EU Initiative to Arm Ukraine: Beset by Allegations of Mismanagement and Corruption
It is encouraging to see European nations stepping up to arm Ukraine, but their flagship effort at a coordinated strategy is faltering badly. According to a report released Monday by the Czech Senate, the Czech Munitions Initiative—a key component of this strategy—is falling short of its goals.
The Czech Munitions Initiative was conceived to leverage the Czech Republic’s historical strengths in the arms industry, pooling allied resources to procure munitions for Ukraine. The initiative had two primary objectives: first, to purchase arms from jurisdictions that would not sell directly to Ukraine, and, second, to create a single buyer, avoiding twenty allied nations competing for the same limited supplies. Germany, Denmark, Norway, and several other nations supported the effort, contributing between €1.4 billion and €1.6 billion. However, France, Britain, and Italy refused to participate, a decision that now appears prudent in light of this week’s report.
Czech opposition leader Andrej Babiš was among the first to criticize the initiative, accusing arms companies of price gouging and the government of favoritism or corruption in awarding contracts. Babiš broke a political taboo by alleging that a contractor previously employing the initiative’s coordinator, Tomáš Pojar, was making exorbitant profits of €1,000 per shell. His criticism was met with personal attacks accusations he was a Russia sympathizer, overshadowing the substance of his claims.
A case in point is the procurement of 180,000 units of 155mm M107 artillery shells, funded by Germany. These shells were sold to Ukraine at €3,200 per unit, despite an alternative Turkish supplier offering them for €2,500 per unit. This transaction alone cost Ukraine over $110 million—money that could have purchased up to an additional 40,000 shells.
This overpricing is not an isolated incident. The Czech government has repeatedly bypassed competitive bidding processes, instead relying on a non-transparent system with a narrow selection of suppliers. This practice not only inflates costs but also stifles competition and innovation, depriving Ukraine’s military of potentially better and more cost-effective solutions.
During my military career I managed U.S. government Foreign Military Sales (FMS) cases, and later was on the professional staff of the Commission on Wartime Contracting in Iraq and Afghanistan. Drawing on that experience, I believe the Senator’s estimates in the report were overly conservative regarding factors like logistics and spare parts pricing. Any buyer purchasing 180,000 units should have significant leverage to demand a lower price. In my view, Ukraine was shortchanged by approximately 250,000 shells in total, including 75,000 in the Turkish example. Czech claims that Turkish supplier Makine ve Kimya Endüstrisi (MKE) provides subpar quality are unfounded. MKE is globally recognized for producing high-quality munitions and components.
But the failings of the Czech Munitions Initiative extend beyond overpriced contracts. The entire process is shrouded in secrecy, with critical decisions made without proper oversight or accountability. The Czech interdepartmental oversight commission, which should set the standard for transparency, has only met once since its inception. This glaring lack of scrutiny allows inefficiencies and potential corruption to thrive, undermining the initiative’s credibility and eroding trust among international partners. The Czech Republic’s refusal to adopt a transparent approach—like that adopted by the UK—raises serious concerns about the competence and intentions of those managing the initiative.
Moreover, the Czech government’s mismanagement has tangible, negative consequences for Ukraine’s war effort. The initial promise to deliver 800,000 artillery shells to Ukraine was later revised down to 500,000, a reduction directly attributable to inflated procurement costs. This shortfall has had severe consequences, costing lives and territory for Ukraine. The discrepancy between the promised and delivered munitions not only weakens Ukraine’s defensive capabilities but also damages the Czech Republic’s reputation as a reliable ally.
The Senate report suggests that this systemic failure may go beyond mere misjudgment, indicating a potential disregard for the effective use of public funds. The Czech government’s failure to conduct proper market research or open bidding processes is a clear violation of its duty to protect public resources from fraud and waste. This approach has placed an unnecessary financial burden on international partners and shortchanged Ukraine in its defense against Russian aggression.
The report criticizes Germany for failing to properly evaluate the deal presented by the Czechs. While it stops short of alleging corruption, the possibility is not entirely ruled out. Whether this is another Volkswagen scandal or a case of simple negligence remains to be seen. Germany has a history of foreign policy missteps that favor Russia, adding another layer of concern.
