Ammunition and contract famine. What about Ukrainian production of 155-mm ammunition?

Even in the first months of the major Russian invasion, the Ukrainian command came to a clear conclusion: the artillery of the Armed Forces should be quickly converted to NATO calibers.

Considering that at that time the Armed Forces of Ukraine had only Soviet-era guns at their disposal, such an idea might have seemed fantastic. However, the intensity of the fighting showed that the reserves of Soviet-caliber shells available to Ukraine would run out very quickly. And they could only be purchased in such significant quantities from Russia, that is, not at all.

In April-May 2022, after the historic Ramstein, the West began supplying Ukraine with its artillery, starting with trailer-mounted M777s, and with them its own shells from then-full warehouses in Europe and the United States.

During the three years of the Great War, the situation changed dramatically.

Ukrainian manufacturers have made a leap from manufacturing a single copy of the NATO 155-mm self-propelled artillery mount "Bogdan" to its serial production.

Now, according to official reports alone, more than 20 domestic self-propelled guns are sent to the front every month. In addition, it was recently reported that a trailer version of the "Bogdan" is also entering the troops in dozens.

Thanks to its own production and supplies from partners, Ukraine managed to saturate the Armed Forces of Ukraine with new barrels. But years of intense fighting have created a new problem – a shortage of NATO shells.

It is partially closed due to supplies from partners. But to have self-sufficiency in such a critical type of weapons is a matter of survival. Therefore, since 2024, Ukraine is trying to launch its own production of 155-mm shells within the country.

"Defense" decided to find out what the state of affairs is with the Ukrainian production of 155-mm shells, and why the state sometimes prefers imports over domestic production.

NATO for themselves: production in Ukraine

To resume the production of Soviet ammunition at the factories that once produced it is a difficult but quite real task.

Over the past three years, Ukraine has launched the production of many such shells. For some items, the increase in production is hundreds of percent. It is obvious that with such exponential growth, there are failed projects. For example, the scandalous 120-mm mines from one of the state-owned factories that did not fly or explode.

Despite everything, it must be admitted that the Ukrainian defense industry has nevertheless made the most difficult breakthrough in resuming the production of old Soviet calibers.

But launching the production of new calibers that no one in Ukraine has produced before is a more difficult task. Especially when it comes to large 155-mm shells. Their production is the highest league of the world arms industry. Several major players in Ukraine want to get into it at once.

First of all, we are talking about several state-owned manufacturers. Since the beginning of 2024, the Ministry of Strategic Industry and other relevant structures have been working to find suitable equipment for them, help purchase components, and launch production.

In August-September last year, Ukraine signed the first contracts with state-owned enterprises for the production of 155-mm shells. However, one production facility did not start by the end of the year. And another plant celebrated the production of the first 10,000 155-mm shells in late autumn 2024.

"We currently have one production facility working with shells of our own design. One copied a Western analogue, but the manufacturer saw this and gave us a license so that we would not be "pirates". A manufacturer from another NATO country is also very close to selling us a license for our enterprise, but is still negotiating," says a source from the military-political leadership of Defense.

In addition to state-owned manufacturers, there are several private companies that have also received contracts to produce 155-mm shells.

According to the results of last year, according to Defense, the Ministry of Defense failed to meet the needs of the Armed Forces of Ukraine in 155-mm shells, to put it mildly. Supplies from the United States remain questionable, and the capabilities of European partners are limited. Therefore, starting this year, Ukraine is placing more and more hopes on its own capabilities in their production.

Arsen Zhumadilov, Director of the Defense Procurement Agency (DPA), told Oborontsa that several hundred thousand Ukrainian shells of NATO calibers have already been contracted.

But many shells also remain uncontracted, even though there is production capacity for them.

The ignored project of "Ukrainian armored vehicles"

The Ukrainian Armored Vehicles (UB) company has set out to implement one of the largest projects for the production of NATO caliber ammunition , having begun the production of five at once : three types of 155-mm, 105-mm, and a 120-mm tank shell.

UB could not do this on its own, as just a license for one type of projectile can cost millions of euros, not to mention the deployment of a full production cycle that includes gunpowder, fuses, and other complex and scarce components. Therefore, the company began looking for a partner, which eventually turned out to be the European Czechoslovak Group.

Before the full-scale invasion, UB and Czechoslovak Group were even competitors. The European corporation was trying to sell Ukraine its 152-mm Dana self-propelled gun, while Ukrbronetehnika was promoting the then-raw domestic Bogdana self-propelled gun.

After the start of the great war, the Western corporation turned into more of a close partner, as UB works as an importer of weapons, and the Czechoslovak Group supplies Ukraine with its ammunition and other military products.

