Originally published 3:33 p.m. ET March 11; updated at 11:10 p.m. with reporting from Australia
MADRID and MELBOURNE — The Royal Australian Navy selected Spanish shipbuilder Navantia as preferred tenderer to construct two auxiliary oiler and replenishment (AOR) vessels, Australian Defense Minister Marise Payne confirmed.
Navantia beat the offer and conditions of Daewoo, the major South Korean shipbuilder.
However the conditions of the contract are not yet closed, industry sources said.
These two new replenishment ships will be inspired in the Spanish Navy's 19,800-ton SPS Cantabria class vessel, which deployed with the Royal Australian Navy in 2013. The Australian government paid the expenses of that deployment that year.
In 2007, the Royal Australian Navy contracted with Navantia to build two Landing Helicopter Dock ships, the Canberra and the Adelaide.
Navantia declined to provide Defense News with any of the conditions of the most recent AOR contract, citing their confidentiality.
Australian Defence Minister Defends Decision
Payne has defended the Turnbull government's decision to award the AUS $1.2 billion (US $907 million) shipbuilding contract to Navantia.
The two large replenishment ships will replace the Royal Australian Navy's two ageing supply ships, the Auxiliary Oiler and Replenishment (AOR) vessel HMAS Success and the logistics support ship, HMAS Sirius, both of which need to be replaced by early next decade.
In 2014 the Liberal Government, under the leadership of then-Prime Minister Tony Abbott, announced a limited tender for the two vessels, which would be built overseas. The two companies chosen were Navantia and Daewoo Shipbuilding and Marine Engineering (DSME), which was proposing a design based upon its Aegir class AOR. At the time, the government considered that local shipyards would not have the capacity to construct the two large ships.
Although the decision to award the contract to Navantia has still not been officially announced by the Minister's office, Payne was forced to admit the decision Friday in the wake of anger from the Federal opposition, labor unions and independent South Australian Sen. Nick Xenophon that the ships would not be built locally.
"This is part of the next step in the process, which is a negotiation period with the builders," she said. "But we do have an undertaking as part of the tender process for at least AUS $100 million (US $76 million) worth of Australian engagement in this particular project."
The announcement of the decision came just days after Payne and Prime Minister Malcolm Turnbull proclaimed South Australia as being at the forefront of the government's plan to create a "world-class," sustainable naval shipbuilding industry.
South Australia is currently building three Navantia-designed Air Warfare Destroyers for the RAN and will also be the main center for the construction of nine Future Frigates and up to 12 large conventional attack submarines.
However Xenephon said the government ignored an unsolicited proposal by South Australian shipbuilder ASC to also construct the replenishment vessels in Australian shipyards and labelled the decision to award the contract to Navantia as a "disgrace."
"Whilst Spain is today celebrating the creation of 3,000 jobs — building Australian naval ships — workers are being laid off in SA and around the country. It is a kick in the guts for Australian workers and was completely avoidable. The contract for the two naval supply ships is worth $2 billion and Australian industry will only get a measly 5 percent or $100 million of that," Xenephon said
In response, Minister Payne said that a new ship lift and cranes would need to be installed at the ASC facility in Adelaide and a new wharf built to accommodate the build.
"None of that can actually happen before the third Air Warfare Destroyer is completed and has undergone its testing," she said. "So those infrastructure upgrades couldn't have started before 2020."
Minister Payne said that contract negotiations with Navantia would now take place, with Second Pass approval likely to occur in mid-2016.
Nigel Pittaway is the Australia correspondent for Defense News.