Defence SA, $20,909,000

Membership:

Mr Fulbrook substituted for Ms Stinson.

Mr Brown substituted for Mr Odenwalder.

Minister:

Hon. S.C. Mullighan, Treasurer, Minister for Defence and Space Industries, Minister for Police.

Departmental Advisers:

Mr M. Opie, Chief Executive Officer, Defence SA.

Mr P. Murdock, Director of Finance and Systems, Defence SA.

The CHAIR: I declare the proposed payments open for examination. I ask the minister to introduce his staff, and I ask whether he wants to make an opening statement.

The Hon. S.C. MULLIGHAN: No, thank you, Chair. I have with me Peter Murdock, Director of Finance and Systems at Defence SA, and I have Matt Opie, who is the Chief Executive of Defence SA.

The CHAIR: Member for Morphett, do you have an opening statement? If not, it is straight into questions.

Mr PATTERSON: I just want to say thank you to the staff for all the work you do. It is a very important portfolio for the state. If we go to Budget Paper 4, Volume 1, page153, 'Program net cost of services summary'. It talks through, at a top level, each of the programs. For Defence Industry Development, it has in the 2023-24 actuals $7.35 million and then an estimated result in the 2024-25 year of $17.196 million. Maybe the minister could provide us with information about what the increase between the two years was a result of.

The Hon. S.C. MULLIGHAN: I am advised that there was a range of carryovers on ongoing projects, which saw increased amounts of expenditure on Defence Industry Development. The two projects in particular were expenditure on the Kanyini project, as well as the Raytheon Line Zero project.

Mr PATTERSON: The budget is $11.8 million for 2024-25 and then in 2025-26 it is increasing to $15.6 million. I understand there was some carryover, so hopefully that has made its way through. Maybe you could explain what the increase between the two budgeted years is a result of, so between the 2024-25 budget and the 2025-26 budget?

The Hon. S.C. MULLIGHAN: On page 157, under the table headed 'Program summary—income, expenses and FTEs', it talks about how it is primarily related to the timing of industry assistance grants, but I might see if I can tell you which grants in particular that relates to.

Factory of the Future—Line Zero is $3 million, Raytheon is an increase of $800,000, from $800,000 to $1.6 million, and then there is the Defence Innovation Partnership Activator Fund, which increases from the $1.6 million originally budgeted for in 2024-25. It ended up being $4.7 million, and that is as a result of carryovers from the previous financial year, 2023-24, being carried over into the 2024-25 year. So you will see that, when you have a movement of an extra $3 million, it was not spent in 2023-24, it was instead spent in 2024-25.

Mr PATTERSON: In the Program net cost of services summary, the second program, the South Australian Space Industry Centre, had a budget for 2024-25 of $4.76 million and then a budget for 2025-26 of $2.4 million. Is the minister able to explain what the reduction between those two budgeted years is a result of?

The Hon. S.C. MULLIGHAN: In particular, it was a timing of a grant. There was a significant contribution in the 2024-25 year of part of the package to fund Kanyini and so that was an extra $1.3 million in that financial year. There is another $300,000 or $400,000 in general grants going out to other space-related organisations as well.

Mr PATTERSON: That is totally unsurprising that there was money there for Kanyini in the space program. It was also mentioned in the defence industry development program that there was funding in there for Kanyini. Is that the case? Was there money for Kanyini in both programs?

The Hon. S.C. MULLIGHAN: Sorry, Kanyini was not included in that first line, so apologies, I provided the wrong advice previously. But what was included was $2,800 for Line Zero, 800 for Raytheon and the Defence Innovation Partnership Activator Fund, which was originally budgeted at $1.6 million, ended up at $4.7 million. Perhaps I can provide to you as a question on notice the detail of all the grants that have been provided across the financial years?

Mr PATTERSON: That would be great, yes. I probably have that as a question later on, but we will take that here. That sounds good. If we could talk about some of those grants that are around and some of the programs that are being run because it is understandable with AUKUS that there will be a lot of effort put in there. I am interested to get an understanding of what that effort is and the interplay between what the federal government is doing and the South Australian government and how we can maximise that. In terms of some of the announcements this year, I think that the federal government have announced their AUKUS Submarine Industry Strategy. Are you able to maybe explain what some of the highlights of that are that are pertinent to the South Australian defence industry?

