Australia announced plans Saturday to pay France's Naval Group compensation after it scrapped a multi-million-dollar submarine contract last September.

Australia said it would pay out €555 million ($584 million) after it quashed the multi-billion-dollar contract and opted to purchase US-made submarines instead. 

Australian Prime Minister Anthony Albanese said France's Naval Group agreed to the sum and called it "fair and equitable."

"This agreement is important because it permits us to turn a page in our bilateral relations with Australia and look to the future," French Defense Minister, Sebastien Lecornu, said.

Why is Australia paying so much to a French firm?

Last September, former Australian Prime Minister Scott Morrison canceled the contract with the French defense firm as Australia entered a new defense pact with the US and the UK known as AUKUS. That contract had been years in the making.

Instead, Morrison announced Australia would opt for US or British nuclear-powered submarines. The announcement signaled a significant shift for a country with a limited domestic nuclear power program.

Following Morrison's announcement, French President Emmanuel Macron lashed out and accused Morrison of deceptive decision making. 

The scrapped plans caused a diplomatic rift between France and another key ally, the US, as well.

Relations between Australia and France remained icy for the rest of Morrison's tenure in office. Albanese came to power in mid-May.

On Saturday Lecornu said France valued its "friendship" with Australia, "just because a government in the past did not keep its word, it does not mean we have to forget our strategic relationship. 

"Australia has a new team in power, we are happy to be able to work with them."

Why does Australia want nuclear-powered submarines?

Australia is racing to catch up with China in the Asia Pacific region. Under leader Xi Jinping, China has rapidly developed its navy and menaced certain neighbors.

Australia hopes the new nuclear-powered submarines will serve as a deterrent.

However, the new submarines are unlikely to be ready for a decade, leaving a capabilities gap open in Australia's maritime defense in the meanwhile.

lo,ar/wd (AFP, Reuters)