Minister for Defence - Transcript - Domestic munitions production announcement

With: Federal Member for Farrer Sussan Ley MP

JOHNSTON:

Thank you all for coming to Mulwala. I’m here today with Sussan Ley, the Assistant Minister for Education and Federal Member for Farrer, who has been a very, very strong advocate for regional jobs in her electorate. Today I have much pleasure in announcing that the Commonwealth Government, through the Defence Department, is going to continue operations both here in Mulwala and down at Benalla for another five years.

This plant particularly produces some of the most high-tech, high-quality propellant used in bullets and projectiles – artillery shells, mortar rounds, grenades and things of that nature. Two weeks ago I was up in Darwin talking to our soldiers and they said to me in terms of reliability and accuracy that an even burn rate in propellant is very, very important. This plant produces one of the world’s leading and best quality propellant in terms of an even burn rate which yields reliability and, of course most importantly to our soldiers, yields accuracy.

So I am very, very pleased to be here with Sussan today to say to the more than 550 employees across both plants that their jobs are secure for the next five years. In that period the Commonwealth will work with Thales – who have been a very reliable contractor for the Commonwealth for a long period of time in so many areas – to see that we diversify the production of these particular products, namely the propellant and the bullets.

The rounds down at Benalla of course are 5.56mm, 7.67mm, 12.7mm which is .50 calibre. We then go to the rounds used in our fighter jets, the 20mm and so on, and the projectiles used on the Typhoon Weapon Stations used on the Armidale-class patrol boat which is a 25mm and we’re looking to get into 81mm mortar rounds and also into 155mm artillery shells. So these are the sorts of things, the innovation that I think Thales and the Commonwealth and Defence can do.

This plant is magnificent, today we’ve had a tour of it, it’s absolutely world-class, cutting-edge technology and I must say I am very pleased with the way Defence has gone forward with this. It’s been a difficult programme but what I can assure everybody is that Australia’s fighting men and women have reliable sources of munitions.

Back in 2003 we had a shortage of bullets – we will not see that again. We will reconsider the Commonwealth’s position over the next five years as to where we go from here; we are very pleased with the outcome we have been able to achieve with Thales.

QUESTION:

Minister why has it taken so long to formalise the contracts?

JOHNSTON:

What has happened in the marketplace with respect to munitions is a complete change of circumstances. When this project was begun it was perceived that there was a very, very strong international market for these munitions, of course the winding down across Afghanistan, Iraq and other places saw the market contract and prices become extremely competitive and of course we know that when prices become internationally very competitive Australian manufacturing is put under pressure. We responded by modernising the plant and I think that has taken a bit of time to build those plans and to go forward in the face of a market that has been a bit soft.

QUESTION:

What’s included in the programme that’s worth $350 million?

JOHNSTON:

Well we have to underwrite Thales. The market here is very small and what this is, is a contract that guarantees the Defence Department a reliable source of high-quality munitions. Because our market is small the Commonwealth is underwriting this plant and Benalla to an extent.

No one should be in any doubt that this is about providing a consistent, reliable supply of munitions to the Australian Defence Force going forward so that we are ready for any contingency. Should the temperature out there in the world heat up we will know that our fighting men and women will have a reliable source of ammunition.

QUESTION:

Minister they [inaudible] said outsourcing the manufacture of submarines to Japan is outsourcing national security, what’s your response to those comments?

JOHNSTON:

We haven’t made any decision with respect to submarines. This is a very complex issue, we’re looking to make a firm decision next year in the White Paper. Even if the Government was to look at other options, the only reason the Government can look at other options is because we’re not contractually bound to any particular option.

In the five year prior to the election Labor did nothing, this programme went to the National Security Committee in 2008, the fact is they had done nothing. Outsourcing is one thing, but just sitting on your hands talking about a programme – talking it up but not doing anything with it – is a much more scandalous situation.

QUESTION:

Is there- Japanese subs are at this stage the frontrunner out of all the options?

JOHNSTON:

There are three significant builders of diesel-electric submarines across the world, we’re talking to each of them. We’re looking to build relationships across long distances with the objective of getting the Royal Australian Navy the strongest and most cost-effective capability.

QUESTION:

Minister the Napthine Government put out a press release early this morning saying 550 jobs had been secured, there are about 700 jobs across both plants, what’s happening with the other 150?

