Senate Foreign Affairs, Defence and Trade Legislation Committee, , 35:04 to 1:10:25
Officials provide a breakdown of the $14 to $18 billion investment in northern bases and the rationale for divesting 67 legacy defense sites.
Topics: Infrastructure, Government spending, Land management
Speakers: Celia Perkins, David Shoebridge, Varun Ghosh, Unknown Speaker, Raff Ciccone, Speaker 7
you, chair, and thank you to the um officials um here today. U my questions relate to the defense estate audit and the government's response to that. the defense strategic review um emphasized the importance of u the defense estate in the context of defending Australia. And I just wanted to understand um from your perspective what role the defense estate plays um in that defense and in keeping Australians
>> Thank you, Senator. If you can just give Senator Celia Perkins, Deputy Secretary Security and Estate. Uh thank you for your question. Uh the defense estate audit was undertaken as a um recommendation in the defense strategic review. Uh and the recommendation um is then reflected in the terms of reference uh that the independent uh reviewers Jan Mason and Jim Miller were given to do this important piece of work. They were asked to make recommendations to ensure that defense as estate is best structured to support the force posture, force generation and resourcing of defense in response to Australia's strategic circumstances in line with the defense strategic review and particularly to consider the infrastructure and priority investments uh the capability and operational planning needs as defined through the defense strategic review. um and to assess if defense estate as it as it was was was in being as they undertook the review reflected our contemporary needs. Uh the terms of reference are in the the published report that was released uh last week. Uh so in in our view uh this is very much a part of defense's um supporting defense's implementation of the defense strategic review and the national defense strategy priorities.
So some of the reporting about um this review and then the government's response to it has emphasized or suggested that the decision is based on financial factors or money um rather than that posture or or other considerations. Are you able to address those criticisms?
certainly I think um I've seen that in in the response. Um this was a a deeply considered piece of work. I I think it's um valuable to reflect and I know the deputy prime minister uh did last week that after the government received the report uh which has responded to the terms of reference set by government uh the deputy prime minister directed defense to undertake uh more detailed analysis uh and to understand the implications uh to implement the report and and that formed defense's advice to government on how to proceed. So this is very much um uh an independent report that has uh delivered 20 recommendations that are designed around reshaping the defense estate uh to meet our future strategic needs. Um and to recognize that investment in the estate uh has always been challenging and a large unused estate with many legacy sites uh that are unpopulated, underpop populated uh and in need of quite substantial investment to to be able to operate in a contemporary way doesn't support the investment the government had prioritized in the defense strategic review and national defense strategy for our future forces. posture and structure. Uh so um in my view um uh the the the the independent review and the government's response to it and now our task to implement it really aligns our estate um and infrastructure investment with those priorities for the future.
And I think that answer reflects really that this is a a difficult area that has been neglected by previous governments and hasn't perhaps received either the attention or the reforming um zeal that was required. Can I ask um in terms of northern Australian bases? Um how does this review and the response affect our capacity in Northern Australia?