The Hon. S.C. MULLIGHAN: Yes, sure. The government's efforts here are spread across two different entities. One is obviously Defence SA, which we are talking about today, and the other, which is more to the point that you raise in terms of industry development and readiness, is the Office for AUKUS, which is located within the Department of the Premier and Cabinet, which undertakes a range of—how can I describe them—preparatory activities readying the state for AUKUS. It is more trying to conduct those state government functions; for example, facilitating the land swaps and transfers that have been necessary on the Lefevre Peninsula or for land that was previously in the Cultana training precinct and so on.

Defence SA is more industry focused, I think it is fair to say, so part of the effort of the existing staff of Defence SA, as well as the funding that we provided in the budget to extend our funding to the Defence Teaming Centre, is aimed at the industry's readiness and preparation for AUKUS activities. There are specific programs within that as well.

In the Department of State Development there is the Industry Workforce and Skills Action Plan and then there is the supply chain uplift, in particular, to ready South Australian-based suppliers to participate in the supply chain for, initially, the US supply chain for the Virginia class but then being ready, by extension, for when we start the construction and contribution towards the SSN-AUKUS in South Australia.

There is a little bit of crossover between Defence SA and those two other government agencies, but there is still the focus both on AUKUS Pillar 1 and then more broadly on the Pillar 2 technologies, which extend well outside of naval shipbuilding and the submarine effort to all the other technologies that are identified in Pillar 2. Does that answer the question, or are you after more particulars in a certain area?

Mr PATTERSON: To some extent; it gives us a broad flavour. I am mindful there are different departments. Just moving on, still the same budget paper and page 156, looking through the highlights, you could start off with dot point 1 around getting them into the supply chain—for you, Chair, so that we are talking about a particular budget item. The question preceding that was more to do with that than the overall line.

With the Submarine Industry Strategy, the federal government has identified some critical areas, I think. One of them is creating demand clarity for industry, and another is boosting investment into these areas. Of the main areas, I was looking at those two as seeming to be quite relevant to South Australia. Maybe a more specific question than the previous one is: what would Defence SA be doing in those two areas in terms of trying to get clarity, because obviously the project is in its infancy. The other one would be boosting investment as well.

The Hon. S.C. MULLIGHAN: That is a good question. Demand clarity, I think, is a good way of trying to articulate how industry is crying out for a road map or pipeline of work that is likely to become available for Australian-based—and South Australian-based—businesses that can participate in the AUKUS program.

Defence SA has an understanding of what those opportunities are and when they are coming into effect, when they are going to be live, when there are going to be live procurements out there, but then I think the real value is understanding which South Australian companies are operating in this space, or which have the capacity to operate in this space, and then trying to understand what is required for them to be entering into those supply chains.

As you well know, in Defence there are all sorts of requirements that companies need to meet so that they can provide their goods or services into the supply chain; all the clearances, of course, but all the demonstrations that they have the capabilities, practical as well as organisational and financial. Generally speaking, it is trying to identify those South Australian firms and then, to the greatest extent we can, kind of holding their hands along the journey so that they can successfully participate in that supply chain as well. That is just one area of the defence industries that Defence SA does this work in, across all of the other domains, where we are undertaking these defence industry development activities.

When there are major global or national announcements about defence procurement, the prospect or the likelihood that the Canadian government is going to procure BAE systems, JORN system, the immediate thought is, 'What does that mean for BAE in Australia? What does that mean for BAE, in particular in South Australia? If work is going to ramp up really significantly, what does that mean for other businesses in the defence industry that can supply to BAE as well?' It is understanding what the procurement pipeline is and then making sure that our businesses are ready for it.

Mr PATTERSON: You talked about giving capability uplift as well to the supply chain. We talked a bit about that at the last estimates, because for the South Australian defence industry to get the most out of AUKUS, it will be trying to get into the supply chain and prove we are ahead of US companies that are already in the Virginia class supply chain, and the UK one.

The Hon. S.C. MULLIGHAN: Yes.

