The amount being voluntarily given to the US as an AUKUS down payment is not the widely reported $3 billion figure – it is $4.7 billion. This is because to date the government – meaning Ministers, the Department, and the RAN – have hidden the fact that all their references to $3 billion have omitted a critical detail – that is in US currency, not Australian.
Speaking to an unnamed journalist in Washington on November 1, the following exchange with Defence Minister Richard Marles occurred:
“JOURNALIST: In terms of Australia’s contribution do you ever see a point in which Australia may need to lift its $3 billion input?
“MARLES: We’ve, as part of this process, made clear what Australia’s contribution is. It’s very significant. Of course, the passage of the legislation obviously enables that contribution to be made. It’s a fair contribution in the context of the overall uplift on the industrial base here in the United States and what will of course happen with the development of the industrial base in Australia.”
Similarly, on September 15 the head of the nuclear-powered submarine task force, VADM Jonathan Mead, leaving an ASPI conference in Canberra was also asked about the $3 billion figure by journalist Colin Clark, quoted as saying:
“It’s partly long-lead items but it’s also partly working on those yards where our submarines will come out of for us.”
The story appeared under the headline: “Aussies to pour $3B into US nuke boat yards, long lead-time items for AUKUS subs.”
After the San Diego announcement of the “optimal pathway” on March 14 this year, the media first widely reported the duplicitous $3 billion figure based on background information supplied by Australian officials. Outlets carrying this included the ABC, The Australian, The Guardian, The Sydney Morning Herald and the Australian Financial Review.
Government people have been very careful – in a way that looks coordinated – to omit the currency being referred to, leaving the impression that $3 billion is in Australian rather than US currency. This has never been corrected or clarified until a few days ago, and then only late at night during a previously unreported Senate Estimates hearing.
Standard practice is that all government purchases are announced in Australian dollars, irrespective of the country of origin of the contract. This is particularly so for Defence equipment with everything from submarines to satellite contracts being in AUD for public statements and media releases.
The apparent purpose of nominating $3 billion as Australia’s contribution to the extremely profitable US submarine building sector is to disguise and minimise the true amount being transferred. Using today’s exchange rate of US $1 = AU $1.56 the AUKUS commitment will be $4.68 billion, a more than 50% increase over what the public have been led to believe.
The cat has been let out of the bag by two inquiries – one in Washington and another in Canberra.
On October 25, the ‘US House Armed Service Subcommittee on Seapower and Projection Forces Holds Hearing On AUKUS Submarine Industrial Base’ heard repeated references to the Australian commitment, clearly in the context that the $3 billion was in US, not Australian currency.
Meanwhile, late at night in Canberra – also on October 25 – Senate Estimates heard the following from the deputy head of the Australian Submarine Agency:
“Rear Adm. Buckley: In terms of the uplift to the US system, we have provision for US$3 billion—that’s the provision that we’ve allocated within our model. On the UK side, we’re still working through what that provision might be.”
And shortly afterwards:
“Senator Simon BIRMINGHAM: To be clear, it’s US $3 billion?
“Rear Adm. Buckley: It’s US $3 billion.
“Senator BIRMINGHAM: Is that funding subject to the normal currency adjustment that defence gets for major acquisitions and those factors? As the dollar has gone down, is defence having to find more to meet that US $3 billion.
“Rear Adm. Matthew Buckley: My short answer is yes, it would be subject to those arrangements. Our agreement with our partners was for US $3 billion, so yes, it would be.”
In summary, for at least the past eight months the government has implied a far lower figure will be given to the US rather than the actual amount – an unprecedented occurrence for large Defence contracts. The motivation is presumably to minimise embarrassment and live in hope that the correct $4.7 billion is never reported.