>> Thank you, Senator. Um it's a very important point that of the of the 20 recommendations the independent audit makes only one deals with devestment of sites. I think that's where most of the the focus is. Um but it also um acknowledges and and our broader national defense strategy priorities acknowledge um the critical importance of the northern bases um in the current integrated investment program. 14 to 18 billion dollars of planned investment in those northern bases is scheduled and now in delivery uh a as important investment in the southern training bases. So of those sites uh uh 68 recommended, 67 agreed for investment. They are not those sites where we undertake um critical initial and and um training continuum training or where we operate or generate capability from in the whole um but but your first point is is right and and this isn't a new point. The independent reviewers make this point, but I can uh assure you it's part of um my lived experience as the estate capability manager. Uh sustaining a a very aged estate is challenging. We have historically underinvested. Many of the points uh the independent reviewers make in this report and reflect here were also made in the 2015 uh defense strategic review. Um there are many similarities in their recommendations to an important force posture review undertaken in 2012 um by former secretaries Rick Smith and Alan Hawk. I spoke with both of those gentlemen uh uh Alan tragically um has now departed um in the forming of this work. Um so so these are long-standing challenges um and uh it does reflect that a very large estate 3.8 million hectares um in many many parts of Australia uh difficult to manage and that um we do need to focus on those priorities for the way that the operating force um uh lives from the
>> Thank [clears throat] you Mr. Perkins. I I heard a number in relation to the investment um are you able to just elaborate on that number and perhaps break down what
>> and and that's a a point we've discussed in this committee a few times. So the headline figures um uh as the defense strategic review has been embedded for us in our priorities in the 2024 national defense strategy and integrated investment program are these and I can talk to some some parts of that uh 14 to$18 billion over the decade to 20334 for northern base upgrades. Um that that includes uh uh um significant upgrades really in the span from um Xmouth in the west to sh water bay in the east and the Kokus Keeling Island investment. So upgrades to reface Limont to lengthen and strengthen the runway increase fuel holdings and increase the ability of that base to operate. um continued investment across uh the Northern Territory, completing investments in RAFbased Darwin and Tindle and upgrades to the Robertson barracks in Darwin. Uh important work um in Kes that will support um uh the future latoral maneuver capability of the army. important work at Roughbase uh Townsville that support um the Apache helicopter fleet and so that is a really large program of work um uh uh for our future operating capability but there's additional investment for enterprise infrastructure upgrade I mentioned the the training force so some of the work I'm really excited about uh in the years ahead uh we had completed um a wholesale upgrade to HM Cberus Navy's um initial training place uh And we are soon to commence uh similar work for our uh um uh blame barracks kapuka and and refb base wager the places where we train uh our army and air force recruits. Um so so how we and and there's a you know another substantial body of work for the logistics network across Australia. So those prioritized infrastructure investments in the north but also uh in the south are aligned to um uh the the future strategy and the capabilities um that we're investing in for the army, navy and air force. Uh we'll train and they'll operate. I and I should mention actually two incredibly important ones and actually that take up most of my time. uh the priority infrastructure investment for our um uh orcus pathway at HMI Sterling uh and um important work the CDF mentioned to support the guided weapons and explosive ordinance uh um enterprise. Uh the new facility at Port Wakefield where we will have the initial capacity to assemble and manufacture was an outstanding project delivered through infrastructure division using a first nations contractor. they did a phenomenal job. Uh and the Minister for Defense Industry just in the last few weeks um opened some new uh uh explosive ordinance storage at the Orchard Hill facility in Sydney. So the infrastructure investment significant um it is all over the country and it is aligned to the national defense strategy
terms of the estate audit for a moment. um are you able to just summarize the process um that the audit um or that sat behind the audit that then led to its recommendations?