Mr PATTERSON: They are already in there with the dreadnought and SSN-AUKUS. I think Huntington Ingalls Industries has come into Australia and taken an active presence, which is good.

The Hon. S.C. MULLIGHAN: Yes.

Mr PATTERSON: I suppose I am keen to get a bit of an understanding about any programs they are offering to help out with capability uplift.

The Hon. S.C. MULLIGHAN: There are a few different things I can take you through. The first program is called the AUSSQ program which is delivered in partnership with Huntington Ingalls Industries (HII) that you mentioned before. We provided $1 million towards that AUSSQ program, and that is to assist five South Australian companies go through all of the pre-qualification processes and assessments necessary for them to be an accredited supplier into the supply chain.

Then there is the separate DIVQ program which is being funded and run by ASC, which seeks to achieve basically a similar outcome, but for the work that ASC is interested, in particular partnering in their role in developing the SSN-AUKUS, but they also have a broader remit looking at things like the life of type extension work for the Collins class and so on.

Then there is the $3.3 million that we have allocated for the Defence Supply Capability Uplift Program which, similar to the outcomes that I have just identified for that AUSSQ program, is trying to get a range of defence suppliers fit and ready to be part of the supply chain; firstly, helping them to understand what the procurement opportunities are but then making sure that they meet all of those pre-requirements that are necessary.

There is also a partnership with the Hampton Roads Alliance, which is a conglomerate of industry associations representing our private businesses which are seeking to create bilateral relationships with South Australian and Australian companies, to get them involved in the broader supply chain for the Virginia class. I understand that that same sort of Hampton Roads industry association-led effort is also being replicated in a UK perspective.

As you know, one of the attractions to the three countries of the AUKUS agreement is that each of the three countries becomes able to participate in each other's supply chain, diversifying the industry capability for each of the three countries. Those are the programs in South Australia that we are trying to pursue that through.

Mr PATTERSON: In relation to the one by HII (Huntington Ingalls Industries), you were saying it was trying to get them to become an accredited supplier. So there are five companies. What fields are those companies in? I will let you answer that question and then I will do my follow-up.

The Hon. S.C. MULLIGHAN: It is mainly those businesses involved in manufacturing, but outside of manufacturing there is also some interest in businesses which are capable in engineering services and potentially design as well. I did just ask Matt, 'Should we try to name those companies?' but I do not have that detail to hand of those five companies that are participating. I might take that on notice so that I can provide that for you subsequently, if you like.

Mr PATTERSON: Thank you. Would Huntington Ingalls be looking for gaps in their supply chain in the US and say, 'Okay, there's a weakness here,' and finding out what is available here?

The Hon. S.C. MULLIGHAN: Pretty much.

Mr PATTERSON: Are we looking then for gaps or where there are weaknesses in the Virginia supply chain, or are we looking for having a parallel so there are effectively points of redundancy in the supply chain? So they might well have a company already doing something for Virginia and then one in South Australia, because they are two different paradigms.

The Hon. S.C. MULLIGHAN: They are. You are right to make the distinction between the two of them. My understanding is that it is both. There are existing suppliers for the Virginia class submarines, for example, but they might be right at capacity, or they might be forecast to reach capacity fairly soon, so they need alternative suppliers to provide the same thing, whether it is the same manufactured goods or engineering services, but they just need more companies who are able to do it so they can increase production. Or if there is redundancy, as you say, something happens with the existing incumbent supplier, then they have other people who they know they can go to.

You raising that point is really important in the context that we are asking, or hoping, for the US boat yards to be increasing production so significantly. That is why there is not just effort from Australia, or subnational jurisdictions like South Australia, trying to promote our businesses into this supply chain. I think the attractiveness of the AUKUS agreement for the US defence industrial complex is that they are going to be far more capable of delivering the platforms and the programs that they need to do over the coming years because they reach into the Australian economy and expand their supply chain, and similarly with the UK too.

Mr PATTERSON: That makes a lot of sense. Obviously, we have the review going on in the US that got announced earlier this week by the Pentagon. Us talking about that makes it obvious that the Australian defence industries can help there. In terms of that review, how long is it going to go for? I would be interested in your commentary on it as well. Do you feel there is an issue there? Is there something that we should be putting forward to the US to say, 'This is why it's a good thing for the US'?

