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Hours before cancelling a $90 billion contract for French submarines, Australia was still telling the company to proceed with design – but the plan to renege had been in the works since 2019. By Karen Middleton.

Under the surface of Australia’s submarine deal

On the morning of September 15, Paris time, the French government-owned Naval Group received a letter from Australia’s Defence Department.

This was the same day that Australia spectacularly ended its $90 billion contract with the company for 12 diesel-powered submarines, but the letter made no mention of what was about to happen.

Instead, it said Australia had accepted new documents sent by Naval Group, including technical specifications. With the contract structured as a series of benchmarked “gates”, the letter authorised pursuing the design phase.

“Everything was okay to finish the negotiation and sign this new contract quickly,” the chairman of Naval Group, Pierre Éric Pommellet, told French newspaper Le Figaro this week.

Within hours, however, at 1.30pm Paris time, Pommellet was asked to join a teleconference with the Defence Department.

“It was during this meeting that they informed us that the contract would be terminated for convenience,” he explained.

Pommellet said the news came “without prior notice, with unprecedented brutality”. He was “shocked”.

“On the morning of 15 September, all the conditions were in place for the program to enter a new phase, after five years of engineering work on the submarines and on the new Adelaide shipyard,” Pommellet said. “We were due to start the production from 2023 and we were building an Australian supply chain.”

This week, Prime Minister Scott Morrison defended the way his government handled the contract, saying he made a decision in Australia’s national security interests: “I know that France would do the same.”

It is now clear the Morrison government pushed for the three-way technology transfer deal that replaced the French agreement. Involving Australia, America and Britain, with the shorthand “AUKUS”, it is not a new security pact but an agreement to share nuclear technology. It will see Australia buy eight nuclear-powered submarines.

The shift to what became that deal began in late July 2019, following a trip by then Defence minister Linda Reynolds to Naval Group’s submarine production operations in Cherbourg, alongside the French president, Emmanuel Macron.

At the time, Reynolds was effusive. “Mr President, I’m very excited to be able to return home and tell all my countrymen how our ship will be,” she said. “It is a great honour for me to be here today to officiate with you and visit the magnificent ship we are celebrating today.”

But The Saturday Paper has been told that briefings given to the Australian delegation on that trip sparked concerns about progress. One insider suggests a view began to form on the Australian side.

“They had a very French attitude to performance management – quite laissez-faire,” is how the insider describes it.

As a result, a small group, understood to include the prime minister, Reynolds and key Australian officials and military leaders, began looking for back-up options – a “plan B” – in case Australia’s demands could not be met. It is understood that the aim then was still to make the existing contract work.

A series of “gates” were set to measure progress and the Australian government began emphasising its concern. This year, the warnings became explicit and public, including threats to cancel and consider alternatives.

But they were always qualified – that this could happen unless things improved. Central to French anger over the abrupt September 15 cancellation is that things had improved. By then, however, Morrison had changed his mind.

Tightly held research into other options included examining the state of nuclear technology, which had advanced in the years since Australia first began looking to replace its ageing fleet of Collins-class submarines.

Among options considered were extending the life of the Collins boats, and buying an alternative, possibly from Sweden.

The Defence strategic update, published in July last year, highlighted China as a growing regional threat and placed a new emphasis on emerging technologies, including in both drone and space warfare.

The problems with the French contract coalesced with the revised strategic assessment and, this year, the nuclear option became both attractive and viable.

It seems those dealing with the submarine contract in Defence were themselves unaware the nuclear deal was being pursued. More awkwardly at a personal level, Morrison’s close friend, consultant David Gazard, took a job lobbying for Naval Group and was caught out by the September 15 cancellation.

On capability alone, many in the security community argue nuclear-powered vessels are preferable in the changing strategic environment. They are bigger and more expensive but can stay underwater for longer, making them harder to detect and more useful on long-range reconnaissance and deterrence missions.

One irony is that the French Barracuda Attack-class vessel, which Australia was buying, is a nuclear submarine it demanded be modified to diesel.

Australia did not contemplate buying the French nuclear version initially or now. The French technology requires an onshore nuclear industry to service it, while American and British technology does not. The reactors in American nuclear submarines are designed to last the life of the vessel.

When Australia was entering the French contract, the American technology was not available. Since then, a range of things have changed.

Concern about China has grown. The US and its allies have left Afghanistan and turned their foreign-policy attention elsewhere. Joe Biden replaced Donald Trump. And Brexit has seen British foreign policy shift away from Europe. The needs of Australia, the US and Britain have converged.

After Peter Dutton became Defence minister, Australia approached the US about the nuclear technology and discovered it was amenable to sharing it – not previously done beyond its self-described “special” relationship with Britain.

In June, Morrison attended the G7 meeting in Cornwall, where the three leaders are understood to have sealed their agreement.

