Wednesday, June 29, 2022

$90B Setback: Australia To Pay $835M Compensation To French Naval Group After Torpedoing Submarine Deal

Last year, France suffered a major setback when Australia abandoned the $90 billion ‘Attack-class’ submarine deal and signed the AUKUS pact with the United States and the United Kingdom to acquire nuclear-powered submarines instead.

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The deal which was signed with the French Shipbuilder Naval Group, in which the French government has a major stake, was supposed to supply 12 submarines to Canberra to replace its Collin-class submarines.

The abrupt scrapping of the deal was labeled as a ‘betrayal’ by the Naval Group and the French Government. Taken aback by the snub, the Naval Group even threatened to sue Australia for millions of Euros.

However, after several months of negotiations between the two sides, the Labor Government of Australia announced that it was going to pay Naval Group a sum of $835 million as compensation for junking the deal for 12 submarines, ABC News reported.

Australian Prime Minister Anthony Albanese made this announcement on the morning of June 11, stating that Australian taxpayers have already spent $3.4 billion on the program.

Image
Australian Prime Minister Anthony Albanese (via Twitter)

Back in April, during a Senate Estimates hearing where defense officials were quizzed about the negotiation on compensation to be paid, Defense Department deputy secretary Tony Dalton had estimated the final cost of the aborted program to exceed $5 billion.

“This is a saving from the $5.5 billion that Senate estimates was told would result from that program,” Mr. Albanese said. “But it still represents an extraordinary waste from a government that was always big on the announcement but not good on delivery, and from a government that will be remembered as the most wasteful government in Australia’s history since federation.”

Earlier this year, EurAsian Times had reported that at least a third of the “defense resident project team” remained in Cherbourg, France to support the closure of program activities with the last ones to return by end of June when the final closure was over.

This indicates that the negotiations were taking place on a war footing under the Conservative government.

The announcement triggered an internal political row between the previous Conservative government that signed and then scrapped the deal. Andrew Hastie, the Shadow Defense Minister, was quick to challenge the deal’s merits, avoiding any references to the $835 million amount or the previous government.

France-Australia Deal

France secured the contract for Australian attack submarines in 2016, beating off bids from Germany and Japan. The Naval Group clinched the contract for the design and development of the vessel in 2019.

However, owing to its security concerns and the threat posed in the Pacific by China, Australia chose to cancel the contract inked with France for conventional diesel-powered submarines in favor of nuclear-powered submarines.

The signing of the AUKUS pact with the US and the UK was called a “stab in the back” by France.

submarine cutaway
French Barracuda Class Submarine- H.I Sutton

The contract’s unexpected termination sparked a diplomatic crisis, with France recalling its ambassadors from Australia and the United States.

Naval Group chief executive Pierre Éric Pommellet told France’s Le Figaro newspaper that Australia told the company to go ahead with the next phase of the program on the same morning as the termination was announced. “We were in shock. This decision was announced to us without any notice,” he told the newspaper.

Soon after the termination of the contract, Australia had asked the company for a detailed breakdown of the bill while the French company, with a majority stake of the French taxpayer, threatened to sue the Australian government.

French officials and executives then claimed that Australia must repay money already spent and cover the costs of winding down a large design and engineering operation to build the vessels after canceling the order for 12 diesel-electric submarines for strategic reasons, Financial Times had reported.

Collins-class submarine - Wikipedia
Collins-class submarine – Wikipedia

The abandonment of Naval Group’s flagship project had caused the corporation a major blow, even if all of its costs were eventually covered. Pierre-Eric Pommellet stated that it accounted for 10% of revenue, or roughly €500 million per year on average in the next years.

A previous ABC Network report stated that Australia would be liable for a penalty in addition to the winding-up fees. It had obtained a portion of the strategic partnering agreement signed in February 2019 that stated that if Canberra decided to cancel after Naval Group submitted a basic design; it would be liable for a €90 million “break payment,” rising to €250 million for a detailed design.

Building Bridges With France

The termination of the deal strained the diplomatic ties between Australia and France, with French President Emmanuel Macron accusing then-Prime Minister Scott Morrison of lying to him about the contract’s future.

Prime Minister Scott Morrison, on the other hand, said that France was aware of Australia’s “deep and grave worries” that a submarine fleet being built by the French would not meet Australian requirements.

submarine
File Image: Submarine

However, on his part, the newly elected Australian Prime Minister has signaled that he will use the settlement to build back bridges with the French Government.

“I’m looking forward to taking up President Macron’s invitation to me to visit Paris at the earliest opportunity, and we will make further announcements forthcoming about the dates in which that will occur,” Mr. Albanese said.

“I see a personal meeting between myself and President Macron in France as being vital to resetting that relationship, which is an important one for Australia’s national interests.

“The tensions between Australia and France, I think, have been pretty obvious and they go from the top — I intend to have an honest relationship with France and one that is based upon integrity and mutual respect.”

 

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