Furthermore, the Senator’s report misses a critical point. The original justification for the Munitions Initiative was to purchase from jurisdictions that do not sell to Ukraine directly. But Turkey has been selling to Ukraine both before and after the start of the war, making the bidding in such a jurisdiction counterproductive at best.
The implications of these findings are profound. Instead of being a model of international cooperation and support, the Czech Munitions Initiative stands as a cautionary tale of what happens when there is neither transparency nor accountability. The Czech government’s mismanagement has not only squandered valuable resources but also weakened the very cause it sought to bolster—Ukraine’s defense against Russian aggression.
To restore trust and effectiveness in its Munitions Initiative, the Czech government must undertake immediate reforms. These should include renegotiating existing contracts to reflect fair market prices, implementing rigorous oversight mechanisms, and opening the procurement process to competition. Without these changes, the Czech Republic risks further financial waste, potential corruption, and the erosion of its credibility as a committed partner in Ukraine’s defense. Instead, the ruling coalition has chosen to silence the Senator by blocking oversight hearings — an action that reeks of corruption and the abuse of political power.
James Durso (@james_durso) is a regular commentator on foreign policy and national security matters. Mr. Durso served in the U.S. Navy for 20 years and has worked in Kuwait, Saudi Arabia, and Iraq.
What follows is an English translation of the Czech report mentioned in para one.
Standing Commission of the Senate for Oversight of Public Funds
Reporter: Ing. Lukáš Wagenknecht
Commission Meeting: August 13, 2024
Report
Czech Ammunition initiative
Introduction
According to information available on the website of the Ministry of Defense of the Czech Republic, the Czech Republic, through the Ministry of Defense (hereinafter also referred to as “MoD”), the Intergovernmental Defense Cooperation Agency (hereinafter also referred to as “AMOS”), and other institutions and state representatives, assists Ukraine in securing weapons and ammunition.
One of the pillars of this assistance is the Czech Ammunition Initiative, aimed at securing primarily 155 mm M107 artillery ammunition, possibly 152 mm Soviet caliber, and other types of ammunition. As part of this initiative, a project for the delivery of ammunition financed by Germany was implemented. It includes the delivery of 180,000 rounds of ammunition, which is expected to be delivered to Ukraine by the end of this year. The delivery consists of 100,000 rounds of stockpiled ammunition and 80,000 rounds of new ammunition. According to the director of AMOS, the contract with Germany was signed very quickly, and the speed of the agreement corresponded to the urgency that Ukraine assigns to the delivery of artillery ammunition. The first deliveries of ammunition under the Czech Ammunition Initiative, in the order of tens of thousands of rounds, were delivered to Ukraine in June.
As part of the support for the delivery of weapons and ammunition from the Czech Republic, several alternative processes (or procedures) are used. The reporter will further focus on the processes under the so-called Czech Ammunition Initiative, under which the delivery of ammunition mentioned in the previous paragraph has been continuously realized and which have been used since 2024. The verification does not include different procurement procedures for arms deliveries that have been operating in parallel since 2022/2023.
According to information provided by the MoD on its website on June 27, 2024, “under the Czech Ammunition Initiative, the acquisition of approximately half a million rounds of artillery ammunition for Ukraine is now covered, to be delivered by the end of 2024. So far, 18 countries have joined the initiative. With each state, the Ministry of Defense signs a Memorandum of Understanding, the most recent of which was concluded with Iceland. A similar document is already in place with Lithuania, Denmark, the Netherlands, Canada, Portugal, Belgium, Latvia, Norway, Luxembourg, and Slovenia.”
On the proposal of the Minister of Defense, the government approved the Czech Republic’s involvement in the initiative with an amount of CZK 865,775,000. The allocated funds will be spent on the purchase of ammunition from a domestic supplier, namely the Czech company STV GROUP.
According to information presented by the MoD on April 22, 2024: “The ambition is to deliver 800,000 rounds by the end of 2024.”
The total publicly communicated amount currently provided/agreed upon by donors (foreign countries and the Czech Republic) is EUR 1.6 billion (approximately CZK 40.37 billion).
Summary of Key Findings
The facilitation of ammunition by the Czech Republic (AMOS and MoD) under the Czech Ammunition Initiative, without any form of competition, resulted in an unjustified increase in the price of the delivery of 100,000 rounds of ammunition by CZK 1.48 billion, representing a percentage increase of 22.4%.