The Hon. S.C. MULLIGHAN: I think it is important you raise it, because it is obviously highly topical at the moment, particularly given the aggressive changes in policy of the current US administration in a whole range of areas. When a review gets announced about AUKUS, obviously people's eyebrows are raised and ears prick up about what that might mean for the program.

I think it is important to recognise that for an incoming government it is not unusual for these sorts of longstanding programs to be reviewed; it does not matter if it is a national government or any other government, if it is defence or likewise. But in the context of AUKUS, the Starmer government reviewed the AUKUS agreement and has subsequently chosen to increase the number of SSN-AUKUS submarines that they want to deliver to 12. So sometimes these things are good on the upside rather than the downside.

My understanding is the length of the review is 30 days. I do not think we should be utterly relaxed about the review. I think the Trump administration and the Pentagon will be putting their own advisers and their own industry through the hoops and they will be expecting the other AUKUS participant countries, Australia and the UK, to be put through the hoops to justify why this is an agreement that is of benefit to all three countries but including the US.

I think we have a pretty well-conceived understanding of why it is good for Australia but also what the benefits are for the UK and the US as well. I think it is our expectation that the review will give the opportunity for both the UK and the US to feed into it to make it clear what we see the benefits to the US are, not just to ourselves. But that will be done at a federal level; that will not be done at a state level.

Mr PATTERSON: Talking of the federal level, have you been able to speak with your counterpart, the federal Minister for Defence?

The Hon. S.C. MULLIGHAN: After the recent federal election, when the cabinet was sworn in, I went to Canberra and visited my ministerial counterparts: obviously, the Treasurer, Dr Jim Chalmers; the defence industries minister, Pat Conroy; and also Tim Ayres, who is the minister for—and I will not get his title exactly correct—industry. I raised with them respectively the things that are important to those particular portfolios from a South Australian context, particularly with Pat Conroy and Tim Ayres with respect to space.

I think I made some comments yesterday in the other place when we were talking about the space sector, that there is a significant opportunity for the commonwealth to lean back into that space, perhaps in a way which had not been the case for the last three years. With defence, what I mentioned to Minister Conroy is we feel as a state, more so than any other state or territory, that we are putting a huge amount of work into helping the commonwealth successfully execute against their defence programs.

We have spent more than $200 million building the defence maintenance and modification facility at Edinburgh so the RAAF can maintain and modify the P-8 Poseidon platform, replacing the old P-3C Orions and also the E-7A Wedgetail variant of that Boeing plane as well for surveillance and communication purposes. We have set up the office for AUKUS, and we have Defence SA, which is trying to pull in the same direction and beat every path clear in advance for the commonwealth for AUKUS and for naval shipbuilding in South Australia as well as AUKUS Pillar 2 activities.

So I would like to think that, both in what we have done over the last three years and also what we are doing right now and what we are prepared to do in the future, we are sending a really clear message to the commonwealth that we are almost like an extra set of arms and legs for them to successfully prosecute what they need to do when it comes to AUKUS, and we are prepared to put extra resources into it.

As Matt reminds me, we have recruited additional staff to represent South Australia and defence in particular. We have Tony Heath, who is our director in the UK, who works in conjunction with the Agent General's office but is actually a staff member of Defence SA, so we have that direct relationship with him.

We also have the DSD presence ramping up in the US as well. A succession of ministers, led by the Premier, are making sure we are calling on key companies and decision-makers in the US to reaffirm the capacity for the South Australian economy to support their programs but also to encourage them to think about South Australia as a place in which they can expand their operations, if that is something they are looking at as well.

Mr PATTERSON: So the UK is wanting to expand its program as well?

The Hon. S.C. MULLIGHAN: Yes.

Mr PATTERSON: There was also commentary quite recently from one of their former UK national security advisers, warning that there have been delays in the past and that it is quite likely that there could be design and production delays to the SSN-AUKUS. I know it is hard to predict what that might mean, but that was the commentary.

In terms of the planning going on, to me a delay would cause an issue—we are talking about trying to get suppliers geared up into the programs, but they need to have that work. How do you overcome the uncertainty created by that? You have a US defence review, an AUKUS review and potentially commentary around delays. Is there an issue or are contingencies built in around delays? How do we keep the industry engaged?

