theme of strategic autonomy cannot logically exclude the minimisation of overseas debt linked with the build.

An alternative to mitigate against the sovereign risk of external commercial obligations is to restrict overseas debt to the UK and US so that the SSN AUKUS program will be financially self-contained. Conceptually, the partnership would provide not only the technology and expertise, but also the capital to underwrite the associated costs.

Against the geopolitical backdrop of a more aggressive and assertive Chinese influence in the Indo-Pacific region, an investment in advanced undersea capabilities serves the broader strategic aims of both the UK and the US. This is because the AUKUS program will deter China from pursuing aggressive military options against Australia and will contribute to regional stability by helping to generate a balance of military power.

However, notwithstanding the benefits of such a proposal, both the US and the UK are encumbered by significant budgetary pressures and domestic political barriers that reduce the likelihood of their providing financial assistance.

The combination of a fiscally constrained international environment with the limited accessibility to AUKUS capital necessitates consideration of a submarine sovereign wealth fund. On the back of high commodity prices and a $70 billion budget windfall, the government has the financial slack to invest in such an endeavour. Though the long-term market outlook remains uncertain, Australia’s higher-than-average interest rate allows for a balanced investment mandate with appreciable returns.

Over a 10-year period, an initial contribution of $50 billion and annual deposits of $10 billion into the SSN fund would yield a cumulative value approaching $200 billion at maturity (based on an investment target of 4% above the consumer price index). Albeit short of the total price tag of the nuclear submarine program, this process could be replicated to align with both the Virginia-class and SSN AUKUS delivery timelines—which are conveniently spaced about a decade apart.

To be effective as an investment, and to avoid the risks associated with foreign asset diversification, strong governance and operating parameters need to be clearly defined in the appropriating legislation. Sovereignty, after all, is the guiding principle of this once-in-a-generation acquisition.

The efficacy of the SSN fund is also predicated on an optimistic forecast of market growth. The recent volatility of equities markets (particularly in the technology and energy sectors) captures the danger of exposing Australia’s most important military procurement to an uncertain investment trajectory. However, good public policy is grounded in evidence, and over the past decade the Australian Future Fund has appreciated at an average of 9.1% per annum with an ‘acceptable but not excessive level of risk’. On balance, an SSN future fund has significant potential to overcome many of the challenges influencing the decision-making process.

Australia’s prioritisation of sovereignty in the AUKUS partnership fits with the idea of a submarine-specific sovereign wealth fund to achieve a level of consistency with policy ends and means. Now that the plan for Australia’s nuclear-powered submarines has been revealed, it’s time to ramp up the discussion about how Australia will pay for them.

US and UK jump-start Australia’s nuclear submarine program

Australia’s nuclear-powered, conventionally armed submarines will be of a new British design, but their reactors, combat systems and heavyweight torpedoes will all be American.

After 18 months of intense consultations, details of this massive joint project to produce SSN AUKUS were announced today by Australian Prime Minister Anthony Albanese, US President Joe Biden and UK Prime Minister Rishi Sunak at the US naval base in San Diego. A stated objective is to enable the three nations ‘to grow the size of our combined submarine forces’.

Albanese said this was ‘the biggest single investment in Australia’s defence capability’ in the country’s history and would require a whole-of-nation effort.

Throughout the process there’s been a strong focus on very visibly setting the highest standards of nuclear stewardship to ease concerns that have been raised about the possibility of the tri-national project driving nuclear proliferation in the Indo-Pacific.

The program is comprehensive and carefully stepped to build up a potentially lethal submarine deterrent in the region and to get formidable attack submarines into the hands of Australian sailors as quickly as possible.

Australia has declared that it will not seek to acquire nuclear weapons and will not enrich uranium or reprocess spent fuel as part of this program. And while Australia is a major global source of uranium, it has undertaken not to produce the fuel for its submarines.

The reactors will not need to be refuelled in the submarines’ lifetime, and the UK and US will provide Australia with nuclear material in units that are welded shut.

While the reactors to be fitted to the new submarines will contain high-grade nuclear material, it cannot be used to make nuclear weapons without further chemical processing, which Australia says it will not seek.

The whole endeavour will proceed within the framework of Australia’s comprehensive safeguards agreement and its additional protocol with the International Atomic Energy Agency. The three nations have consulted closely with the agency on the AUKUS program.