For the second part of the new ammunition delivery of 80,000 rounds, there is a risk of possible overpricing in the amount of CZK 504.6 million.
Considering the financial volume of individual findings, the conclusion is evident that there is a systemic failure of the Czech Ammunition Initiative in terms of the economy and efficiency of ammunition deliveries to Ukraine.
For 20% of the funds spent through the Czech Ammunition Initiative, the price is significantly overvalued compared to the price in place and time customary. The overvaluation itself accounts for 3.66% of the total volume of the Czech Ammunition Initiative. The positive aspect is that the wastefully used funds are not financed by Czech taxpayers.
The control mechanisms in place are inadequate. The first fundamental element is that the Czech Republic has no decision-making authority in the process. It is merely an intermediary that transparently presents the offer to donor countries. The state that decides to help Ukraine then determines what corresponds to its vision and how the ammunition will be purchased. They can choose from several options.
In other words, the Federal Republic of Germany knowingly and deliberately finances the supply of Turkish ammunition to Ukraine based on offers intermediated by the Czech Republic, which is a control mechanism for verifying the effectiveness and economy of procurement under the Czech Ammunition Initiative. Such a control mechanism implies three possible conclusions in the case of an uneconomical purchase of ammunition.
The first conclusion is the incompetence of the authorities of the Federal Republic of Germany in assessing the price of ammunition deliveries to Ukraine. The second conclusion is reliance on the economy of the offers presented to the donor by the Czech Republic, specifically AMOS and the MoD. The third and, according to the reporter, least likely conclusion is the deliberate purchase of overpriced ammunition by the Federal Republic of Germany, or a company controlled by it, which would be illegal in both the Czech Republic and Germany.
Transparency assurance should be provided by an interministerial oversight commission according to information from the MoD. This commission has so far met once at its inaugural meeting. The next meeting is scheduled for September. It is not expected that the subject of this commission or working group will be verifying the economy of individual ammunition initiative deliveries.
The Ammunition Initiative is crucial and essential for military success in Ukraine, primarily because artillery fire prevents the need for close combat and can thus reduce casualties in Ukraine.
Due to the uneconomical procurement process, the possible volume of ammunition that the Ukrainian army could use in combat has been reduced by at least 22,371 rounds.
Benefits and Potential Risks of the Czech Ammunition Initiative
The reporter appreciates the long-term effort and contribution of the Czech administration in raising awareness of the need and importance of assisting Ukraine. The Czech government has also done significant work in securing partners and financial resources not only from the Czech budget but also from the budgets of international allies.
One of the essential benefits of the Czech Ammunition Initiative should be reducing competition among donor states, which, when purchasing ammunition independently without mutual coordination, creates competitive pressure to increase the price of foreign deliveries.
The Ammunition Initiative is crucial and essential for military success in Ukraine, primarily because artillery fire prevents the need for close combat and can thus reduce casualties in Ukraine.
Public trust, however, is conditioned on sufficient assurance of the transparency of the processes associated with the ammunition deliveries funded by foreign partners and the Czech budget.
It is also crucial to provide adequate assurance of the efficient and economic use of public funds by all donors.
The risk of potential inefficient use of public funds by foreign donors and the Czech state budget was assessed by the reporter as significant.
Reasons and Specific Goals for a Detailed Verification of the Procurement Process within the Czech Ammunition Initiative
The reason for the verification was information from a Czech administration employee who informed the reporter of a procedure where a possible offer of ammunition for Ukraine was rejected by AMOS representatives, and the employee was referred to one of the suppliers of the Czech Ammunition Initiative. Given the sensitivity of the information and past experiences with the procedure of Czech authorities in protecting whistleblowers, the reporter will not disclose the name of the whistleblower.
Another reason for verifying potential inefficiencies was inquiries from international media, which are continually addressing the Czech Ammunition Initiative.
During the verification process, the reporter repeatedly encountered a question/argument from Czech administration representatives regarding the reason for investigating the procurement processes of ammunition for Ukraine. This is financed by foreign donors (in the case of the purchase of 180,000 rounds of ammunition by Germany), and therefore does not involve Czech public funds.
