The government has enlisted Toshiba Corp. to help it try to win Asia’s biggest defense contract, a $36 billion deal to build a dozen submarines for Australia, three sources said.
Toshiba is considering building a factory in Australia to make lithium-ion batteries to power the vessels, according to the sources, who are familiar with the plan but not authorized to talk to the media.
The potential investment, which is contingent on Canberra picking the Japanese design, is part of an incentive package promising commercial and defense sector work beyond the submarine program, aimed at winning over politicians who want to boost job numbers in Australia.
The proposed plant, which could be worth hundreds of millions of dollars, would also fabricate industrial scale power packs for commercial customers around the world, the sources said.
Such an investment could be an attractive proposition for Australia, which is seeking other avenues of growth as it grapples with plunging commodity prices.
“Australia’s prime minister (Malcolm Turnbull) is promoting innovation, and that is something Japan can do,” said one of the sources.
Australia’s submarine industry is based in South Australia, but the sources did not say where Toshiba was considering building a factory.
Toshiba denied it was mulling a new Australian battery plant.
“There is no such a fact, no such a plan,” a spokesman said.
A spokesman for Japan’s Defense Ministry said nothing was decided regarding which maker’s batteries would be used if its bid was successful.
“If Japan is chosen, then Japan and Australia would consider detailed plans over several years and the first discussion would come from there,” the spokesman said.
Without commenting on Toshiba’s potential involvement, South Australia’s minister for defense industries, Martin Hamilton-Smith, said he expects new facilities associated with battery technology to be based in the state as part of any domestic-build option, regardless of who wins the tender.
“This is an example of the impact the ‘Future Submarines’ project would have across other industry sectors,” he said in an emailed response. “It also underlines the economic effects of a local build and why such effects should be taken into account when the federal government considers where the submarines will be built.”
Australia’s Defense Department did not immediately respond to requests for comment.
The choice of Toshiba to supply the Australian submarine batteries would be a boost for the struggling Japanese industrial conglomerate as it braces for a net loss of ¥710 billion this year following a major accounting scandal.
It was not immediately clear if the plant would build lithium-ion battery cells from scratch or be a cheaper, simpler assembly operation, offering fewer jobs and economic benefits.
Toshiba’s batteries were picked for the Australian submarine project over those made by GS Yuasa Corp. because they are easier to maintain, two of the sources said.
GS Yuasa declined to comment, while Japan’s Defense Ministry did not immediately respond to requests for comment.
Japan is offering Australia a variant of its 4,000 ton diesel-electric Soryu submarine built by Mitsubishi Heavy Industries and Kawasaki Heavy Industries, with a lithium-ion underwater propulsion system.
It is up against France’s state-owned builder DCNS, which plans to make a conventional version of its 5,000-ton Barracuda nuclear-powered submarine, and Germany’s ThyssenKrupp (TKMS), which is proposing to scale up its 2,000-ton Type 214 vessel.
Domestic political considerations, particularly jobs for Australian workers, will also weigh on the final choice.
Japan was initially slow to commit to build all vessels at South Australian shipyards. But sources said in January the competition was narrowing to a race between Japan and France as TKMS loses ground over concerns about the technical challenges of scaling up the size of its sub.
To win over Australia, Japan’s government is also pushing the strategic value of its design over one from Europe.
The two U.S. allies in Asia are deepening security ties as Washington pushes its defense partners to work more closely together to balance China’s rising regional power.
Foreign Minister Fumio Kishida stressed that strategic significance when he met his Australian counterpart, Julie Bishop, in Tokyo last month.
Defense officials in Tokyo, however, worry their bid is undermined by a dearth of experience managing overseas military projects and a lack of industrial ties in Australia it will need to complete the complex vessels, the sources said.
Until Prime Minister Shinzo Abe ended a decades-old ban on arms exports in 2014, Japanese military equipment makers had only ever sold equipment domestically.
Australia’s government has said it will make its submarine pick this year.