>> Yeah, thank you Senator. Uh so we appointed um the independent reviewers or the government appointed the independent reviewers Jen Mason. Jen had been a former managing director of defense housing Australia uh and a deputy secretary in the department of finance and Jim Miller uh uh a former chair of Victoria at at the time chair of Victoria infrastructure Victoria two extremely um uh uh knowledgeable people in this space. They were supported by defense secretariat. I want to thank Jim and Jan and also Dan Fankhauser and his team who led this work. Um they undertook an extremely rigorous process of review supported by the department and just in the headlines of that they visited over 70 sites around Australia. They undertook consultations um with 50 officials within defense. um uh they did a detailed analysis using we have quite um um um advanced data on the state of the estate. We maintain extremely good sense of the the knowledge of what's on sites and the the material state of things. Um they engaged uh with uh officials in states and territories and other interested stakeholders. um uh and they did um some important work to cross-le um their thinking and finding with work that we were undertaking in support of the integrated investment program. So one that um Jim mentioned last week is in supporting development of the IIP we do quite a bit of um planning and analysis around the current and future needs of the estate and um the importance of sites to generating capability. So they were cross-leveling what they were seeing with um the work defense was doing to support where we wanted and needed that future investment to um implement the
>> Now I'm sure you would have noticed this that much of the attention following um the release of the government's response and and the audit has focused on uh devestment. Are you able to just summarize for us or or provide the key rationale um that the leads that the audit leads provided for um recommended recommending devestment
>> Yeah. And they're quite explicit about that in their report and um the report is not a long read but it's a really good read. um in undertaking that work and consulting deeply with with defense on our needs, they were of mind to understand what how a site was contributing um to defense's strategy and capability generation needs. Um the the cost of running a site um and I think this is a really important point. Many of these sites, even if they are lightly populated, not populated, aren't cost-f free to me as the estate capability manager. We have obligations and continue spending money on these sites. Um a and with a mind to uh understand how um we could refocus on our strategic needs. So in the rationale um and I think importantly and they say this in the report the capacity to generate revenue is valuable. The capacity for us to reduce our spend on these sites over time is as valuable. And so there was um quite a bit of analysis around with the support of defense that we've since validated. The other really important principle is that we consider within our overall posture force posture um our presence in location. So in most of the um metro and regional areas defense's force posture won't largely change as we implement um this report or undertake these devestments. And the principle would be how could you generate that capability elsewhere in the same metro or original area um and where did we have unused capacity in other parts of the estate. So in many cases you'll see two sites side by side um or or nearby where there's underused capacity and that'll be the premise on which we move forward is that we maximize um the use of more contemporary facilities while we devest um those lower value facilities
>> and does that rationale also apply to the partial devestments that are
contemplated? >> Thank you Senator. Um I mentioned earlier that the deputy prime minister asked defense to undertake a detailed analysis of the report and its implementation to to just verify um the assessments and that was very important work uh over the last two years um supported by senior representatives of um the Navy, Army, Air Force and all our groups and services to make sure uh that we had really thought about what what was on those sites. what what units, what capabilities uh and to verify what we might need to replicate elsewhere or could accommodate elsewhere. That work um informed the conversation we had with government about where on deeper analysis there was a critical capability that would be challenging to move or more costly than the revenue that it might receive. And therefore um the government in its deliberation agreed to u retain one site the pitwater dive annex and to partially devest three sites. Uh and and that is a capability argument defense made about uh how we would sustain that capability at uh HMAS Penguin um at the um uh Waridal barracks in um uh South Australia. uh and uh there's one other and it'll come to me but yeah they were defense analyzing and maintaining supporting a capability and
Just a step through process again um we've discussed the process that the independent audit went through or the auditors went through in order to produce their their findings and their report. uh are you able to u just step us through what the government did in preparing its response to that report
from a process perspective? >> Um so so uh in the normal manner as so we we um established a team in defense the state transformation division Mr. head west uh is leading that that division uh as we implement this work uh and brought together a team. This was one of the recommendations of the report um to analyze and prepare for implementation. Uh that is a team built from our existing property experts in defense. We we do acquisition and devestment of land quite regularly. Uh one of um uh the interesting points is we've already devested three of the sites recommended uh in the audit and another two not recommended in the time that we've done this work. As I said, we've worked with our colleagues across defense who are the capability experts. Uh and we've engaged closely across government um with uh our colleagues who have important expertise to bring. Um important point here in the government's decisions the department of finance who are the property and asset managers will undertake the devestments they've been deeply involved as has the department of climate change energy the environment and water and the department of infrastructure and others so that we are assessing this uh across the commonwealth for all of the things you'd want to in the normal way having developed that work um we took that to government uh for decision last year um and the the government responses released last year represents defense and our colleagues in government's advice to government and