This question is irrelevant because, if the processes of the Czech Ammunition Initiative lead to inefficient and uneconomic handling of public funds by foreign donors, it still constitutes a breach of the principle of proper financial management, where it is unreasonable to pay Czech officials to carry out processes as part of their job responsibilities that lead to potential significant financial losses for foreign partners and ultimately for Ukraine. The reporter is unaware of any legal authorization that would impose inefficient and uneconomical mediation of purchases on employees of the Czech state.
Moreover, similar procurement processes under the Czech Ammunition Initiative are applied in the case of funds provided from the Czech state budget.
The reporter has set the main goals, based on preliminary consultations, available documentation, and publicly available sources:
Goal 1: Verification of the economy and efficiency of the partial procurement under the Czech Ammunition Initiative of 180,000 rounds of 155 M107 ammunition financed by Germany.
Goal 2: Assessment of the transparency, economy, and efficiency of the supplier selection process and its impact on the procurement system through the Czech Ammunition Initiative.
Course of Verification of Information by the Reporter
Given the lack of clarity and adequacy of publicly available information regarding the Czech Ammunition Initiative, the reporter conducted several structured interviews with representatives of:
- AMOS
- MoD
- Experts with specific experience in ammunition deliveries
- Parliamentary Committee for National Security, Defense, and Intelligence of the Ukrainian People’s Republic (due to the current situation in Ukraine, the meeting was held online)
- International media
- Other entities
The reporter would like to express gratitude and appreciation for the cooperation and proactive approach of all the above during the information verification process.
Description of the Verified Process
Implementation within the Czech Ammunition Initiative
The Czech Ammunition Initiative is set up in such a way that an unspecified number of suppliers (a small number of suppliers), selected without a tender, submit their ammunition delivery offers to donors anonymously through AMOS. The donors then decide, based on the information presented regarding the type of ammunition, quantity, and price, which offer to select. They are then informed of the delivery details and independently conclude contracts with the supplier. The criteria for selecting suppliers include their experience with previous deliveries.
The selection of suppliers and other unspecified information regarding the Czech Ammunition Initiative are classified as confidential. Furthermore, the procedure for public procurement under Act No. 134/2016 Coll., on Public Procurement, is not utilized, or an unspecified exemption is applied.
However, most of the key information about:
- the quantitative volume of deliveries (800,000 rounds or 500,000 rounds of ammunition),
- the total amount of funds considered for the purchase of ammunition (EUR 1.6 billion),
- the anticipated time of delivery of the ammunition by the end of this year,
is continuously presented by the MoD, government representatives, the President of the Republic, and other entities.
According to information from AMOS and the MoD, the economy of the delivery itself is entirely within the competence of the donor, who can verify the delivery price themselves. This was also the case with the ammunition delivery by the donor (Germany). The donor has sufficient experience and information regarding the price, ensuring efficiency and economy. If the donor was aware of any inefficiency in the offer, they would not have supported it. Therefore, AMOS and the MoD do not verify the price, nor do they have the tools to do so.
Involvement of Other Potential Suppliers in the Czech Ammunition Initiative
Most Czech and foreign suppliers do not have the opportunity to participate directly in submitting their ammunition delivery offers as part of the Czech Ammunition Initiative. If they wish to submit an offer to AMOS, AMOS reviews potential suppliers and directs them to one of the few selected suppliers involved in the Czech Ammunition Initiative. The offer is also forwarded to the Ukrainian side for verification. In practice, such a procedure has not yet been applied. Information about the possibility of submitting offers through this channel is not publicly available.
The exclusion of primarily small and medium-sized enterprises contradicts the principles of industrial policy at the EU level, which typically focuses on promoting competition and innovation by including a diverse range of suppliers. By sidelining small and medium-sized enterprises in the supplier selection process, their potential contributions are undermined, and innovation and competitiveness within the defense sector are stifled.
Small and medium-sized enterprises often offer unique solutions and efficiencies that larger companies might overlook, and their exclusion from the process can lead to a loss of valuable expertise and innovation. Furthermore, promoting a competitive environment generally lowers costs and increases quality through market dynamics.
Similar initiatives abroad
The Czech Republic is not the only country that has initiated activities in ammunition supply to support Ukraine. For example, the United Kingdom and Estonia have undertaken similar initiatives.