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Hi Kym
Yours truly passed on the 3 Billion being in US$ in a previous APDR comment. If only I could find where I put it. Tried and failed 🙂 Anyway, I included the wording:
“Some interesting financial figures have come out of AFR’s “AUKUS export rules possible ‘Trojan horse’ for bad actors” of 7 Sep 2023 by a US author at https://www.afr.com/world/north-america/aukus-export-rules-possible-trojan-horse-for-bad-actors-20230907-p5e2mt eg:
1. ““Obviously, we were grateful that the Australians want to invest $US3 billion…” Apparently that is 3 billion US dollars, not Australian dollars as I assumed. US$3 billion = A$4.7 billion.” More see https://gentleseas.blogspot.com/2023/09/virginia-purchase-us-dollars-vs.html
Cheers Pete
Par for the course.
Thanks for the excellent reporting Kym.
Always enjoy your work.
AUKUS decepetion has been ‘coordinated’ from day one. After AUKUS was used to betray France, for months Australian taxpayers were led to believe that AUKUS’s stratospheric price tag would cover 3-5 Virginia class SSN followed by 8 AUKUS SSN, ie, potentially a fleet of 11 US-UK vessels instead of 12 French boats, until, as an almost casual aside, RAN revealed $368bn would only cover a mixed fleet of 8 SSNs in total, oh and only one of the Virgina’s would be new…suckers.
Yes, it’s not a particularly good deal.
and lest we forget the ludicrous rationale used to reject Barracuda’s LEU reactors ie Australia’s lack of expertise & industry to refuel them once a decade, yet under AUKUS, Australia can magically muster the expertise & industry to surgically remove the Virgina’s weapons grade HEU and store it for eternity, within 10-15 years of purchase. Such glaring contradictions coupled with blatant LIES about RAN’s incapacity to manage both conventional AND nuclear vessels as Collins approaches its Frankensteinian Life of Type Extension, to eventually operate simultaneously with Virginias, are piling up so high you need wings to stay above them.
I can see the usual problems dealing with USA. The USA pollies haven’t even given formal consent as far as I know
Further, I can see Osborne like Pine Gap, a joint facility on it’s face, but dominated by USA
Should have got type 212CDs and gone straight to UK for nuke boats
The fact that the RAN is going to be operating two different designs of Nuclear Boats ( 3 to 5 Virginia’s plus the Balance in AUKUS Boats ) it gives the impression that the oft stated “ No interim Submarine is planned as the Navy can not operate two different designs in service together “ was subjective. Perhaps the objective is to give the Navy a reason to decide that the UK Boats won’t go ahead and all the Boats will be Virginia’s (second hand ones) after all you can’t operate two different designs at the same time.
Yes, the “can’t operate more than two classes simultaneously” argument is nonsense. The way they are going they won’t be operating anything.
I disagree. These comments were made shortly after the AUKUS announcement and long before the task force started hashing out the details. It was reasonable to suggest that it would be extremely difficult if not impossible for the RAN to operate three different submarines with two different types of combat systems, multiple types of propulsion systems (diesel electric, AIP and nuclear) and differing weapons systems (torpedos and vls) all while facing budget constraints and personnel issues. At the time the idea of loaning or buying a USN nuclear submarine was considered remote (and might still be). The Collins, Virginia and SSN-AUKUS will share the same weapons and combat systems which simplifies the process of conversion significantly by allowing the RAN to concentrate primarily on building a skilled SSN workforce through overseas training and local stewardship.
The counterpoint I would make is the the Attack class would have also shared weapons, combat system and propulsion system as the Collins. The Attack class deal should not have been cancelled immediately after the AUKUS announcement, instead it should have been considered as part of the transition to SSN’s. Hypothetically, a smaller order of subs, perhaps six, would have replaced the aging Collins class and reduced the amount of costly life of type extensions. The Australian supply chain that was being developed for the Attack class could have been primed and ready for SSN-AUKUS. The 4.7 billion AUD could instead have been spent on Australian infrastructure and training. The deal wouldn’t be subjected the the whim of a deeply divided American political system and we could have avoided the French diplomatic fallout (who am I kidding?).
cancel aukus and get German 212s or KSS-III as not just a capability gap, but could have it’s uses alongside a nuke boat. We can return to the French re a nuke boat and have a mixed fleet
would like the British boat but has US kit in it
No real surprise that there was a cover up over the Australian gift to the US. We have come to expect it. I still cannot get my head around the staggering cost involved – can only assume that this is an all inclusive life of type cost including all infrastructure, procurement, training and through life maintenance and support cost? Even so it is still staggering.
