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Aussie minister calls Soryu 'an exceptional submarine'

Ian Macfarlane

SYDNEY -- Ian Macfarlane, Australia's minister for industry and science, spoke to the Nikkei Asian Review this week after his country signed a memorandum of understanding regarding the China-proposed Asian Infrastructure Investment Bank. Mcfarlance, who turns 60 on Sunday, spoke on other subjects as well, including Japan and Australia's long-running "trust partnership" -- a relationship that underpins Japan's case for winning an estimated $50 billion defense contract to supply Australia with Soryu-class submarines.

Q: What kind of influence will Australia gain by joining the AIIB? And do you expect any effects for Australian companies?

A: Firstly, we haven't made a decision to join the bank. We have made a decision to ensure that, in terms of the corporate governance and the rules around the lending of the bank, that those rules are along the lines of what we want. We particularly don't want to see a situation where any one country controls the lending of the bank, so we want to see some more work done in that area. But we have indicated that if these [concerns] are met, then we are prepared to consider joining the bank.

     What that will do for Australian companies is it'll give us an opportunity, particularly in terms of the supply of services in the area of construction and infrastructure where we do do very well, to supply services. But also perhaps [to] participate in some projects themselves.

Q: Would joining the AIIB be a key opportunity for Australia?

A: It offers the potential, but we need to be satisfied that the governance rules are correct before we make that decision.

Q: The Japan-Australia Economic Partnership Agreement takes effect this year. How would you like to strengthen that relationship?

A: Obviously, we have a very strong relationship with Japan already, and it's a relationship which is now based around trust. It's an economic partnership. It's a cultural partnership. But it's now a trust partnership. And that demonstrates the depth of the relationship, which is as old as I am.

     The joint agreement between our two countries in relation to trade and economics is a progression and something that will further two-way trade. So, obviously, Japan will benefit in terms of the export of motor vehicles and consumer goods into Australia; we'll be looking at opportunities in terms of intellectual property exchange and collaboration, [and] also collaboration between our science organizations.

     So it basically says there are no longer barriers between our two countries in terms of trade and economics. Over time, I think you'll see cooperation and partnerships between Japanese companies and Australian companies co-investing in other parts of Asia. So it is just a further deepening and natural progression of the relationship which is now very, very strong.

Q: With the price of crude oil affecting that of liquefied natural gas, plus the oversupply of coal, where will Australia focus its energy policy?

A: I think in the area of energy there'll be a few areas of cooperation, particularly if we look at what Kawasaki and Mitsubishi are doing [in] the ultra-supercritical coal-fired power station area and the lowering of emissions. That's going to be a very important step for us. We see coal as being a very important part of the energy mix, globally, for a very long time. Ways that we can reduce the emissions in terms of coal-fired electricity are very important, so we'd be looking to be involved and collaborate.

     In the area of LNG, we've seen Inpex make Japan's biggest offshore investment ever, [and] I think it is very clear that Australia values Japan. Firstly as an LNG customer, but also Japan values Australia's reliability in supplying LNG, because, in the end, your country depends on it. And so I think, again, that underlines the trust that exists between our two countries.

     Resource prices are down, that benefits countries like Japan. We've seen resource prices cycle over the years; this is the natural rise and fall.

Q: Do you expect the resource industries to be able to sustain themselves?

A: There's always the risk of some rationalization, and with iron ore prices falling through $50 [per ton] there is some risk that smaller companies may just find the cost pressures too high. But companies like BHP and Rio Tinto are still very viable at those sorts of prices; they're still making significant profit. Perhaps not as much as they'd like, but they're making a profit. And so I see the supply of commodities continuing.

     Coal is very difficult, and for a lot of coal producers, [prices] are under their cost of production, and so we're seeing companies like Glencore closing mines. That said, a lot of these mines could be reopened if the demand grew. So, I think the supply of resources won't be affected by the price.

Q: The new government in Queensland, your home state, has Japanese investors slightly concerned about coal issues.

A: I think they'll be fine. My instinct is that the new government understands the importance of jobs [as well as] the coal industry, coal seam gas industry and the resource industry in general. ... But time will tell. The biggest problem we face is that that government isn't very stable at the moment. It has two or three members who are under a cloud, and it could be that that government loses its grip on power. But that is a political issue. In terms of resources and the continuing development of resources, I think you'll see both sides of politics take a pro-development perspective on that.

Q: You recently announced a new auto industry policy.

A: What we've done is we've guaranteed funding till 2017, because discussions with Toyota [and other carmakers] told us the component suppliers were struggling to survive. And we need the car industry to continue to its closure date, not close early.

     So the decision not to proceed with cuts to the Automotive Transformation Scheme between now and 2017 was reversed on the basis that we wanted to ensure the component industry would get 45% of that money, plus get whatever the car companies want to pass onto the component industries of their 55% of that money. We wanted to see a situation where the component industry had certainty and the funds to continue right to the end of 2017. But there's no question the scheme will end in 2017.

Q: What will the amount to the industry be?

A: It'll be around 192 million Australian dollars ($145 million) in actual extra cash. It'll show up in the budget at about 105 million Australian dollars, and that's because of rollovers and underspends, but the actual injection of cash ... is 192 million Australian dollars, based on current estimates [and] dependent on the number of cars produced by the manufacturers. But based on their numbers and our predictions, that's what the number is.

Q: After the auto industry, are there any manufacturing sectors in which Japanese companies can invest?

A: There are, and we are exploring those. An obvious area is in food-processing and that whole agribusiness area, as well as value-add. ... There will be further investment [across the board], I think, by your large companies, like Mitsui, Mitsubishi, Marubeni and Kawasaki.

Q: If Australia ends up importing submarines from Japan, what would happen to the shipbuilding industry?

A: There are two parts to the shipbuilding industry. There are the surface ships [and submarines].

     In terms of submarines, we're going through an evaluation process at the moment. It is a competitive process. We will be looking at a proposal from Japan, from Germany and from France. And dependent on where that process comes out, we will make a decision. But we are looking to maximise the amount of construction that goes on in relation to those submarines in Australia now. In the first two or three boats that may basically be a fit-out of the weapons system and the navigation and propulsion systems, but let's wait and see what that proposal is.

     Over time, I would like to see more of that work done in Australia, and were the successful proponent a Japanese company or Japanese companies, then obviously that brings our relationship even closer together. But the big thing out of submarines will be the servicing and maintenance of the submarines, and that's a 30-year program worth tens of billions of dollars.

Q: So Japan is still one of the options?

A: I think Japan built an exceptional submarine. And, obviously, the evaluation process will define that, but the reports we have of the Japanese submarine is, in a lot of areas, the best submarine in the world. There are some areas perhaps the Germans do better, maybe the French as well, but it is a very, very good submarine.

Q: Tony Abbott promoted a submarine partnership with Japan, but now the two governments are talking much more about Australian jobs.

A: The strategic alliance will still be important, so the alliance between the U.S., Japan and Australia will still be important. But, yes, it's an overall process so all of those issues will be considered, [including jobs].

Interviewed by Nikkei staff writer Kaori Takahashi 

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