"They have a wide range of connections and financial resources, so they help to find and supply many products from the world market. We are currently working with them on various technological projects to develop new equipment with an eye on the years ahead," Vladyslav Belbas, director of Ukrbronetehnika, describes his business partners in a conversation with Oboronka.

Czechoslovak Group (CSG) is a group of companies that at various times was able to buy up key defense production facilities in the Czech Republic and Slovakia, and has factories in Greece, Serbia, Spain, Germany, the USA, etc. For example, the Ukrainian missile system "Neptune" or the self-propelled guns "Bogdana" are based on the chassis of "Tatra". The "Tatra" plant belongs to CSG.

The Ukrainian army uses dozens of Dana and Dita self-propelled guns, manufactured by a CSG company. The Czech company has restored hundreds of tanks and Soviet infantry fighting vehicles for the Ukrainian Armed Forces.

But the main thing is that CSG has a full cycle of shell production: it has its own fuses, its own filling, its own explosives, its own powders, and even nitrocellulose, which is the main component of gunpowder.

"This is a complex production. You can invent a bicycle, make your own detonators or something else. But then you saw that it doesn't fly or explode. Therefore, it is much more reliable to take a partner who already has a closed cycle and just go through this path with him in Ukraine," says one of the interlocutors of "Oboronka", familiar with the launch of the project.

The interest in joint production of shells on the part of "Ukrainian Armored Vehicles" is understandable - for them it is a pass to the club of the arms industry elite. But why would the Czechoslovak Group waste money on a joint project with a relatively small Ukrainian company?

In fact, this makes sense for the Czech corporation, and it is strategic.

Now European defense companies feel extremely comfortable, because orders are pouring in from all sides. As one of the top managers of CSG recalled in a conversation with Oboronka, a few years ago their companies were unprofitable. Now the owner of Czechoslovak Group, Michal Strnad, has been called the richest man in Central and Eastern Europe by Bloomberg.

But this fairy tale will end for them sooner or later, because after the end of active hostilities, large orders will disappear, and billion-dollar investments in factories risk not paying off.

Companies in the market understand the instability of their situation, so they are preparing for a possible collapse in demand for ammunition right now. They are already thinking about where to look for additional orders for their products.

Even against the backdrop of the European Union's large rearmament program, manufacturers outside Western Europe do not really believe in the possibility of winning the competition from companies from France, Germany, Italy, etc.

Therefore, Ukraine is not only a current but also a future market for them . After the war, our Ministry of Defense will continue to replenish strategic reserves for another 5-10 years. However, Ukraine will definitely not import these shells, but will rely on local manufacturers, because it is cheaper.

So the only way for Western companies to gain a foothold in the Ukrainian market is to partially relocate their production to Ukraine. This will not only give them priority in contracting during the war, but will also increase their chances of winning contracts after it.

In 2024, German Rheinmetall announced plans to build an ammunition plant in Ukraine, taking state-owned Ukroboronprom as a partner. Czechoslovak Group chose a different path and began looking for partners in the private sector. And so the project with Ukrbronetehnika emerged.

The terms of this agreement look quite tempting. "Ukrainian Armored Vehicles" receives free technical documentation for all five types of rounds - 155-mm M107, 155-mm L15, 155-mm ER-BT VMK/MKM, 105-mm M1 and a tank 120-mm round. In return, UB does not have the right to distribute this technology, produce similar products outside of the joint project, or export shells without the partner's permission. And finally, the Czechs will have the right to set the price.

Some of the shells under this joint project were to be imported, but the vast majority were to be manufactured in Ukraine at the facilities of "Ukrainian Armored Vehicles".

In general, there are two "bottlenecks" in the production of shells. The first is gunpowder, the second is filling the shell with explosives. Ukraine does not yet have its own gunpowder plant, so the Czechs have completely taken on the problem of supplying gunpowder. But the filling of shells with explosives will be carried out by "Ukrainian Armored Vehicles" at its own production sites. The purchase of the relevant equipment cost the Ukrainian company tens of millions of euros and more than a year of waiting.

Despite the fact that "Ukrainian" shells will still contain a very significant share of imported components, according to Belbas, in the first year up to 55% of the cost of each manufactured ammunition, depending on its type, will remain in Ukraine. And after the localization of the production of fuses and primers - up to 70%.

In October, the parties officially signed the agreement, and in December 2024, military representatives confirmed the ability to produce these ammunition. Ukrbronetehnika announced its readiness to produce 100 thousand shells in 2025 and 300 thousand in 2026.

But mass production never began. The state contracted only the part of the project that involved imports from the Czech Republic, and did not provide money for its own Ukrainian production.

Belbas explains that the number of 100 thousand shells in 2025, which he once announced to journalists of Militarnyi, is tied to the supply of gunpowder. To produce such a volume, it was necessary to contract the powder factories of partners at the beginning of the year in order to receive components in time and start work. Now it will be more difficult to do this, since more than 6 months have already passed.