I think we should let the Americans and Brits train our folks and spend our money building infrastructure here and investing in UK infrastructure – then buy British boats as an interim seeing as how we will be building UK designed boats under AUKUS.
I have absolutely no idea how the number has been calculated because Defence won’t tell anyone – for example, does it include the disposal of the subs and their reactor cores here? That alone will add untold billions to the total.
The uplift payment is NOT a “gift”; if you read the senate estimate hearings carefully it says that the Virginia submarines will be priced at cost to Australia, I take this to mean that a profit margin will not be applied. Australia’s USD 3-billion “uplift” is effectively a front-end loaded margin in advance and if you do some basic sums this represents around a 20% markup on 5-boats or a 35% markup on 3-boats; this is a deal of the century! To pay a markup of between 20-35% for 50+ years of intelectual property development in what is some of the best nuclear submarines on the planet and manifest in the Virginia class submarine is indeed a bargain.
There’s a lot more I’m planning to write on this topic, but I think the chances of getting 2 used Virginia class submarines are close to zero – and a new one even less than that – because the US will not hit the required build rate of 2.3 per year. It’s even worse than that because there appears to be no refund clause.
Anon916 I wish you were correct, but I fear you are not. The US$3 billion Australian contribution is our contribution to “the expansion of the US SSN shipyards.” It is not a down payment. If we do not get subs, there is no suggestion it is refundable. Mead says it is also for “long lead items” but they are not specified and the split of funds is not detailed.
https://breakingdefense.com/2023/09/aussies-to-pour-3b-into-us-nuke-boat-yards-long-lead-items-for-aukus-subs/
I just find it extraordinary that we are committing such large amounts of money with no written details of a contract, and no clear definition of what we get in return or when.
what a disaster
I agree with you Kym.
US Virginia class construction is/has been demonstrably too slow to meet the USN’s SSN needs let alone having enough to export or lease 3 to 5 (used or new) Virginias to Australia.
Even before the first US Columbia class SSBN was laid down (in 2022) the US only commissioned 19 Virginias in 18 years. [1] This is the oft quoted 1.1 Virginias being commissioned per year.
Virginia commissionings may actually DROP BELOW the 1 per year as construction of the 12 Columbias is expected to be the US’s top construction priority from 2023 to 2042. [2]
By the mid 2030s all the Seawolf and Los Angeles class SSNs will have been retired.
So numbers of Virginias will be the US’s only SSN measure for the foreseeable future from the mid 2030s.
The USN since 2016 has been advising it needs 66 SSNs to efficiently operate.
On a generous 1 Virginia commissioning per year the US will only have 38 Virginias (or SSNs of any type) in 2042.
In short “Virginias for Australia” is only a Biden slogan to keep AUKUS alive through to the mid 2040s when the first mainly UK designed SSN-AUKUS Might be available for Australia.
[1] https://en.wikipedia.org/wiki/Virginia-class_submarine#Boats_in_class
[2] https://en.wikipedia.org/wiki/Columbia-class_submarine#Overview
The reply by anon916 is spot on, In the context that the technology the US created to build their Nuclear Submarine fleet is staggering, the technology didn’t fall from the sky, every aspect of the US fleet has been hard wone at a staggering cost of B$$$ and lives. It’s important to understand the true meaning of the word Cost! The cost of the boats will be cost +, Building the boats in Australia is possible, Building the component supply line is not possible. The supply chain entails materials that are only made in the US, and these items are only made in the US, the equipment to test all the componentry only exists in the US. I think the broader commentary needs a more constructive accurate direction. Finding the correct person to drive this project needs to happen Now. If we want this Technology, we will have to pay. We are indeed lucky the US will share this Technology with our Country.