JOHNSTON:

Thales and I have discussed that there is a little bit of natural attrition going on because this beautiful plant is quite automated. Initially I think those 600 or so jobs will be there for several years but ultimately towards the end of the five-year period we’re looking to come down I think, you might ask Thales that, but I think coming down to about 550. I’m using that as a benchmark figure because I think that’s the ultimate figure that will be running both of those plants.

QUESTION:

We have asked Thales this morning and they weren’t able to tell us.

JOHNSTON:

I just know I’ve just seen the automation in this plant and I can see that if you look at the old plant – and there’s a big transition period, there’s probably going to be about two or three years of transition from the old plant here to the new plant – the new plant is extremely highly automated.

QUESTION:

So you’re looking at losing at least 150 jobs?

JOHNSTON:

I think there will be a contraction, I think there has to be, I mean we were working with 1946 technology and we’re going to cutting-edge, world-class technology as of now.

QUESTION:

And that’s more prevalent here at Mulwala than Benalla isn’t it?

JOHNSTON:

I think so.

QUESTION:

So more likely to be jobs lost here?

JOHNSTON:

I’m not sure jobs lost, I have discussed this with Thales and they say that there is a natural attrition rate per annum where people retire and they’re just not looking to replace those people, so I don’t think it’s actually jobs lost.

QUESTION:

OK, so I was also told by Geoff Mitchell that there’s been a suspension of the contract system with that special Australia- what’s it called? Geoff? Defence...? The way it’s ordinarily done has been suspended and this is, it sounded to me, as if this is a separate deal and it’s not how it’s been done previously.

JOHNSTON:

What happened was the Defence Department several years ago went to tender and that was based upon, as I set out, a number of commercial premises as to the state of the international market.

The international market has changed substantially, such that those premises and that tender contest are no longer viable. It has been suspended and today announces an interim agreement for five years to see Thales at both plants going forward.

QUESTION:

Right, so it doesn’t mean you’ve ended it, just suspended it.

JOHNSTON:

We’ve suspended it but I think that the circumstances that the Commonwealth wanted – and that was a stand-alone, viable munitions plant with no Government money – was unrealistic. The market declined over the last several years to such an extent that that whole process meant that the Commonwealth were still going to have to fund the whole operation to an extent going forward. We’ve decided that the best way to go forward here is to keep the workforce that’s in situ in place with the current management, we think that’s the best solution to the problem.

QUESTION:

And you said you’ve underwritten it, to how much? How much is this costing?

JOHNSTON:

We’re spending about $350 million over the next five years.

QUESTION:

Minister with regard to the modernisation project here at Mulwala, how far away is that from completion? I know there have been some delays.

JOHNSTON:

We think that this plant will be up and running and functioning appropriately by about the middle of next year.

QUESTION:

The boss of ASIO has said that he’s considering upgrading the terror threat to high, what does that mean for Defence?

JOHNSTON:

I think it means that Defence is going to be very vigilant. The boss of ASIO, David Irvine, is a well-respected and very steady man who makes these statements very cautiously, very carefully and is a very considered commentator in this space and I think it’s very important that we all take note that he thinks that the threat description should go up, I think we should all be conscious of that.

QUESTION:

Are Australians likely to see a Defence presence in civil society under a heightened terror threat?

JOHNSTON:

I wouldn’t think so.

QUESTION:

Is this the start of some good news for other Defence contracts such as places like Bendigo?

JOHNSTON:

That’s a very, very good question. Can I tell you I was sitting in a Hawkei 7.5 tonne light armoured vehicle about a week ago; I know that Army is very pleased with that, there are some decisions to be made but there is approximately 1,300 of those vehicles to be produced were the contract to come forward. I’m working hard with Thales, with the Defence Department to bring that contract forward if the vehicle comes up to specification and up to our requirements, it’s doing very well at the moment but we don’t want to get ahead of ourselves.

QUESTION:

President Obama’s to address the nation tomorrow, I guess about the threat of Islamic State, and he had a conversation with the Prime Minister yesterday, will there be more to say once President Obama’s made that address?

JOHNSTON:

I think the Prime Minister should make the commentary on that particular matter. The Defence Force is at a state of readiness applicable to what is happening in Iraq; we’ve done three airdrops already – one of which was to deliver ammunition – we may have done a fourth overnight, I’m not sure having left Canberra early this morning. We want to see the Peshmerga be as successful as they can in opposing ISIL and we don’t want them to suffer any losses for want of ammunition or equipment, so we, with our international partners, are assisting them to put up some resistance.