The Hon. S.C. MULLIGHAN: It is a good question. There are a few different elements to the concept of delay: one is a bit beyond you and me, and that is the risk a delay causes to the nation's defence posture in having these boats ready. From the outset, they are seeking to mitigate that risk by procuring three to five Virginia class submarines from the US to operate for the benefit of Australia, but I will not go into that any further because it is not really a state government issue, it is more a national government issue.

The other is the risk of delay to the SSN-AUKUS program as far as we are concerned in South Australian industry terms. Any delay that eventuates may mean slippage of the program and changed timings on when the extra workers are required and the extra industry uplift is activated, not that we should be relaxed about delays, but we will be working extremely hard as an economy, let alone participants like government or industry, to try to meet the demand that is now here. Whether it is BAE recruiting an extra 80 or 90 staff per month—and that is just for the frigates program; that is before they even crank up for the submarine build—the commonwealth itself has to do that massive expansion of the shipyard, which is billions and billions of dollars of expenditure before the SSN-AUKUS build program starts.

If a delay does eventuate (and this is government procurement in defence, which guarantees it will be on time and on budget and unaltered in design—is that a fair call?), economically or labour force or industry opportunities, I do not think it will be as bad an outcome as it would otherwise be if, for example, the AWD project had been significantly delayed by years, 20 years ago when that was ramping up, or what we have been confronted with with delays about frigates and that sort of thing. I hope that sort of industry dislocation and valley of death is well in the rear-vision mirror now. Rather than valleys of death it will be the capacity to climb Everest and deliver these major programs at the same time in our economy.

Mr PATTERSON: Just because we only have an hour I might move across to space, and if we have time we can come back to more of this.

The Hon. S.C. MULLIGHAN: Yes, absolutely.

Mr PATTERSON: Thank you for your answers. They are very enlightening. If we go to the same budget paper, page 154—looking at the investing expenditure summary. It is basically just one investment, which is the Space Assembly Integration and Testing facility. Originally, in the 2023-24 budget, $10 million was to be spent in 2024-25 and $10 million in 2025-26, whereas now in this budget it is stating that the estimated result is zero. So none was spent in this financial year and none is expected to be spent in the 2025-26 year. The commentary around that is that:

Defence SA will now commence the creation of the Australian Space Assembly and Integration Centre to be located…at Lot Fourteen in 2028.

Maybe if you can give some commentary around what is going on, because it is something that would be very beneficial to industry.

The Hon. S.C. MULLIGHAN: Yes, absolutely. There have been a few changes of plan, obviously, with this over the years. You and I have both recognised on the record previously in the other place that, when the Albanese government was first elected, there was a decision taken to withdraw funding from some space-related programs that had been committed to by the previous Coalition government. Some of that had an effect in South Australia as well, so what we decided to do was to try to proceed with two commitments. One was to develop this, and I will come back to this in a second, and the other one was to try to support Fleet Space in their move and in the development of their new facility, moving from Beverley to the airport. That is all proceeding fine.

On this, we had not proceeded with this building as quickly as possible, because in the last 12 months what has changed in the scope of the building is that we have reached an agreement with BAE Systems that they will relocate their corporate workforce from Flinders Street into the new Innovation Centre at Lot Fourteen, which means the scale of the building will now be significantly larger and the workforce in the building will be significantly larger than what we had previously anticipated when, in last year's budget, we had forecast that we would spend $10 million in that financial year.

Cabinet has now approved the delivery model for that building. We will be going out to market for our constructer of the building, which we anticipate will be delivered and tenantable in 2028. It will be a facility that includes the Australian Defence Technologies Academy as a key tenant, and the space assembly and integration and testing facility will be a key tenant of that building, as will BAE. There will be a level of facilities and security arrangements required in that building, particularly because of BAE being in there, which will also make it conducive to other companies that have higher levels of security requirements to be able to be located in that building as well.

Consistent with the previous government's vision for Lot Fourteen, where it would be bringing together a class of businesses and workers who are entrepreneurial and innovative and that sort of thing, we hope this building will be doing something similar: having a calibre of workers across a range of organisations who are involved in very advanced, high-skill jobs. Hopefully the benefits of that spill out across the broader economy as well.