"Ukraine must understand that this is not a fast market. And you can't buy shells today for tomorrow. Even if you have money," one of the top managers of the Czechoslovak Group explained to Defense.

As a result, the project, which claimed hundreds of thousands of NATO-caliber shells produced in Ukraine and loading factories for years to come, is currently limited to tens of thousands of ordered shells. And those are not Ukrainian, but imported.

"This year we do not expect the production of Ukrainian ammunition under this project," Arsen Zhumadilov, head of the Defense Procurement Agency, said in a comment to Defense.

Why contract imports instead of their own manufacturer?

A balance between suppliers is an adequate procurement strategy. This was sorely lacking last year, when all orders for 120mm mines were given to one state-owned factory, which failed miserably on all deadlines.

But in the case of NATO-caliber shells, there are already several suppliers. And the question arises: why does the state find money to contract imports, and send the domestic manufacturer to idle until next year?

It is difficult to accuse the head of AOZ Arsen Zhumadilov of bias towards Ukrainian companies, because many contracts for the same ammunition were concluded with various, including Ukrainian, state and private companies. In a conversation with Oboronka, he himself emphasizes that domestic factories, surprisingly, adhere to delivery schedules better than foreign ones, and are also more predictable and less risky.

The official acknowledges the problem, but believes it lies within the regulator's control. It turns out that the procurement system does not provide any tools for granting preferences to a domestic manufacturer, and in the worst case, it can even punish the civil servant who concludes the contract for it.

"At the level of rules, there is no regulation that allows us to give preference to our manufacturers in procurement. If our manufacturer offers something for 1,000 euros per unit, and then some importer comes and offers the same thing for 950 euros per unit, we will be forced to contract imports, even if the local manufacturer brings taxes to the budget," Zhumadilov noted.

He emphasizes that the key criterion for choosing a supplier by the AOZ remains the offered price. Even if the company offering the lowest price is a foreign intermediary firm with a dubious owner and history, it will most likely be refused an advance payment and offered post-payment terms. But the law does not provide grounds that would allow the AOZ to reject this offer altogether and instead choose a more reliable domestic manufacturer at a slightly higher price.

"If we contract a more expensive offer, law enforcement officers will come to us, calculate the difference, multiply by the number of products, and charge me with budget losses," Zhumadilov said.

It would seem that in the fourth year of a full-scale war and declarations of support for Ukrainian manufacturers, the government should prescribe clear procurement rules that would allow it to legally give preference to domestic companies, provided that the products are of proper quality.

In December of last year, an encouraging resolution No. 1504 "Weapons of Victory" appeared , the idea of which is to form a list of weapons models with a high percentage of localization in Ukraine. This list should be "taken into account" by state customers during arms procurement.

But in practice, over the past 6 months, not a single contract has been concluded under this resolution. According to Zhumadilov, as of now, "Weapons of Victory" does not give clear instructions to procurement authorities on how to give preference to the Ukrainian manufacturer. Whether it should be a price advantage or priority contracting of companies from the list is not clear, and accordingly, state buyers simply do not take risks and work according to the usual rules.

Ukrainian manufacturers do not always succeed in beating out an import competitor's offer during the bidding process by offering a lower price. This is because the AOZ does not hold any "auctions". The manufacturer has only one attempt to submit the most competitive offer. If the price is even 0.5% higher than the competitor's, there is a high risk of being left without a contract. The practice of one-step bidding is the principled position of the AOZ head, because under such conditions, suppliers supposedly have more incentives to immediately offer their lowest price.

It is also difficult for domestic manufacturers to compete with high-quality products, because the quality criterion is very rarely taken into account in procurement. Zhumadilov says that he can exclude a company with low-quality products from bidding only if there are many complaints about its products, and the military rarely leaves complaints about the supplied weapons for many reasons.

The Agency's regulations do not even provide for the possibility of legally diversifying risks. According to Zhumadilov, the AOZ must first fully contract the manufacturer's capabilities at the lowest price, even if it is for the entire needs of the Defense Forces, and only then proceed to contracting other offers if there is money left.

In other words, if you dig deep enough, the chronic diseases of the public health care procurement system go much further than the problem of giving priority to domestic producers.

The Ministry of Defense should be responsible for developing adequate procurement rules. But today, instead of strategically building a competitive market of state and private manufacturers, officials of the relevant Agency are automatically contracting for the cheapest possible price, fearing criminal prosecution.

"Our buyers decided too early that we live in conditions where the price is dictated by the buyer. The arms market is a seller's market! If you have your own production, then you fight. If you don't, stand in line and hope that you survive," one of the interlocutors in the government, who is involved in the arms market, summed up in a conversation with Defense.