The United Kingdom’s International Fund for Ukraine is a financing mechanism that uses financial contributions from international partners to quickly procure priority military equipment for Ukraine. The fund is managed by the UK Ministry of Defense on behalf of an executive panel composed of the United Kingdom, Norway, the Netherlands, Denmark, Sweden, and Lithuania. These partners, along with Iceland, Australia, and New Zealand, have so far contributed over GBP 925 million to the fund.
The approach of the British administration differs from that of the Czech Republic in terms of public information and the supplier selection process for arms deliveries to Ukraine. Information for the public and potential suppliers is publicly available on the website of the UK Ministry of Defense. After the completion of each procurement process, information on the volume of supplies awarded is subsequently published.
Detailed information about the fund and the procurement process can be found on the UK Ministry of Defense’s website.
The fund uses rapid procurement processes to provide critical capabilities that align with Ukraine’s priority military equipment requirements.
So far, the initiative has announced eight packages to provide Ukraine with critical capabilities. These packages include:
- Artillery ammunition
- Drones
- Small boats
- Intelligence, surveillance, and reconnaissance systems
- Electronic warfare systems
- Unmanned underwater vehicles
- Air defense systems
- Demining equipment
- Spare parts for combat vehicles
The process works by issuing a specific support package with an anticipated amount of funds to be spent. The Ministry then accepts bids from specific suppliers based on the published information about the package. Subsequently, a panel of experts, in cooperation with Ukrainian representatives, selects the specific suppliers who will participate in fulfilling the package.
For the first package, offers were received from both British and international industry suppliers, with more than 40 countries submitting over 1,500 bids.
On July 11, 2024, a significant ammunition package worth GBP 300 million was announced. This package will provide up to 120,000 rounds of 152mm artillery ammunition. The ammunition will be newly manufactured by a European supplier, which will support new industrial capacities to ensure Ukraine receives highly prioritized ammunition.
Differences in Procurement Processes between the UK and the Czech Republic
Procurement processes under the Czech Ammunition Initiative are not transparent. Most potential licensed ammunition traders are unaware of the conditions and criteria for qualification or supplier selection.
| International Fund for Ukraine | Czech Ammunition Initiative | |
| Official website with information about the initiative and information for suppliers | YES | NO |
| Online registration of potential suppliers | YES | NO |
| Publication of conditions for suppliers | YES | NO |
| Announcement of specific calls (packages) | YES | NO |
| Information on completed deliveries after they are concluded | YES | PARTIALLY (general information is communicated for some deliveries through political statements) |
Identifed Findings in the Economy and Efficiency of the Partial Purchase under the Czech ammunition Initiative for 155 M107 Ammunition Financed by Germany
Based on the obtained documents, whose relevance the reporter verified with Ukrainian authorities, the following was found.
Unjustified Price Increase for Ammunition Deliveries
The M107 155 mm ammunition delivered through the Czech Republic (AMOS and the MoD) under the Czech Ammunition Initiative is significantly overpriced compared to the price that is customary in the place and time. The markup financed by the donor (Germany) is EUR 585 per round higher than if the purchase had been made by the Ukrainian Ministry of Defense (considering necessary costs). In practice, this amounts to CZK 1.48 billion for the delivery of 100,000 rounds of stockpiled ammunition.
For the second part of the new ammunition deliveries, there is a significant risk of unjustified price increase amounting to CZK 504.6 million, with Ukraine purchasing new ammunition from the same supplier country at EUR 250 per round less.
According to information confirmed by AMOS and the Ukrainian Ministry of Defense (through a representative of the Parliamentary Committee for National Security, Defense, and Intelligence of the Ukrainian People’s Republic), the current deliveries under the Czech Ammunition Initiative amount to EUR 3,200 per round of ammunition for a total of 180,000 rounds. These deliveries consist of 100,000 rounds of stockpiled ammunition and 80,000 rounds of new ammunition. These deliveries are purchased through one of the trading companies involved in the Czech Ammunition Initiative from suppliers in Turkey. The funds for this ammunition purchase are financed by a donor, which is Germany.
These assurances confirm the accuracy of the information in the documentation, which was the impetus for verification:
- The offer from the Turkish manufacturer MKE to the supplier of the Czech Ammunition Initiative for the sale of 155 mm M107 ammunition at USD 2,700 (equivalent to EUR 2,500) per round.