Mr PATTERSON: In the highlights a bit further on, but still related to this line item: we talked about design, and it stated that design did occur during this financial year. Is there continuity in that design or does it have to be reconstituted or redesigned because of the location change?

The Hon. S.C. MULLIGHAN: I cannot really comment in terms of the actual design. What has changed is the footprint, the level of space that will be in the building. When we go out to market for a constructor—we have not settled this yet—one of the things that we are thinking of is whether we ask for some optionality in terms of gross lettable area of the building space, so that between now and 2028 if there are more tenants who are interested in being located in the building we have the capacity, through the construction contract, to add floors or add footprint to the build to make sure that we can accommodate more people in there.

I cannot comment too specifically about the design of the building. I will come back to you on the design stuff, but I think you can get the gist of why the delay, and now because we are looking at a broader cohort of people being included in it.

Mr PATTERSON: But the intention is still to have some basic common user equipment to help with the assembly?

The Hon. S.C. MULLIGHAN: Yes, for space, absolutely. I do not know how many floors, off the top of my head, but there will be one floor of at least—Matt has reminded me that there was some initial work done to design the lab space for the assembly and integration and testing facility that is space-related, and it became clear through that process that while there was some early design work done, given that this thing is going to be open for tenants in 2028 things may well move on in terms of what the lab needs and its capabilities and the services and equipment and so on. I think the best way of describing it is that the design is deliberately incomplete to allow for some future developments of scope and capability.

Mr PATTERSON: Which does make sense, because technology does advance quickly, especially in this field. The question is whether there is uncertainty, though. Could I seek from you a commitment that the actual $20 million will remain in the budget and you will commit to building the ART?

The Hon. S.C. MULLIGHAN: Yes.

Mr PATTERSON: It is not one of those things that gets pushed out and then after the election—

The Hon. S.C. MULLIGHAN: No.

Mr PATTERSON: —all of a sudden it is not in there.

The Hon. S.C. MULLIGHAN: No, that is right. The government has made a decision that we are going to market for the building. The building will be procured to house this facility specifically within it. The financials of the building incorporate the money that has been allocated for the assembly, integration and testing lab that is this initiative. It will be in the building. The government has approved that, and it is budgeted to happen, so there will not be any change to that.

Mr PATTERSON: I refer to the same budget paper, page 156. In the highlights it talks about the defence and space landing pad and trying to attract companies there into Lot Fourteen. Can the minister outline how many companies received funding in the 2024-25 financial year, the funding amounts and the breakdown of whether they are defence or whether they are space companies?

The Hon. S.C. MULLIGHAN: Let me see what we have on this, because I do recall seeing something recently on this. I know during the course of the year there have been companies that have been assisted through the landing pad. I am sorry I cannot give you the specific detail now. I am advised that we think it is five to 10 companies in the course of the last year. They may not receive direct funding but instead they might receive another form of financial assistance, a period of reduced or subsidised rent, for example, and then that applies for a certain period and then they either stay in the Lot Fourteen precinct or they move.

An example of one that came in through the Defence and Space Landing Pad and then moved is Kongsberg. They went out and built their new missile manufacturing facility at Mawson Lakes, which opened about nine or 10 months ago. The platform that launches the missile is what they manufactured.

Mr PATTERSON: Are you able to provide a breakdown of those 10 that were defence-related companies, the space ones?

The Hon. S.C. MULLIGHAN: Yes, we will take it on notice.

Mr PATTERSON: Moving forward to 2025-26 and onwards, is there funding in the budget for the Defence and Space Landing Pad going forward?

The Hon. S.C. MULLIGHAN: Yes.

Mr PATTERSON: What is the amount per year?

The Hon. S.C. MULLIGHAN: We will see if we can find it, but my recollection is that it just continues on how it has been funded in the past. The cost to actually run the Defence and Space Landing Pad has remained consistent, which is very little. I think it is only about $55,000 a year, but to get you the total cost I would have to try to understand what some of those other forms of financial assistance are that are provided to the companies that successfully land and stay at Lot Fourteen, so I might see if I can come back to you with a consolidated piece of advice on that.