This is true, but is also a two edged sword. With the Virginias the RAN may be back to where we were with the Oberon class. Great boats, sure, but with no local IP very difficult to maintain, sustain and repair.
With virtually no local supply chain for Virginias, and probably not enough volume to justify building one (if the USA would let us), how often will Virginias have to go back to USA to get maintained or upgraded?
hopefully there won’t be the same problem with the British boat being built here. Wait! British boat has USA kit in it.
We really need to keep USA technology out of these things
In reply to anon916 and Wayne Bishop, The costs involved in the AUKUS is indeed a bargain basement price. Purchasing something as complex as a Nuclear Powered Submarine is no easy thing, but I fear that anon916 and Mr Bishop have missed the fact that it will only be a bargain if we get them, which is no sure thing. The U.S. is in no hurry to short change their own Navy. The longer it takes to get these boats the more chance Technology will come up with systems that make the Oceans more opaque and there goes the advantage. However good these boats will be, questions need to be asked about the whole deal .
Virginia Buy-In: US$16 Billion (AU$24 Billion) Donation to US?
It is possible the US$3 Billion donation (that we know about) is just the first tranche of a US$1 Billion annual donation to the US submarine industrial base.
That first tranche (that we know about) might be covering US$1 Billion (AU$1.5 Billion) for 2024 and then the same amount for 2025 and 2026.
Then a second tranche of US$3 Billion donation might then cover 2027, 2028 and 2029 and so on. In that way Australia might be donating US$1 Billion (AU$1.5 Billion) per year from 2024 through to 2039, when the 3rd Virginia might be received.
Hence the total Australian donation for 2024 through to 2039 (inclusive) may be US$16 Billion (AU$24 Billion).
All I know is that there is a huge fire hose of cash being sprayed all over the US.
So. Shafted again. What about this from BMT. I would start another subject with this but don’t know how
file:///Users/amband/Downloads/2007-09-26Concept-SSGTDataSheet.pdf
Hi Kym
Here’s an interesting turnup.
Any details resulting from the AUKUS Review activity announcement BELOW my provide opportunities for Aus Senate Estimates, APDR, bloggers and the Press to try and squeeze info out of our secretive RAN Admirals and part time Defence Minister Marles.
In coming weeks after this AUKUS Review activity we may also learn much from the more publically accountable US side (Congress, US DoD and the USN) than our betters in the RAN before our Admirals and Marles retire to defence industry sinecures.
See US DoD Media Release, of 7/8 November 2023 https://www.defense.gov/News/Releases/Release/Article/3582952/performing-the-duties-of-deputy-under-secretary-of-defense-for-policy-dr-mara-k/
“…Performing the Duties of Deputy Under Secretary of Defense for Policy Dr. Mara Karlin will lead a senior interagency delegation to Australia this week for a series of high-level trilateral engagements to advance the AUKUS defense and security partnership to promote a free and open Indo-Pacific region.
The delegation comprises officials from across the Department of Defense, representatives from the National Security Council staff, the Department of State, and the Department of Energy.
In Canberra, Dr. Karlin will co-chair, alongside her United Kingdom and Australian counterparts, the trilateral governance bodies for the two Pillars of AUKUS
– conventionally-armed, nuclear powered submarines (Pillar I) and advanced capabilities (Pillar II).
The AUKUS Submarine Executive Group will review progress in Pillar I to support Australia’s acquisition of a sovereign nuclear-powered submarine capability…”
More at https://www.defense.gov/News/Releases/Release/Article/3582952/performing-the-duties-of-deputy-under-secretary-of-defense-for-policy-dr-mara-k/
Thanks. Hopefully she will be prepared to do a media briefing – unlike any of the Australians.