in terms of finance's role um in this process. Are you able to just briefly summarize what their role in relation to what defense's role or defense estates role will be um and then just give us an outline of the timeline uh to devestment. Um and and that well basically if you just step us through
that process. >> Certainly. Yeah. So um as the deputy prime minister and the assistant minister for defense announced uh last week uh the government's agreed um or agreed in principle all of the 20 recommendations. Defense's role will be to lead implementation of all of the recommendations. Um and and that's set out in the government response in the published version. Um on the devestments um the government has directed that defense will continue the devestment action for six sites where devestment is already underway and the sites are vacant. That work is in train and I can step through that. Um and so of the of the 67 sites uh six defense will devest 12 are leased sites. We have a lease. defense will manage the process by which we plan for transition and and um end leases and the subset of that uh and somebody will be doing the maths for me the department of finance will lead the devestment of um the bulk of those sites I should note uh 10 of those sites are also vacant um so defense will be focusing on the transition planning and change management and support for our people who are working on 43 sites that are inhabited uh Department of Finance as defense readies sites um uh by moving people in capability. We will transition the site to the Department of Finance and they will lead the um development process. Um I think in their uh evidence last night um they will be working through they're developing that process. Now defense and the department of finance um under government direction have an agreement about how this will operate. There will be some shared accountabilities around transition and due diligence activities which are normal in the sale of property and how together we will work through the environmental investigations, the heritage considerations and so forth.
>> Thank you.
>> I'm um trespassing on the chair's indulgence. So I'm going to put two questions to you just briefly. Um following on from that process, where does the money go? uh and then some of these sites are not occupied but some are. What's going to happen to existing users and tenants in in these
>> So an important part of the government's decision and announcement last week is that the um proceeds of sale minus the costs of devestment or recreating capabilities elsewhere will be returned to the defense budget and the investment program. Um how we will work this with um department of finance is uh as sites are devested uh we will account each year in the defense budget for the return of those proceeds for future defense investment. That's that's a very important point. um in the sites that defense um are continuing to lead on devestment. We have a high level of confidence that a number of those uh will be devested this year and we are uh are about to or are in the market to work through a market process and I would call out the Penri uh depot and the London Dairy Transmitting Station. Um and you mentioned the time frame, the time frame. Um
>> actually, sorry, my question was focused on tenants and users. So I did ask a previous question about time frame but just in terms of what's going to happen >> um >> what's the process in relation to existing tenants and users on those sites and and how are you managing that?
>> So we've already started a comprehensive um uh consultation program with defense staff on site APSDF um and other third party users. Um we have many um more than 100 community groups veterans groups and so forth resident on those sites. In the days since last week's announcement, we've undertaken I I would say now something in the order of five or six eight online sessions for defense. I led two of those last week and we've probably had in the order of 8,000 um defense staff engage in those sessions. In the course of the next two weeks, we will continue online sessions and in-person sessions at those sites. um that will be to start um consulting and engaging on what the transition um program and change management program will be. In the published materials, there is an indication for each of those sites at a high level what that transition plan is. Sitting beneath that is much more detailed work. In some cases, that's very clear. In some cases, there's a bit more work to do. But we'll be focusing in the first instance on those things that are more straightforward and the vacant sites. um we wrote or phoned or have engaged I think with pretty much now all of those other users of sites. I've engaged with all my state and territory counterparts. Mr. West has engaged with all of our other users on sites. Um we've undertaken initial briefings um with PE veterans organizations and the RSL and those engagements will continue and in the next uh couple of weeks we will commence some community consultation at sites. So that consultation will be detailed. As I said, it's a lot to go through for 67 sites, but where there are people, there is a a a plan that was part of the analysis on um what that relocation will look like. Um the government's direction to us is to um work with some haste to move where it is able to be done so within the next two years. So we will start that transition planning in earnest now for the relocation. Some of those sites will require the replication of some elements of capability or facilities. Obviously, that might take a little bit longer and that'll be part of the broader transition plan.
>> Uh, thank you very much, Miss Perkins. Um, thank you, Chair.