The gatecrashing of Morrison’s photo opportunity with Biden by British Prime Minister Boris Johnson now appears slightly less spontaneous.

Likewise Morrison’s message soon afterwards, visiting Macron in Paris.

The prime minister again pressed concerns about progress with the Naval Group contract and set a September deadline for the company to meet design specifications.

It is unclear whether September had already been set for the AUKUS unveiling – but that alignment has only fuelled French anger.

Two weeks before Morrison’s visit, Defence Department secretary Greg Moriarty told a senate estimates hearing the government was making “contingencies” around the submarine contract.

Addressing the Australian Strategic Policy Institute in Canberra on June 10, Dutton also dropped hints. “What we must do, as a nation, is prepare for whatever may be on or below the horizon.”

Still, he specifically listed “Australia’s Attack-class submarines” as being among those that “will be critical assets”.

Three months on, they’ve been scrapped. Greens leader Adam Bandt condemned the move as buying “floating Chernobyls”. Labor has effectively accepted it.

Opposition Leader Anthony Albanese set several conditions on Labor’s agreement, all of which were already being met.

He demanded there be no requirement for a civil nuclear industry, no acquisition of nuclear weapons and no incompatibility with the Treaty on the Non-Proliferation of Nuclear Weapons.

Other Labor figures, including former prime ministers Paul Keating and Kevin Rudd, have been more outspoken – Keating against Australian hostility towards China and Rudd on what he alleges is Morrison’s political agenda to talk up national security.

As expected, China condemned the move. New Zealand confirmed it would not allow Australian nuclear-powered submarines – the first of which won’t arrive for about 20 years – into its ports. Singapore and the Philippines welcomed Australia’s initiative. Indonesia and Malaysia were more cautious, concerned about further strategic upheaval. Morrison spoke to Indonesian President Joko Widodo from his plane en route to New York this week, seeking to ease his concerns.

Beyond the diplomatic dimensions, some wonder if the deal prepares the way for nuclear power generation in Australia.

“There is some sense to the idea that you would have some kind of nuclear power industry and as a byproduct of that, you could have a nuclear submarine,” says former chief of the Defence Force, retired admiral Chris Barrie. “But we’re going about it the other way.”

Introducing the prospect of a nuclear industry off the back of the submarines agreement – which Morrison is ruling out thus far – would carry both political risks and potential benefits.

Recent opinion polls suggest Australians’ traditional hesitation about nuclear energy has shifted. This week, a poll in the Nine newspapers found 51 per cent of the population was in favour.

There may be a tempting upside for Morrison in starting that debate. With climate change among the issues of greatest public concern, he could harness nuclear energy as part of an on-paper solution to reaching net zero greenhouse gas emissions by 2050.

It would also be a neat pre-election wedge against Labor – especially under a left-wing leader who has already flagged it as non-negotiable.

But Morrison’s immediate political challenges are international, including with France. The Australian government’s stock response to questions about the French fury is: “We understand their disappointment.”

Morrison said he looks forward to speaking to President Macron “when the time is right”. Biden’s phone call to placate Macron resulted in a joint statement that the situation “would have benefited from open consultations among allies” – an effective slap down of Australia.

But it is not only the French who are unamused. When Morrison greeted European Council president Charles Michel at the United Nations in New York this week, declaring that the new AUKUS partnership would boost Indo–Pacific security, Michel’s reply was sharp.

“Well, thank you for your message,” he responded. “But as you know, for us, transparency and loyalty are fundamental principles in order to build stronger partnerships and stronger alliances.”

Undeterred, Morrison held talks with a series of European leaders, seeking support for Australia’s proposed free trade agreement with the European Union, which France is now threatening to derail.

He also pressed the case on Capitol Hill for backing the legislation required to secure access to the US nuclear technology.

“There’s a lot more work to do,” Morrison said. “But that work will be done in a spirit of co-operation, in the spirit of endorsement.”

He said Australia would continue to work with Europe. “So our door is wide open. Our invitation is there. We understand the hurt and disappointment and we’ll be patient and we look forward to working with our friends again.”

Australia’s relations with France will recover. But in the short term, there is certainly work to do – and not just on diplomacy.

The eight new nuclear-powered submarines – which won’t be nuclear-armed – are expected to take years longer to design and build than the cancelled French fleet of 12. Australia needs to develop the workforce to crew and maintain them, including the capacity to respond if there is an accident.

Leasing American or British vessels may be necessary but not straightforward. In the meantime, the existing Collins-class boats will need to have their collective life extended through refurbishment.

And herein lies another possibly unanticipated complication: two key components required to do that are French.

This article was first published in the print edition of The Saturday Paper on Sep 25, 2021 as "Under the surface".

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Karen Middleton is The Saturday Paper’s chief political correspondent.