Mr PATTERSON: In a similar vein around funding, if we go to page 160, which is about the South Australian Space Industry Centre, in the Program summary there and the Grants and subsidies, at the same time of the 2023-24 budget, when the Assembly and Integration Testing facility was announced, there was also about $13 million allocated for growing the space industry. I think there was $3.5 million allocated for the 2024-25 year, based on when the program was first put in the budget in 2023-24. I want to get an understanding of how much money was spent in the 2024-25 year.

The Hon. S.C. MULLIGHAN: This is on the integration and testing facility?

Mr PATTERSON: Sorry, no, I will just get the specific name. It was another program called growing the space industry and it was a $13 million program over four years.

The Hon. S.C. MULLIGHAN: I might have to check this. The only sort of 13-ish million dollar program I am aware of is the multiyear program for the Defence Innovation Partnership, but I am happy to take it on notice and see what I can find out.

Mr PATTERSON: I will just quickly check that I have pronounced it correctly or I have said it correctly.

The Hon. S.C. MULLIGHAN: Peter advises me that, when the program first came over, it was budgeted on a sort of annual allocation, starting at $2.5 million and then building across the forward, so that might be the $13-odd million you were referring to.

Mr PATTERSON: Yes.

The Hon. S.C. MULLIGHAN: That may now have changed to be sort of capitalised into that $20 million contribution, but can I just take that on notice to get it reconciled.

Mr PATTERSON: Yes, take it on notice. I think it was just couched as growing the space industry. That might not have been the actual name for that line item, but you will see it was an operating expense and then the investing payments of the $20 million in the same budget measure were for the AIT. But, yes, it would be interesting to see what that was spent on, if you could take that on notice. The 2024-25 estimated result for the Space Industry Centre had grants and subsidies of $1.9 million. If you are able to provide a breakdown of those grants and subsidies that would be very helpful. Thank you for that.

If we go back to page 156, back into the world of Defence—I am interested about the LOTE, if we have a little bit more time—and dot point 4. In terms of highlights, we are looking at the Collins class LOTE. Just recently there have been some challenges ventilated around potential delays for the first boats. The LOTE is meant to be in 2026. Do you have any advice that the first boat, I think it was the HMAS Farncomb, is still due to commence its LOTE in 2026?

The Hon. S.C. MULLIGHAN: There is no change that we are aware of. I am aware, generally speaking, that the program is underway. The last time I was out at ASC they took me on HMAS Rankin, which is the sort of environment that someone like the Hon. Frank Pangallo would be more comfortable with perhaps than the rest of us, if I can couch it in those generous terms. That program is underway. I will check if we have been advised of any changes to timing, but I am advised we have not been.

Mr PATTERSON: I was just concerned that if there were delays in the planning and design phase that would then flow through to the commencement of the actual life-of-type extension. Parallel to that, if problems would mean a two-year delay, and that just flows down the line as well for the second boat, etc. If you could go away and follow that up it would be interesting.

Another point is that the federal defence minister, Richard Marles, has conceded—not confirmed but conceded—about the scaling back of some of the life-extending upgrades. I would be interested to get your advice on that. It was framed 'LOTE lite' from the point of view that upgrades to the first boats would mean that the HMAS Farncomb would keep its main motor and engines; they would stay in place rather than being replaced as well.

I am interested in understanding if you have had any briefings around that. If that were the case, what would be the impact on the work program? To me, that talks to a lessening of it and the anticipated workload required.

The Hon. S.C. MULLIGHAN: I am not best placed to go into the specifics about what is in and out and what has changed in the reports you have mentioned. The thing that did surprise me—although it made sense, once it was explained to me—is that while some of these boats have been in service for quite a long period of time they have a particular diesel engine that was installed when they were first built. I cannot remember what type of diesel engine it is; it is an unusual Swedish engine that we would otherwise not be particularly familiar with in the Australian industrial context.

I had naively assumed that they were going to strip all the old equipment out of the boats and replace it with brand new stuff but, of course, the architecture of the boat does not necessarily allow that. It was designed, all those years ago, to have specific weights in different places within the hull in order to achieve its performance metrics.