>> All right. Thanks, Senator Go. Now, Senator Shub, you have the call.
>> Oh, yeah. Thanks very much, Chair. Um, while we've got you there, Miss Perkins, um, uh, can you remind me again how many sites are proposed to be sold?
Um so the government has agreed to devest or partially devest 67 sites. Uh of that 67 64 will be devested in whole and three will be partially devested.
>> And you said that obviously there's costs of remediation um costs of removing defense assets from the sites. There's the costs of sale itself. Is that right? >> Yes. >> Yep. Um, can you just give me a breakdown on what the expected gross return from the sale of the sites is and then maybe we can step through a couple of those costs?
>> Um, the the broad estimate of based on um uh uh market valuations under undertaken by the independent audit uh and uh with with some um revalidation uh in 2025 is $3 billion. Okay. And the
market valuation, they obviously weren't being sold as defense sites. Were they being sold on the assumption that that would be reszoned to maximize uh commercial commercial returns?
>> Senator, um the Department of Finance will be leading the devestment activity and the approaches to market. Um but as the deputy prime minister uh said when he announced the audit uh and its implementation last week, the principle will be to achieve full market value to maximize returns to the defense budget.
[snorts] >> And there was no consideration given to those leading this divestment strategy about um maximizing public return. So, for example, they weren't asked to say, well, perhaps this would get can you test what the public return would be for retaining it for a veterans group or using it for public housing. That wasn't part of they weren't testing what an alternate case would be for retaining it in public use, were they?
>> As as I've described, the terms of reference were focused on aligning the estate to defense's strategy and future
>> So, the question was, did defense need it? Yes. No. If defense didn't need it, then how much can you get for it? >> That's pretty much it, isn't it?
>> Yeah. The independent reviewers responded to the terms of reference.
>> And these are piece parcels of public land that have been in Commonwealth ownership, some for well over a century, but there was no consideration of whether or not there might be an alternative um public use. And I've given you some. Retain it for veterans, use it for public housing, have it for public parkland. That wasn't part of the
The future use will be part of the devestment process that will be led by the department of finance.
>> Yeah. But that's all the future use is what returns the greatest market return to defense from sale. That's what's going to determine future use, isn't it?
>> That has been the the government's announced position. Yes.
>> All right. Um so $3 billion in gross sales. Now, now that includes some what I would have thought would be extraordinarily valuable properties. Victoria barracks in Sydney or Victoria Barracks in Melbourne. Now I think about it, Victoria Barracks in Brisbane. um multiple waterfront sites in Hobart, large sites um uh in Adelaide which are already being eyed up for potentially thousands of private housing um units. Um many people I've spoken to and who have just contacted my office said, "How could the where did the $3 billion come from?" you know, some of these sites are incredibly valuable. When was the valuation done?
>> Uh, so as the independent uh reviewers were undertaking their work in late 2023, uh they worked with the the Commonwealth government's um property advisor JL to undertake um um uh indicative market valuations. Um we've undertaken some additional due diligence on that. I I would say that uh there's some really important uh issues that uh inform real estate valuations of this kind and and the due diligence that the department of finance undertake will will assess and confirm this uh heritage overlays impact property values, contamination impact property values. uh but this is um uh the work of uh experts who have uh assessed those sites and provided um market valuations in the normal manner.
>> Well, what value what notion oral value was attached to Victoria barracks in Sydney?
>> Um Senator, in the published version um in the independent leads forward, some of the uh information has been redacted for commercial sensitivities. I'm not going to talk to the individual valuations of sites at this time. That will be work that the Department of Finance will now engage on. In due diligence, the sites are taken forward to the market.
>> Well, just if you want to take a public interest immunity claim, that's fine. But I'm going to ask you just for a number of high-profile sites. What was the valuation the the estimated valuation for s that the comworth get for selling Victoria barracks in Sydney, Victoria Barracks in Brisbane and Victoria Barracks in Melbourne. Each of those individually, what was the value?
