Q&A - ADM Congress, Canberra

SUBJECTS: Launch of the Advanced Capability Investment Fund, Defence organisation reform, future of AUKUS.

MINISTER FOR DEFENCE INDUSTRY PAT CONROY:... we’d put in $500 million of capital funding, and this is all aimed at driving more equity into the Australian defence industry to help companies grow who are obviously on a growth trajectory, and also acknowledging that for some parts of – for some companies we’ve got the challenge of succession, of company founders looking at retiring and their kids maybe not being interested. And so, we’re really interested in going to the private sector to see what this thing can do. But it’s all about growing the Australian defence industry, getting greater scale, moving faster, and obviously, access to capital is one of the key barriers that we’re trying to overcome. So ACIF [Advanced Capability Investment Fund], I’ll be very excited to see what comes out of the private sector in the response from our challenge.

EWEN LEVICK, PUBLISHER, AUSTRALIAN DEFENCE MAGAZINE: What was the timeline for the ACIF? When do you want to see it stood up and investing? 

MINISTER CONROY: Well, it really depends on the quality of the responses from the private sector. I will obviously need to take it back to government, saying this is the plan. So, it really depends on what form we get. But I meet regularly with both private capital, private equity, and banks, and there’s no shortage of people interested in investing in the sector. It’s how you do it, how you handle ESG, for example, and other things. So, this is about sort of having the brand of the Australian government providing even greater comfort. 

LEVICK: A question from the audience here: Does the new tech fund have any relationship to the recommendation in the 2024 Independent Intelligence Review to establish an In-Q-Tel-type fund to enable the Australian intelligence community? 

MINISTER CONROY: It’s more driven by the initiative from the 2024 Defence Industry Development Strategy [DIDS] and the DSR [Defence Strategic Review] canvassed this in 2023. But obviously, I’m very familiar with how In-Q-Tel works, and I’ve met with leaders of that particular company. So, I think we’ll see what the private sector comes back with. But I think we’ll have a pretty broad view of what national defence is, so it could perhaps go into those areas. 

LEVICK: Are there particular capabilities that you want the fund to focus on? 

MINISTER CONROY: Well, I think there’s always – I think it’s better to see where the private sector interest is. But I think the seven sovereign defence industrial priorities, the seven SDIPs [Sovereign Defence Industrial Priorities], is where the Commonwealth Government has said to the private sector, these are seven sovereign industrial capabilities that we defined at an incredibly granular level that we’re saying are important from a national sovereignty point of view to maintain and grow in this country. So, they’re the areas we’re interested in. But, quite frankly, I think it’s more being driven by where there’s a need for equity and a strong business case. 

LEVICK: Do those capabilities have to have export potential, or will the government here be a customer as well? 

MINISTER CONROY: Well, I think in a lot of instances the government will be a customer. I think – I don’t want to artificially restrict what the private sector comes to me with. But we’ve been very focused on both exports and growing the defence buy-in. 

LEVICK: So, turning now a little bit to geopolitics, this morning we’ve been talking a little bit about the world that was and the world that is, the rules-based order. We’ve heard the US is less reliable than it’s ever been. We’ve also heard that the US is more reliable than it’s ever been. What’s the government’s view? How is the government navigating the erratic behaviour of the United States? 

MINISTER CONROY: Well, I think what we’re focused on is what we can control. Prime Minister Albanese has been very clear that we won’t be providing a running commentary of debates in other places. What we’ve been focused on is building on the fundamental foundations of our security. And one of them is the alliance with the United States, but within that construct, we’ve been very focused on national sovereignty. So, we’d be very keen to explore a concept of self-reliance within the alliance, which means it helps the alliance if we’re investing more in our sovereignty and our reliance on our national industrial base. And the best example of that is the Guided Weapons and Explosive Ordnance approach, where we’re building three missile factories. One is already open. And their focus – two of the three factories are focused on US munitions, where not only are we producing them for our own needs, but there’ll be scope for export around the world, supporting the US as well as other partners. And so that’s one where we get greater sovereignty and self-reliance by building factories here while we’re in a position to support not just the US but other friends in the region. 

LEVICK: Are you concerned at all about the erratic behaviour of the US in terms of its ability to deliver AUKUS, particularly if our interests collide with theirs? 

MINISTER CONROY: Well, I think that the beauty of AUKUS is that our interests are aligned. Like, AUKUS has survived changes of government in all three countries, and I’m very confident it will continue to survive and prosper because it’s fundamentally aligned to all three countries’ national interests. It’s in all our interests to have the only shipyard in the southern hemisphere capable of building nuclear-propelled submarines in Adelaide. It’s in all our interests to grow the number of allied nuclear-powered submarines in the Indo-Pacific. It’s in all our interests to broaden the supply chain. And so, some of the first contracts we’ve announced are for Australian companies to help supply chains in the United States and the United Kingdom; for example, Pacific Marine Batteries. That is one of many examples. So, we’ve got something like 70 countries going through AUSSQ [Australian Submarine Supplier Qualification Pilot Program] and DIVQ [Defence Industry Vendor Qualification] right now to qualify for the US supply chain for their submarines. So, I’m confident we will go, as has been remarked, full steam ahead. 