- Offers from the supplier of the Czech Ammunition Initiative for ammunition sent to AMOS with an offered price of EUR 3,200 per round.
Subsequently, the reporter obtained an offer to purchase the same M107 155 mm ammunition that was also received by the Ukrainian Ministry of Defense from the same Turkish supplier, MKE, at the same time for a price of USD 2,700 (equivalent to EUR 2,500) per round. The authenticity of the offer was confirmed by representatives of the Parliamentary Committee for National Security, Defense, and Intelligence of the Ukrainian People’s Republic, after prior assurance from the Ukrainian Ministry of Defense.
According to publicly available information from the media confirmed by AMOS representatives, the price increase for the aforementioned stockpiled ammunition deliveries to Ukraine includes EUR 700 (difference between EUR 3,200 and EUR 2,500) to cover the costs of:
- Insurance
- Transport, including shipping, trucking, and rail transport
- Involvement of a local partner in the country of ammunition procurement
- Financial reserve for potential claims
- Repair/refitting of ammunition
Further details about the local partner are not available to AMOS, as it is a trade secret of the Czech supplier of Turkish ammunition involved in the Czech Ammunition Initiative.
The offers from the Czech supplier of Turkish ammunition to AMOS, which the reporter has, do not include the costs of transport from the Czech Republic to Ukraine (only from Turkey to the Czech Republic). It is, therefore, unclear whether these costs are included in the overall price of EUR 3,200 per round of ammunition. If not included, the price per round of delivered ammunition would be further increased beyond the EUR 3,200 price. The MoD representatives assured that these costs were not covered by the Czech budget.
Information on 155mm Ammunition from Ukrainian Authorities
The MoD declared to the Ukrainian side the delivery of 800,000 rounds of ammunition under the Czech Ammunition Initiative. Later, this number was changed to 500,000 rounds of ammunition. This adjustment in the monthly plan from 80,000 rounds of ammunition per month to 50,000 per month has a highly adverse impact on Ukrainian military planning. The significant reduction in volume is likely due to the excessively high price at which the Czech Ammunition Initiative is acquiring the ammunition. It is important to note that the majority of deliveries under the Czech Ammunition Initiative are expected to consist of 155mm M107 shells. There are also other types of 155mm ammunition that are sold at much higher prices.
Reference Maximum Prices for 155mm Ammunition During the Verified Period
| Ammunition type 155mm | Price (EUR) |
| M107 | 2.700 |
| HE ERFB BT 3 BMCS 6 | 4.200 |
| Ofd MKM SD (HE ER BT) | 5.900 |
In the first quarter of 2024, the indicative prices set by the Ukrainian Ministry of Defense established a price cap for purchasing 155mm M107 shells at EUR 2,700 per round. In the first half of 2024, Ukraine signed contracts at the following prices:
Purchases by the Ministry of Defense of Ukraine
| Date | Supplier country | Price (EUR) | Delivery Terms |
| 03.2024 | Czech Republic | 2.300 | DAP Ukraine +600km |
| 03.2024 | Czech Republic | 2.300 | DAP Ukraine +600km |
| 12.2023 | Poland | 2.650 | DAP Ukraine +600km |
| 02.2024 | Poland | 2.750 | DAP Ukraine +600km |
| 05.2024 | Poland | 2.750 | DAP Ukraine +600km |
| 01.2024 | Turkey | 2.950 | DAP Ukraine +600km |
| 02.2024 | Turkey | 2.500 | EXW |
(Note: DAP – Delivered At Place, EXW – Ex Works, the delivery at EUR 2,950 is new ammunition)
The Czech supplier (see the table above) is the same supplier delivering Turkish ammunition under the Czech Ammunition Initiative at a price of EUR 3,200 (delivered to the Czech Republic). This is a price increase of EUR 900 per round of 155mm M107 ammunition and likely more, as transportation within Ukraine and its interior is more demanding. None of the stockpiled ammunition deliveries exceed the price that the reporter, based on verification, has determined as the maximum market price.
The delivery at EUR 2,950 is for new ammunition, which is EUR 250 per round less than the delivery under the Czech Ammunition Initiative.