>> Well, I'll take that on notice.
>> All right. Um, now you say $3 billion for the gross sale. Then there are you mentioned a number of costs, remediation, re relocation and obviously you know the real estate agents and lawyers get their cut. Um can you articulate what those were?
>> The the the overall figure um that we uh took to government is approximately $1.2 billion in transition costs.
>> All right. And can you break down what they were by way of remediation, legal fees, real estate agents cut, relocation? I
>> I'll take that on notice as you'd appreciate across 67 sites. That's um individual figures for each of those sites across a number of activities.
>> At this stage, by all means, give me the individual um figures for the sites on notice. Appreciate that. But at this stage, I'm after the global figures for
>> I might take that on notice. We can
absolutely um break that down. And so we get after selling 67 parcels of public land, some of them incredibly emotionally um important, historically important. We get $1.8 billion net. That's the estimate. Is that right? >> Correct. >> Um how long is it expected to take this divestment project? What's the horizon for sales from 1 to 67?
Uh as the deputy prime minister has said uh in his engagements in the last few years um in the last few days um we will we have been asked to move rapidly. A number of these sites have been devested and will be devested in the short term. Uh but uh the government recognized in our lived experience is some of these sites will take some time to devest.
>> Uh and and >> Miss Perkins speedy for defense doesn't necessarily mean speedy for the rest of the world. What is the time frame?
>> Uh the government has directed that we commence the sales process within the next two years. >> U many of these will be large and complex um uh activities and as the department of finance undertakes the devestment activity they will be working with the market on those solutions.
>> Yeah. But I mean you must be thinking about the revenue. So to commence in two years you must have some idea of what the time frame for the for the total sales the estimated conclusion of this
>> I think the important point to make in terms of defense's role in implementation is that I am focused not in two years but today on the transition arrangements at the sites where defense people and capabilities reside such that I can hand those sites to the department of finance and for the six sites where defense will continued devestment activity um that we move as rapidly as we can. As I said, it will be my goal. I I will um I am confident we will conclude at least two of those sales this year and a number uh next year. So
in actual fact, all of the upfront costs, the relocation, um the rehabilitation, that's likely over the next so many years to to to actually mean that this project is going to be a deficit project for defense over the next few years. You're going to be spending more on relocation, rehabilitation, lawyers, real estate agents than you're going to get on the devestment project over the next few years. That's the realistic. It's actually going to cost Australian taxpayers money over the next few years to lose public assets to private real estate developments. That's that's the truth of it, isn't it?
>> Uh, Senator, no. Um the way that we um certainly look the the guidance from the independent reviewers and the work we've done with the department of finance is to um make this self-funding. There is um some initial funding available in defense for kickoff activities. A number of sales were completed in the last year which will also contribute to the activities that we'll need to undertake in the first instance and that um the the the that as properties are sold those funds will um uh come back to uh support the devestment activity.
>> How much how much is it costing the budget this financial year? Uh uh we
have $5 million in the budget this year in defense.
>> And what's the expectation next year in terms of the budget impact?
>> Uh look, I'd take that on notice, but I would say that we have in the IIP unapproved program uh over the forward estimate $75 million uh ear to support this activity. But with the agreement that the Department of Finance and Sales are concluded, we'll return um those proceeds to the defense budget. So in
the short term, you're setting aside $75 million from other parts of the defense budget to to to sell this public land. In the short term, that's what you've got set aside. >> Yes. >> Y. >> So I come back to my point in the coming budget years this is actually going to cost. There'll be less money available for defense as a result of deciding to sell off 67 highly priced sites
>> with a very important caveat. The cost to sustain these sites, particularly the 16 sites that are currently vacant, um will be a savings. When those sites transition and we no longer provide services on those sites, we will reduce pressure in the sustainment budget and the overall spend on these sites.
>> All right. Um >> just last uh minute there, Senator.