LEVICK: Are you confident that we can afford SSMs and all the other capabilities required for advanced [indistinct]?

MINISTER CONROY: I am. And this is where the debate gives me irrits, to be quite frank – well, lots of the debate gives me the irrits. But in this instance, there’s a narrative out there that we’re cannibalising the rest of the ADF to fund the AUKUS program. And the nuclear-powered submarine program is an enormous industrial undertaking. It is the biggest industrial undertaking this country has ever attempted. It will modernise manufacturing, it will have massive spinoffs. But people ignore the fact that we’re increasing the Defence budget and we’re pumping resources into other parts of Defence at the same time. We’ve got the $21 million GWEO initiative. We’ve got the transformation of the Australian Army into one focused [indistinct] long-range strike. We’re increasing sustainment in the RAAF by, I think it’s 40 per cent – don’t quote me on that, but I think it’s about that magnitude – over the next four years. So, we’re increasing resources to the ADF above and beyond what's being allocated to AUKUS. 

LEVICK: I mentioned this morning we've gone through a long period in Australia of policy inconsistency from the government, but we have had consistency in the last few years. But we are still waiting on the next Integrated Investment Program [IIP] and the National Defence Strategy [NDS], and Defence Industrial Development Strategy as well. When can we expect those to be released? 

MINISTER CONROY: Not to be, sort of, a bit picky. I don’t say you’re waiting on it, because they’re not due to be released yet. They’re on a two-yearly cycle and are due to be released in the middle of the year, aligned with our Budget. And this is a big change from the sort of ad hoc white paper process we’ve had previously. Longevity matters, and it’s something I’ve talked about a lot. If Richard Marles and I have the privilege of serving in our positions for the rest of our life in this parliament – so May ’28 – Richard will be the longest-running Defence Minister since Jim Killen in the late 70s, and I’ll be the longest-running Defence Industry or Defence Supply Minister since 1950. That longevity matters. That means you get consistency of policy. You get a strong relationship with Russell [Offices, administrative headquarters of Defence in Canberra] and defence industry to enact change. 

The DDA [Defence Delivery Agency] is critical, but there have been plenty of reform efforts made in Defence with great intentions, and a lot of the reason they’ve failed is that there hasn’t been follow-through because often there’s been a change of personnel. So, the next year and a half is critical for DDA, for example, or the state reforms, and that’s why that consistency really matters. 

LEVICK: Can you give industry any forecast of what to expect from the new policy documents when they come out midyear? 

MINISTER CONROY: Well, the DIDS will be following on from the 2024 DIDS. So, we’ll look at it to build on what’s worked in that and refine where we haven’t got it quite right. So, a couple of examples where I’ve been honest with industry. The 2024 DIDS talked about the need for classified industry briefings to bring trusted industry partners more into our planning and our investment priorities as we put more information out of the public arena because of the security environment. I don’t think we’ve got a consistent approach yet, so I’m looking at the DIDS to do more there so that industry can get an understanding of where the investments are coming, the magnitude of it, the domains, the projects, so they can make investments or make the case to their local headquarters if they're an overseas-based company. And so that’s one area where I’m looking at more improvement. 

I’m also looking at doing more around exchanges between industry and Defence. I think what other countries do has been great, but it’s the exception that proves the rule within Defence for people to get long-term placements within the private sector. I think, was it you, Jason? You were telling me you had a decent placement before you started your current role? 

SPEAKER: [Indistinct] to the UK for 18 months. 

MINISTER CONROY: Yes, so an 18-month placement to get up to speed on how industry operates. So, they’re the sort of things I want to see more of. So, the DIDS will cover things like that. On the NDS, that will obviously reflect the strategic circumstances, and the IIP will flow through the funding increases that we’ve announced, both already in the budget papers and obviously the Henderson announcement. 

LEVICK: So, the audience question is pertaining to the new fund. VC [venture capital] companies have a lot of failures, and they might have one successful big profit to cover the loss. How will you attract VC to an environment where profit principles might be limited or might limit profit to 10, 15 per cent? 

MINISTER CONROY: Well, I’m not sure about whether that’s been contemplated, that limit on profit. I think I’m interested in seeing what the proposals are from industry to see what the right construct is for that. Obviously, any of these sort of funds, for us to put in money, we have guidelines around what’s the expected rate of return for the Federal Government. Typically, they’re either the long-term bond rate, maybe a bit above, maybe a bit below. But I don’t think there should be a limit on how much the fund can make if it’s delivering good returns for taxpayers and leading to good employment outcomes for Australian workers.

LEVICK: But will VC be attracted to that? Because VC might want something much higher than the bond rate.

MINISTER CONROY: Well, no, I’m saying that’s the minimum – that’s typically the minimum for the Commonwealth Government to make on our investments, but it’s not the maximum. And, quite frankly, I’m not going to constrain industry. I want to hear what their ideas are of how they construct the fund. There are a lot of people a lot smarter than me in this area, and I’m keen to, quite frankly, get their ideas and steal them. 