Even to pull out, I do not know what it is, say a V12 or a V16 diesel and put in a modern V12 or V16 diesel, whatever the contemporary one is, comes at a really significant naval architecture challenge. The weight of it and the impact it has on the—I was going to say chassis; you can tell I am right out beyond my capacity of naval architecture now—superstructure can change the performance and capabilities of the boat compared to what it was designed to do. While it might be, on the face of it, if there is any report of a LOTE lite it sounds like it has been done on a cheap and quick basis, it might actually also be because it is just far easier and more effective for the boat to be limited in terms of how much it is modified, to make sure that it still performs in service the way in which it was originally designed.

Membership:

Ms Wortley substituted for Ms Savvas.

Mr PATTERSON: That is a very sensible answer to that question. From an engineering point of view it makes a lot of sense. Would that then have an implication for the workforce in South Australia?

The Hon. S.C. MULLIGHAN: To the extent that those reports are true and that there is a change of scope in the work that is undertaken as part of the life of type extension, it may then alter what work actually needs to be carried out on the boat and by whom. But in terms of leaving a workforce sort of high and dry, I think there is very little risk of that because those workers with those skills are so aggressively being recruited and pursued now to participate across those three major programs: the life of type extension, the Hunter class frigates program, and then gearing up for SSN-AUKUS. I do not think it is going to leave workers out of work. It may change the overall configuration of the workforce, but if there is any reduction in scope it might actually just make the challenge of providing the workforce slightly easier.

Mr PATTERSON: Trying to get that interplay between these three big projects, does the LOTE sit as its own program and the workers there would stay there?

The Hon. S.C. MULLIGHAN: Yes.

Mr PATTERSON: When recruiting workforce for the SSN-AUKUS is that done in parallel? It is not like we are trying to do the LOTE to get the workforce through, to overcome a valley of death, to then have them geared up for the SSN-AUKUS?

The Hon. S.C. MULLIGHAN: Yes, that is right. LOTE is being done by ASC, the Hunter class frigates are being done by BAE, and then of course there is the joint endeavour of ASC and BAE to pursue SSN-AUKUS but, importantly, the workforce is gearing up at the same time for life of type extension and Hunter class frigates right now. That is why there is that competing demand for particular skills and workers. It is different work but you need similarly skilled types of people.

Frigates are underway now, and life of type extension really ramps up from next year and goes through to 2038, and then SSN-AUKUS is from 2030 onwards. You can see how you are going to have three major programs bubbling away at pace at the same time for a significant number of years, particularly between 2030 and 2038. I just have to check when the frigates program is scheduled to finish as well. You can see why everyone is banging on so much about workforce, because we have three major naval projects underway over the same sort of period in only a very short of period of time before us.

Mr PATTERSON: You mentioned before the Office for AUKUS, and that is on the same page in the same highlights. Can the minister explain what input Defence SA has had into the Office for AUKUS since the previous budget estimates?

The Hon. S.C. MULLIGHAN: A little bit. There is collaboration and interaction. Matt has just reminded me that they talk almost daily, but the kind of work program and the tasks between Defence SA and the Office for AUKUS are quite different. The Office for AUKUS, for example, is undertaking the Le Fevre Peninsula master plan task. As I mentioned before, while the Australian Submarine Agency is planning for the tripling of the size of the shipyard, we are trying to think through what happens outside that perimeter that is necessary in order for that shipyard to be productive and efficient.

How many more workers are going to be on the shipyard? How are they all going to get to work and then get home again? Are they taking public transport or are they driving? If they are taking public transport what does that solution look like? If they are driving, where is the car park? How much traffic is going on the local roads? What are we doing about water, gas and electricity? What are the broader services that are available? If there are an extra 5,000 workers, where are the medical services? What about the firefighting capabilities or other emergency services, etc.?

Defence SA has input into that, of course, but moreover the task is about broader industry development and capability, not just for AUKUS Pillar 1 and these other naval shipbuilding platforms but well beyond in all of the other defence and space domains as well.

The CHAIR: The allotted time having expired, I declare the examination of Defence SA and Space Industries complete. The proposed payments for Defence SA are referred to Estimates Committee A.