The unjustified price increase for stockpiled ammunition deliveries has a significant impact on the reduction of the ammunition volume. To illustrate, the impacts are quantified below.
| Price per Round in EUR | Quantity for 800,000 Rounds | Quantity for 500,000 Rounds | Quantity for 100,000 Rounds |
| 2300 | 1113043 | 695652 | 139130 |
| 2615 | 978967 | 611855 | 122371 |
| 2650 | 966038 | 603774 | 120755 |
| 2750 | 930909 | 581818 | 116364 |
| 3200 | 800000 | 500000 | 100000 |
| Price per Round in EUR | Difference in Quantity Compared to EUR 3,200 for 800,000 Rounds | Difference in Quantity Compared to EUR 3,200 for 500,000 Rounds | Difference in Quantity Compared to EUR 3,200 for 100,000 Rounds |
| 2300 | 313043 | 195652 | 39130 |
| 2615 | 178967 | 111855 | 22371 |
| 2650 | 166038 | 103774 | 20755 |
| 2750 | 130909 | 81818 | 16364 |
| 3200 | 0 | 0 | 0 |
In other words, if AMOS had facilitated the delivery of the same stockpiled ammunition under the Czech Ammunition Initiative at the prices at which the same Czech supplier delivered directly to Ukraine at the same time, the Ukrainian armed forces would have received 39,130 more rounds of ammunition under the Czech Ammunition Initiative. If delivered at the price Ukraine obtained from the Turkish supplier, the Ukrainian army would have received 22,371 more rounds of ammunition.
Given the market price at the time, the promise to deliver ammunition under the Czech Ammunition Initiative based on publicly declared information from Czech authorities, including information on the MoD’s website, to deliver 800,000 rounds to Ukraine, is inexplicable and unreasonable. Assuming a funding volume from donors of CZK 1.6 billion, this would result in a rough calculation of the unit cost per round at EUR 2,000, which was and remains an unrealistic price.
Czech authorities, under the Ammunition Initiative, declared an unrealistic number of rounds and then delivered less than they could have. This impact was caused not only by an unrealistic calculation of market ammunition prices but also by deliveries that are overpriced compared to market prices.
The above indicates insufficient and proper market research when promising 800,000 rounds of ammunition and demonstrates the purchase of overpriced ammunition at EUR 3,200.
Cause of Findings
In the case of the 180,000 rounds of M107 155 mm ammunition and other types of ammunition, according to publicly available sources and information from representatives of the arms industry and AMOS, there was no open call for bids or a tender process. The process is not transparent, and there is no competition for ammunition deliveries. The offer from a few vaguely selected companies is simply accepted and presented to the donor by AMOS.
Involvement of other potential suppliers interested in submitting bids is practically unfeasible. It is unlikely that forwarding an offer from a supplier not allowed to participate in the Czech Ammunition Initiative to another trading company permitted to participate would result in an economical purchase. Evidence of this is that no ammunition delivery has occurred through such a process in practice, according to AMOS.
Ammunition purchases under the Czech Ammunition Initiative have been conducted only indirectly. In the case of foreign ammunition purchases, these were effectively offers of reselling and delivering ammunition from abroad, with AMOS and the MoD acting as intermediaries. In some other countries, purchases are conducted directly by the Ministry of Defense or a state-controlled trading company.
It is unclear why deliveries are not conducted through direct purchase by AMOS, the MoD, or a state-controlled trading company or enterprise, which has a license to purchase ammunition and could, therefore, execute deliveries without an unjustified markup.
Even when awarding contracts directly without a transparent public tender in a classified mode, Czech authorities are obligated to protect public funds against risks, irregularities, or other shortcomings caused by uneconomical, ineffective, and inefficient use of public resources. They are also obligated to ensure the economical, effective, and efficient performance of public administration. The correctness of any financial and property operation is its compliance with legal regulations and achieving an optimal relationship between its economy, effectiveness, and efficiency. Economy refers to the use of public funds to ensure the set tasks with the lowest possible expenditure of these funds while maintaining the appropriate quality of the tasks performed. Efficiency refers to the use of public funds that achieve the highest possible scope, quality, and benefits of the tasks performed compared to the amount of funds spent on their execution.
