Mulwala ammo plant to be enhanced

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Australia's strategically important ammunition manufacturing capability is about to undergo a major, and essential, upgrade.
Australia's only military high explosives and propellants plant is to be upgraded at a cost of $300 million, a program that will not be completed until some 13 years after it was first recommended as a strategic requirement.

The program will see the replacement at the Mulwala plant, in southern New South Wales, of essential nitrocellulose, solvent and propellant processes that have been in place since 1943. The high explosives and acid facilities were both upgraded in the 1980s and will be retained.

The upgrade will include construction of a new performance and safety testing centre for evaluating the ballistic performance and the safe handling characteristics of propellants and high explosives.

Mulwala is owned by Defence and managed by ADI. Under an agreement running until 2015, ADI recovers its costs of about $31 million a year to maintain the required strategic Defence capability and operate the facility, with the cost of propellant and high explosive purchased by Defence additional to that sum.

The majority of Mulwala's military output is sent to the nearby ADI-owned Benalla facility in Victoria, which manufactures munitions primarily for the ADF. Under the Strategic Agreement for Munitions Supply (SAMS), ADI is paid about $50 million annually until 2015 to maintain Benalla's munitions capability and as a return on ADI's capital investment.

Mulwala provides the propellant for 5.56mm ammunition, .50 calibre machine gun ammunition, 25mm cartridges for the Bushmaster gun mounted on Army ASLAVs and Armidale-class patrol boats, 81mm mortar, 105mm artillery and 5-inch 54 calibre naval gun ammunition, and the solid rocket motor for the Nulka active decoy. It also supplies the explosive filling for 81mm mortar, 105mm and 5-inch projectiles, aircraft bombs, and is the sole worldwide provider of the warhead of the Penguin anti-ship missile.

The facility utilises excess peacetime capacity to manufacture propellants for the commercial sector -ADI's sole source of profit from Mulwala - and has a leading position in the US reloader market. Profits are shared with Defence.

The $300 million Mulwala upgrade program was included in the May Budget but still requires second-pass approval from Cabinet, probably in July or August, after which it must be reviewed by the Parliamentary Works Committee.

Brian Conway, ADI's General Manager for Mulwala Redevelopment, anticipates contract signature in the first half of 2007, followed by a four-year design and construction phase. A safety qualification program and testing by the ADF of the new plant's output should be completed within a further 12 months, meaning the new facilities are not likely to be fully commissioned until 2012.

The twists and turns in the program to date are a salutary reminder of the time and complications that can be involved in Defence business.

In July 1999, a joint Department of Defence/ADI Strategic Review Team recommended the replacement of the propellants plant as a strategic requirement.

In June 2000 ADI, now sold by the Commonwealth to a Thales-Transfield consortium, submitted a preliminary redevelopment proposal to Defence.

Following a pre-election visit to Mulwala by the then Parliamentary Secretary for Defence, Dr Brendan Nelson, in September 2001 Prime Minister John Howard signed a commitment on behalf of the Commonwealth to the long-term domestic production of propellants and high explosives at Mulwala.

Four months later, ADI was requested by Defence to prepare a detailed proposal, including an ADI-financed option, to modernise the Mulwala facility. This was provided three months later.

In July 2003 ADI was advised that it was to issue the Request for Tender, and this was done in December, with tenders closing in May 2004 for joint evaluation by ADI and Defence. Three months later then-Defence Minister Robert Hill confirmed that a Private Finance Initiative (PFI) proposal was required.

In September 2004 Bovis Lend Lease, in association with the US company ATK Thiokol as technology contractor, was selected by ADI as the preferred tenderer. The following month Defence issued to ADI its detailed requirements for a PFI - off balance sheet, 20-year term, and an option for ownership of the entire Mulwala facility.

On 31 March 2005 ADI submitted its PFI offer to Defence, followed by a revised offer on 8 July offering price reductions and more contractual compliance after both parties workshopped assumptions made for the 31 March proposal.

On 7 November 2005 Defence asked ADI to submit a revised PFI for a reduced scope of work; on 14 December 2005 ADI advised Defence that its 8 July proposal was the best commercially viable PFI it could formulate; and on 13 March this year Defence advised that the 31 March 2005 PFI had been declined and the Commonwealth would proceed with the project on a direct investment basis.

Notwithstanding the long-term supply agreements in place at both Mulwala and Benalla, questions remain over the scope of future work at both facilities, given their close interrelationship.

As stated in the Australian National Audit Office's May 2006 report into the procurement of explosive ordnance for the ADF "unless the Benalla facility manufacturing capabilities are incrementally adjusted to reflect changes in requirements, the facility will become progressively redundant".

Neither facility is now involved in production of 105mm cartridges for the Army's superceded Leopard tanks, and neither has been asked to scope domestic production of 120mm shells for the new Abrams MBTs. Likewise, neither plant has heard anything official about domestic manufacturing requirements relating to the Army's probable move from 105mm to 155mm artillery pieces under Project Land 17, nor has any decision been made to move toward the stated Defence aim of introducing an insensitive munitions capability into the ADF.

However, the likely assumption of 100 per cent ownership of ADI by Thales could give the two Australian facilities a leg up in the export market. Last year Thales became sole owner of French-based TDA Armements, a company which produces ammunition, fuses and mortars and has a world-wide sales and support network.

By Julian Kerr, Sydney
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