Cancelling the deal of the century for our submarines: Australia will go up for renewal

A breach of Australia’s contract for the construction of 12 submarines is causing an image damage and a loss of profit for the Naval Group, which wants to discuss with Canberra in a “constructive spirit” to receive compensation. The blow is acute for France and a general group, the Naval businessman, who see the biggest arms deal ever signed with a foreign country as not letting it slip: the construction of submersibles with conventional propulsion (diesel-electric). When this budget was launched in 2016 Australia was valued at 50 billion Australian dollars (31 billion euros) and revalued to 89 billion dollars (56 billion euros) taking into account inflation over the life of the project.

The principle of financial compensation is provided according to various cases, including violation of a unilateral contract, which is explained in the Naval Committee. These are detailed in the strategic partnership agreement (SPA) signed in 2019, a kind of “Constitution of 1,500-page rules applicable to the project” that must take both partners until 2056.

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However, there is no question of going to court, at least at this stage. “We will enter into negotiations with Australian authorities in a constructive spirit,” a Naval Group spokesman told AFP. It’s not economic damage like a” loss of profit ” and a serious blow to the image of an at-risk businessman, he explains.

Since the start of the project, Australia has spent 2.4 billion Australian dollars (1.5 billion euros) on the project, with Prime Minister Scott Morrison refusing to “speculate” on the amount of compensation, in an interview with 3AW radio. Of this total, the Naval Group received about 900 million euros, with the rest spent on the benefit of the American Lockheed Martin and Australian industrialists responsible for providing the combat system, particularly to overhaul the Osborne shipyard near Adelaide where submarines were to be built.

There was a window for Canberra to withdraw

Of the Navy group’s 17,000 staff, 650 worked in France on the project, including 40 Australians, mainly in design offices. About 350 people, including 20 French, worked in Australia, particularly to establish partnerships with local industrialists, who would need to recover 60% of the value of the deal Australia condemned today. Since choosing the French businessman against its German and Japanese rivals in 2016, the project was built on a succession of deals at the pace of the project’s progress.

Only the early stages were underway, and bills were paid, the Navy team said. The operational review phase (what the submarine can do), which has been underway since 2019, was completed and the next phase of the deal, called the “basic design” of the submarine, was concluded for an amount closer to 3 billion dollars (1.9 billion euros), which was hoped for in Paris. So Canberra had a window to pull out before making much bigger spending.

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“On September 15, that is, on the same day as the Australian announcement (termination of the contract), we receive notice of the outcome of the operational review of the project, which concludes that Australia is satisfied by the performance achieved by the submarine and the progress of the project. This means that there are conditions to check the start of the next contract phase, the talks of which were finalized in August,” a source from the French armed forces ministry said.

Because the wreck occurred early, the compensation paid by Paris at the end of 2015 should be far from over at the end of eight months of negotiations with Moscow for abandoning two Mistral helicopter carriers after the Russian invasion of Crimea. Paris paid 949.8 million euros associated with advances paid by Russia to acquire the two ships for 1.2 billion. But these were already built and then sold to Egypt. As for submarines, the Australian Press has noted compensation of 400 million dollars (nearly 250 million euros) for its part.