The selected supplier selection process under the Czech Ammunition Initiative, at least in the verified case, failed to prevent the potential inefficient and uneconomical use of public funds.
The control mechanisms in place are inadequate. The first fundamental issue is that the Czech Republic has no decision-making authority in the process. It is merely an intermediary that transparently presents the offer to donor countries. The state that decides to help Ukraine then determines what corresponds to its vision and how the ammunition will be purchased. They can choose from several options.
In other words, the Federal Republic of Germany knowingly and deliberately finances the supply of Turkish ammunition to Ukraine based on offers intermediated by the Czech Republic, which is a control mechanism for verifying the effectiveness and economy of procurement under the Czech Ammunition Initiative. Such a control mechanism implies three possible conclusions in the case of an uneconomical purchase of ammunition.
The first conclusion is the incompetence of the authorities of the Federal Republic of Germany in assessing the price of ammunition deliveries to Ukraine. The second conclusion is reliance on the economy of the offers presented to the donor by the Czech Republic, specifically AMOS and the MoD. The third and least likely conclusion, according to the reporter, is the deliberate purchase of overpriced ammunition by the Federal Republic of Germany or a company controlled by it, which would be illegal in both the Czech Republic and Germany.
Transparency assurance should be provided by an interministerial oversight commission according to information from the MoD. This commission has so far met only once at its inaugural meeting. The next meeting is scheduled for September. It is not expected that the focus of this commission, or the working group, will include verifying the economy of individual ammunition deliveries under the initiative.
Impact of Findings
The impact of the Czech Republic’s (AMOS and the MoD) facilitation of ammunition under the Czech Ammunition Initiative, without any form of competition, is an unjustified price increase. In this specific case, the price increase amounts to CZK 1.48 billion, representing a minimum percentage increase of 22.4%. The positive aspect is that the wastefully utilized funds are not covered by Czech taxpayers’ money.
Due to the uneconomical procurement process, the potential volume of ammunition that the Ukrainian army could utilize in the fight against Russia is reduced by at least 22,371 rounds.
One of the critical impacts in the context of the findings of the Czech Ammunition Initiative’s process verification is the significance of the findings outlined in this report. While formulating the partial conclusions, the reporter assumed that the findings were only partial and could not independently demonstrate systemic failure.
However, when considering the financial volume of individual findings, the conclusion is clear that there is systemic failure in the Czech Ammunition Initiative regarding the economy and efficiency of ammunition deliveries to Ukraine.
According to common practice and international auditing standards (INTOSAI), the maximum allowable error rate in handling public funds, not only in the Czech Republic but also abroad (e.g., in Germany), is 2%.
The materiality of the delivery of 100,000 rounds of Turkish stockpiled ammunition is significant in the context of the financial volume of the entire ammunition initiative.
Considering the total financial volume of EUR 1.6 billion, approximately CZK 40.368 billion, the delivery of Turkish stockpiled ammunition worth CZK 8.073 billion constitutes 20%. Therefore, for 20% of the funds spent through the Czech Ammunition Initiative, the price is significantly overvalued compared to the price that is customary in place and time. The overpricing itself accounts for 3.66% of the total volume of the Czech Ammunition Initiative.
The impact of such significant overpricing of ammunition could affect or increase the price of ammunition on the current market.
Conclusion and Reporter’s Recommendations
Based on the critical findings, the reporter recommends adopting a resolution that considers the need to establish a transparent, effective, and economical management of public funds within the Czech Ammunition Initiative.
Furthermore, the reporter recommends an immediate renegotiation of the unfavorable pricing terms through the MoD or the AMOS agency to ensure that deliveries are made at market prices, or that the agreed price includes an appropriate quantity of ammunition adjusted for the value of the current price overvaluation.
Additionally, the reporter recommends verifying other purchases made within the ammunition initiative to confirm or refute that ammunition purchases at prices higher than market prices are not a systemic approach but rather a partial failure in a single specific delivery.
The reporter also emphasizes the importance of setting up appropriate preventive mechanisms to prevent the submission of overpriced ammunition deliveries under the Czech Ammunition Initiative.
In Prague, August 12, 2024
Ing. Lukáš Wagenknecht
Credit Graphic: ID 179434055 | Czech Republic © Michele Ursi | Dreamstime.com