Rather than adding to the complexity of the project, using the US combat system and Mark 48 heavyweight torpedoes in a British-designed submarine will provide Australia with opportunities. The combat system and torpedoes will be evolved versions of those already used in Australia’s Collins-class submarines. Australia was involved in the development of both and will have a key role to play in incorporating them into the British design.

The US will immediately increase the number of submarine visits to Australian ports and the UK will make regular visits from 2026. While that will establish a nuclear submarine presence, it will also provide increasing opportunities for Australia to begin building the industrial capability to service and maintain the boats during their visits. The three leaders said that would increase capacity in peacetime ‘and meet operational needs in time of crisis’.

By 2027, the intention is for the US and UK to begin formally rotating submarines through the HMAS Stirling naval base in Western Australia under a formal process to be designated Submarine Rotational Force—West.

The base will be expanded to support the scale of infrastructure required for nuclear-powered submarines—both visitors and those that will belong to Australia. The UK is expected to provide one of its Astute-class submarines for these rotations and the US up to four Virginia-class SSNs. The partners stressed that this arrangement would not constitute basing, noting: ‘This rotational presence will comply fully with Australia’s longstanding position of no foreign bases on its territory’.

Apart from bringing strategic weight, that will also increase opportunities for Australian personnel to serve aboard the submarines of both allies. Biden said that would help ‘jump-start’ Australia’s capability.

Pending congressional approval, the US has committed to selling three of its Virginia-class ‘hunter-killer’ submarines to Australia in the next decade and it will provide up to five if required.

The three leaders said Australia and the UK intended to start building the submarines in their domestic shipyards before the end of this decade. The UK plans to deliver its first boats to the Royal Navy in the late 2030s. Australia’s boats will be built in Adelaide and the goal is to deliver the first locally built SSN to the Royal Australian Navy in the early 2040s. The three leaders stressed that the highest nuclear non-proliferation standards will be applied to each phase of this program.

Estimates of the total cost over the life of the program range from $268 to $368 billion. That includes running and maintaining the boats.

From 2023–24 to 2026–27, the program will cost an estimated $9 billion. Of that, $6 billion will come from funding that had been allocated to the since cancelled French Attack class conventionally powered submarine program.

Over the 10 years to 2032–33, it’s estimated that Australia’s spending on the AUKUS nuclear boats will rise to between $50 and $58 billion. Of that, $24 billion will come from the Attack-class program.

In the longer term, until 2054–55, the government estimates that the SSN program will absorb about 0.15% of Australia’s GDP on average.

The money will include an Australian contribution to the cost of the expansion of the American submarine industry base to enable the US to provide the additional Virginia-class boats for the RAN.

Having industrial capability in all three AUKUS nations will strengthen supply chains and make them more resilient, the leaders said.

The British company Rolls Royce will build the reactors to an American design.

A major hurdle will be finding and training the large numbers of specialised engineers and technicians required to build and maintain nuclear-powered submarines. And each of the new boats will require a crew of about 100. The Collins-class submarines currently operated by the RAN have crews of around 65.

Albanese said the submarine project would create around 20,000 direct jobs for Australians, including engineers, scientists, technicians, submariners, administrators and tradespeople. ‘[T]his investment will be a catalyst for innovation and research breakthroughs that will reverberate right throughout the Australian economy and across every state and territory, not just in one design element, not just in one field, but right across our advanced manufacturing and technology sectors, creating jobs and growing businesses right around Australia, inspiring and rewarding innovation, and educating young Australians today for the opportunities of tomorrow,’ he said.

The process of building up workforce numbers and skills has already begun. Australian naval personnel and civilian specialists are embedded with the US Navy and the Royal Navy and with relevant industrial bases in both countries. Australian submariners joined US nuclear-propulsion training programs last year.

The US Congress has passed a bipartisan provision allowing Australian naval officers to train at Naval Nuclear Power Training Command in South Carolina and eventually to serve on US submarines. The UK is also training some Australian officers on such courses.

Australian personnel already train aboard US and UK submarines and their numbers and seniority will increase as the program progresses.

Australia will send hundreds of workers to US and UK shipyards and scientists and technicians to US and UK technical facilities for specialised training and to gain the experience they’ll need to build and sustain nuclear-powered submarines.

It’s understood that regional nations have been extensively briefed on the AUKUS developments in recent weeks.