LEVICK: Are you expecting cross-party support for the fund? 

MINISTER CONROY: I always hope for bipartisanship when it comes to Defence. Often, I’m let down, but [indistinct].

LEVICK: Turning to the new DDA, how will that reduce bureaucracy in the Defence organisation? 

MINISTER CONROY: Through a [indistinct] of approaches. First, its autonomy cannot be overstated in terms of the importance of this organisation. The National Armaments Director, as the CEO of the DDA, will report directly to the Defence Minister and myself. That is incredibly important in terms of driving bureaucratic reform. Also, we’re looking at how we build capability within new organisations, strip away some of the bureaucracy there. And I think one of the reasons that we see a build-up of bureaucracy within the Department of Defence is a reduction in the project management workforce within the organisation. So, when the One Defence reforms adopted the recommendation from the Abbott Commission of Audit, it said that Defence should no longer be a project management organisation, it should be a contract management organisation. So, it outsourced project management. It led to a reduction in, I think, a couple of thousand of staff, which meant that we had less, sort of, indigenous project management capability. 

I think we’ve got additional problems of too short posting cycles for both APS and ADF personnel through these organisations. So, if you’re new to a job, if you don’t think – you haven’t had necessarily the training that you’ve got, or you’ve got confidence in it, you’re going to protect yourself by red tape. You’re going to make sure you follow the book and show a bit less initiative because it’s less risky. So, having a dedicated project management organisation with direct reporting lines to the ministers, with direct budget, will power that organisation to be more efficient, to be braver, to take more risk, and it needs to take more risk given the strategic circumstances. And I’m happy in Question Time if I’m asked about it if we try something that we failed, but we learn from it, and next time we’ll do better. I think my constituents expect us to take risks because that’s what the strategic circumstances dictate.

LEVICK: So, a few years in the portfolio. You’ve talked about things that you’re happy with and progress that you’re happy with. What now is keeping you awake at night? What are the biggest problems that you’re looking at on your desk that you want to solve in the next year or two? 

MINISTER CONROY: I think one area which is bleedingly obvious is the absorbative capacity of Australian industry, particularly around workforce. Like, the workforce has grown by nearly 15 per cent in the last two years, but we need it to grow even further. So, we put in place strong training programs, and we’ll build up that more, but we need to support industry more. I think the other factor is how do we speed up decision-making within Defence and how do I license Defence to do that. So, we’re looking at internal mechanisms—like, I’ll be on the public record. I think the Defence Investment Committee is not fit for purpose. Like, it is too big, and that constrains decision-making. So, I’m keen to talk to Greg Moriarty and David about how do we speed up decision-making within the department and how we speed it up within the government more broadly. 

LEVICK: Zooming back out – a good question here – what are your views on extending AUKUS to other nations like Japan and Korea? And actually, I’ll add my own on to that: how will you manage the relationship between Japan and Korea, particularly in terms of the SEA 3000 build and what’s going on at Henderson? 

MINISTER CONROY: Well, on the SEA 3000 build, we – the FIRB [Foreign Investment Review Board] obviously made, or the Treasurer made a decision based on FIRB advice. That involved extensive briefings of the Japanese Government, given the importance of the Mogami project. And we’re confident we’ve put in place the appropriate protections to manage IP and everything else so that no concern is caught. 

On AUKUS, we’ve been open about the potential for opening it up further. The Biden administration obviously had discussions with the Japanese Government about involvement in AUKUS Pillar II. But I’m focused on delivering AUKUS Pillar I and Pillar II for the three triaxial partners right now. And I think that will build [indistinct] to invite other people in. 

LEVICK: We’ve got time for one last question, and I’m going to zoom out again. How does a middle power like Australia – I mean, thinking about Mark Carney’s speech at the World Economic Forum and what he said about, you know, constantly putting the sign back in the window for the rules-based order when it no longer exists. How do we navigate the world in the next few years? How do we keep that order relevant when our larger partner seems to go against it whenever it’s convenient? 

MINISTER CONROY: Well, I think you’d be very clear that what Prime Minister Carney espoused in Davos is very similar to our approach. We’ve been forming groups with middle powers to articulate foreign policy priorities, whether it’s the concerted approach to the Israel-Gaza conflict and how we are in lockstep with countries like Canada, the United Kingdom, both around calling for aid but also recognition of Gaza – sorry, not Gaza, of Palestine. That’s one example of it. Our focus on increasing self-resilience within an alliance is similar to the strategic autonomy concept that Prime Minister Carney has talked about, but also other things. Our deepening relationship with Japan is a great example of that. So, the Mogami-class project is a signal of greater things to come. And so that’s how we form those partnerships. 

But don’t discount doing things with our ally, the United States, at the same time. So that joint sail in the South China Sea between us and the Philippines, Japan, and the United States was important for many reasons. And one of those is bringing together people in trilateral, quadrilateral forum. 

LEVICK: Thank you for coming back. Thank you for your flexibility.

ENDS