‘Stupid games’: Government keeps cost secret after Japan wins lucrative warships deal

The total estimated cost of the Albanese government’s plan for Japanese firm Mitsubishi Heavy Industries to build 11 new warships for the Australian navy is being kept secret, with one expert calculating the price could be as much as $20 billion.

The government announced on Tuesday that the Japanese company had defeated German rival TKMS in a decision that has been widely applauded by the defence community.

Overcoming concerns about a lack of export experience, Mitsubishi Heavy Industries won favour with its ultra-modern Mogami frigate, which was found to be a more advanced warship than German firm TKMS’s Meko A-200 vessel.

Japanese officials have also said the United States backed its proposal as a way to boost collaboration among key Indo-Pacific partners.

TKMS sought to capitalise on the fact it has sold ships to navies around the world, while modern Japan has no experience exporting warships, but this argument failed to overcome the perceived advantages of the Mogami.

Under the general purpose frigate program, Australia will acquire 11 upgraded Mogami-class frigates to replace the ageing Anzac-class frigates, which are regarded as the workhorse vessels of the Australian navy and are being gradually retired.

Recent navy projects have been riddled with cost blowouts and delays, leading to the government’s announcement last year that it would slash the number of Hunter-class frigates and offshore patrol vessels it planned to buy in favour of ships with more firepower. An audit office report released in June blasted the Defence Department’s handling of maintenance for the navy’s landing helicopter docks, finding they were beset by defects and failing to meet their availability targets.

The government’s estimate that the AUKUS submarine program will cost up to $368 billion has fuelled critics’ calls for Australia to seek a cheaper option for its future submarine fleet.

The Mogami program is budgeted to cost $10 billion over the next 10 years, a time frame in which the first three frigates are scheduled to be delivered. The government has declined to reveal the estimated total cost of the program once the remaining eight ships are included, saying it is about to enter contract negotiations with Mitsubishi.

Defence Minister Richard Marles said the announcement represented “a very significant moment” in Japan-Australia relations, but insisted geopolitics had not influenced the decision by cabinet’s national security committee, which met on Monday night.

“The Mogami is absolutely the best ship, and that was very clear in all the advice that we received,” Marles told reporters on Tuesday.

Defence Industry Minister Pat Conroy said: “On cost, capability and schedule, the Mogami was the clear winner on all three factors. It was the clear winner, and the source evaluation reports reflected that.”

Marcus Hellyer, regarded as one of the nation’s leading defence economists, said he believed the total cost of the program would be in the range of $15 billion to $20 billion given it would be more expensive to build the ships in Australia than Japan.

Hellyer, head of research at Strategic Analysis Australia, said the government was playing “stupid games” by declining to reveal the program’s estimated total cost when it had done so for the AUKUS nuclear-powered submarine plan.

Conroy said it would be a disservice to taxpayers to provide a price estimate beyond the $10 billion over the next decade figure, which includes funding for infrastructure upgrades at the Henderson shipyards.

“If we were to nominate a price per ship right now, as we enter contract negotiations, we would give away our bargaining position,” he told this masthead.

A decision on the winning bid was initially expected to be made closer to Christmas, but the government sped up its announcement to ensure the first vessel arrives on time.

In a bid to avoid the cost overruns and delays that have marred the Hunter-class frigate program and other recent naval projects, the government ordered that the first three general-purpose frigates be built overseas and that there be minimal changes to the existing ship design.

Conroy said the only changes to the upgraded Mogami would be translating the language of the ship’s combat system and any modifications required by Australian law.

The first frigate is scheduled to be delivered in 2029, with most of the ships to be built at the Henderson shipyards in Perth. The government has left open the possibility of ordering more ships from Japan if the Perth facility is not ready in time.

Boasting high levels of automation, the Mogami needs only 90 crew, while other frigates require about 120, and is regarded as unusually stealthy for a surface vessel. The upgraded version of the ship will also have twice as many missile cells as the German alternative and can be equipped with advanced Tomahawk missiles from the US.

“The upgraded Mogami‑class frigate is the best option for our navy,” Conroy said.

“It will take our general purpose frigates from being able to fire 32 air defence missiles to 128 missiles, giving our sailors the cutting‑edge weapons and combat systems they need to prevail in an increasingly complex environment.”

Defence sources, speaking on condition of anonymity, said both bids were broadly comparable on cost but that Japan’s was cheaper over the long term when the cost of weapons and the smaller crew size were included.

Osamu Nishiwaki, the deputy commissioner of Japan’s Acquisition, Technology and Logistics Agency, which oversees defence exports, recently told this masthead that the United States had backed Japan’s bid.

“I understand that, at least informally, they are very much supporting the Japanese side because it’s very natural,” he said during a recent visit to Canberra.

“It’s the Indo-Pacific: the Australian navy, Japan Self-Defence Forces and the US Navy are operating together, not the Germans.”

Jennifer Parker, a maritime security expert associate at the Australian National University, said she was not surprised by the decision, given the Mogami was widely acknowledged to be the superior ship.

However, she said Japan’s bid carried risks that would need to be addressed.

“The upgraded Mogami we are buying doesn’t yet exist and is already quite a different ship from the existing version,” said Parker, a former naval officer.

“The Australian navy has had a chequered recent history with these types of projects, but we are not in a position where this can go wrong.”

The government should investigate whether it can bring forward the delivery of the first vessel to ensure the navy is not left with a capability gap, she said.

Former senior defence official Michael Shoebridge backed the decision, saying the Mogami was “the more capable warship” and that closer Japan-Australia ties were necessary to respond to China’s rapid military rise.

Euan Graham, a defence expert at the Australian Strategic Policy Institute, applauded the decision, saying it would take Australia-Japan “navy-to-navy relationship to new levels, and anchor the defence partnership with a major industrial collaboration that has previously been lacking”.

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