Senior Liberals fear the Coalition could lose up to three seats at the next election unless the federal government can do something to preserve local jobs amid voter angst over South Australia's economy.

On Monday Mr Abbott gave his strongest indication yet that Adelaide, which hosts government-owned submarine maintenance firm ASC, will be the headquarters of a $20 billion project to build nine new frigates later this decade. But it is understood the work would be shared with Victorian shipyards.

"My message to the people of South Australia is that we can do it here," Mr Abbott said. "We can build things here. We can make things here. We can do it here and that's what I am excited about."

Leading to job losses

Mr Abbott also admitted he could not guarantee the government could completely avoid the so-called valley of death in naval shipbuilding, which is leading to job losses in Adelaide, Melbourne and Newcastle.

The valley of death refers to the gap between big ship projects, which results in a loss of jobs. BAE shipyards in Melbourne, Forgacs in Newcastle and ASC in Adelaide have all laid off hundreds of workers as work winds down on the $9 billion Adelaide-based air warfare destroyer project.

Mr Abbott pledged the frigate project would involve a continuous build to try to avoid the peaks and troughs that triggered job losses in the past.

The Adelaide-based Air Warfare Destroyer Alliance is building three 6500-tonne warships for the Royal Australian Navy but the project has been plagued by cost overruns and delays.


The Australian Financial Review reported in July that the government's strategy in an upcoming defence white paper was likely to focus on shoring up jobs and voter support in South Australia and Victoria, with Adelaide getting the lion's share of the frigate construction, in part because the submarine project would be carried out largely in Japan.

France, Germany and Britain are already lining up to offer ship designs for the $20 billion frigate project.

The government is running a 10-month competitive evaluation process for the submarines. Mr Abbott has promised 500 extra jobs in Adelaide will result from the submarine project no matter where the submarines are built.

Japanese-based Kawasaki/Mitsubishi is putting up its 4000-tonne Soryu class submarine, French-based DCNS its 4700-tonne Shortfin Barracuda and German-based TKMS its 4000-tonne Type 216.

Adelaide University based Australian Workplace Innovation and Social Research Centre, executive director Dr John Spoehr said Mr Abbott's comments appeared to represent a "welcome policy shift on the part of the federal government".

"It appears the Federal government is worried about South Australia's economic and employment outlook and that is a shift in the right direction.

"The frigate project is important but it won't be enough on its own to make up for the loss of automotive jobs and a downturn in engineering and construction," he said.