Autor fotografie: redakce|Popisek: CSG's booth at Eurosatory
After Senator Wagenknecht (for the Pirates) published a report on overpriced ammunition supplied under the Czech Ammunition Initiative and Security Magazine published specific documents, CSG responded with a press release. In it, they claim that the ammunition initiative is facing media attacks. It is not. It is the CSG's execution of a specific contract that is facing doubts.
Senator Wagenknecht has repeatedly and unequivocally, like Security Magazine in its articles, expressed explicit support for the Czech ammunition initiative. The doubts, questions and suspicions, which are backed up by concrete documents despite the Czechoslovak Group's statements, are not "media attacks on the Czech Ammunition Initiative". Ukraine needs the maximum amount of usable ammunition, which it lacks in its defence against an unprovoked and brutal Russian invasion. Anyone who can contribute in any effective way deserves recognition and support. The problem lies in the word effective. If there is any doubt as to the economy and efficiency in the implementation of a particular contract, we would expect rather factual arguments. Instead, we have misleading assertions, which we want to address in this article.
In the specific contract in question, in which the figure of EUR 3 200 per 155 mm M107 shell has appeared in the public domain, the issue is the issue of the fair market value, as well as the reasonableness of the intermediary's margin, and, more broadly, the simple fact that an unjustifiably higher price for the grenades means a lower quantity of ammunition delivered to the Ukrainian artillery. The Czechoslovak Group's press release makes seven points that deserve comment and explanation:
The role of AMOS and the "final terms"
CSG: "1) ...the published document is obviously an indicative offer, and in no way the final conditions for the supply of ammunition."
These are two offers addressed by Excalibur Army of the CSG group to AMOS Director Vytečka on 20 February 2024, for a total of 290,000 M107 155 mm calibre shells with M4A2 or M119 powder charges, at a unit price of €3,200. An indicative offer? Let's look at what the Ministry of Defence recently said about the processes of the Czech ammunition initiative: "A key element of this transparency is that the Czech Republic has no decision-making powers in the process. It is only a mediator who presents the offer to the donor countries in a completely transparent manner. The donors decide at their own discretion what fits their vision and whether the quote is relevant."
So what is it? Does the Czech Republic merely submit bids, or did Mr. Vytečka, on behalf of AMOS, somehow negotiate with Czechoslovak Group on the submitted "indicative offer"? Did he somehow achieve a reduction in price and improved terms for the buyer (in this case the German Government), Excalibur Army modified its offers, and only then were the "final terms" submitted to Germany? This would, of course, mean that AMOS is playing a much more significant role in the whole affair than the MoD has claimed so far. Or it is not, and the Czech Republic has indeed only "submitted an offer to the donor countries", and thus the whole first point of the CSG press release is a contentless fog, seemingly to cast doubt on the content of the published documents.
The CSG ignores the fact of the documented standard price of €2,700 including all costs and margins
CSG: "2) The document contains the abbreviation EXW, which expresses that it is the so-called price at the manufacturer's warehouse, i.e. without loading, manipulation, transport, insurance, guarding and all other related costs associated with delivery to the final destination, which is not and has not been a warehouse in the Czech Republic; 3) This transport is done by trucks, by boat, then on rails with several transshipments, accompanied by very strong security measures and accompanied by a paid security service. The overall logistical management of any such transaction is extremely challenging; 4) Another item that is not provided by the contractor is packaging materials and containers, which also have to meet special requirements for the transport of ammunition and remain the property of the Armed Forces of Ukraine after the delivery of the ammunition; 5) There are other related costs, the details of which cannot be disclosed for obvious reasons, including the cost of replacing certain components of the ammunition with newly manufactured components."
The EXW clause and the explanation are mentioned by Senator Wagenknecht in his report, and Security Magazine explained the context as well. The problem is that the Czechoslovak Group deliberately ignores the basic caveat of a fair trade value or benchmark price, which covers all costs including delivery to Ukraine, and yet is significantly lower than the CSG price. The benchmark price is evidenced by six specific purchases of the same type of ammunition made directly by Ukraine during the period in question, without the intermediation of Excalibur Army. And these six purchases are covered by the DAP Ukraine + 600 km clause. In total, Ukraine has purchased 200,000 M107 grenades in this way from December 2023 to May 2024 at an average cost of approximately €2,700. The DAP clause stands for Delivered At Place. Thus, everything that the CSG lists in points 3, 4 and 5 is already included in these deliveries at a cost of €2,300–2,950. All the ships, trains, transshipments, security measures, containers, packaging, and any ammunition put into usable condition. All the way to Ukraine and another 600 km; and 900-250 euros cheaper than Excalibur Army offered to AMOS – with delivery no to Ukraine, but to southern Bohemia.
If we see the Turkish company's offer to the Ukrainian Ministry of Defence for 90,000 shells for $2,700 (about €2,500) with an EXW clause, and a similar one on the same terms for Excalibur Army, it only implies one thing: CSG's claimed cost and margin is €700, a nearly 20% price increase.
According to the document, which CSG describes as an "indicative offer", the final destination is clearly a warehouse in South Bohemia ("delivery parity: FCA Drhovice acc. to Incoterms 2020"). From there it is another 800 km to the Ukrainian border, and hundreds of km to the Ukrainian Army warehouses (i.e. DAP Ukraine + 600 km). Unless the final destination according to the "final terms" was southern Bohemia, the unit price was undoubtedly higher than the stated €3,200. And the further it moves away from the price customary at the time and place (average of about 2700 euros), the more CSG's claimed costs and margins increase. The Czech Ministry of Defence also speaks of standard prices ("The mechanisms of the initiative are robustly set up so that bids to donor countries are at standard, reasonable, comparable and demonstrable prices"). And also the German Ministry of Defence, which told Handesblatt that the €3,200 price is within the normal market range; but this is disputed by reference to the six comparable purchases made directly by Ukraine, which are in the range of €2,300–2,950 DAP Ukraine + 600km.
3200 euros minus 2700 dollars is not 500 euros
CSG: "6) In the light of the above mentioned points, the claim that the supplier's margin is EUR 500 is completely false and fabricated. Of course, a profit is made on the delivery, but it is substantially lower and entirely within the limits of what can be described as a reasonable profit."
It is worth noting the number magic tricks that the Czechoslovak Group, probably knowingly, perpetrates, relying on the inattention of the reader. When CSG argues for the various costs involved in the delivery, it relies on the EXW clause for 90,000 shells from the Turkish company Makine in Kimya Endüstrisi. But their price was $2,700, or about €2,500, and in this case Excalibur Army therefore increased the price not by €500 but by €700 – the €700 being the claimed costs and 'reasonable margin' listed in the press release.
When CSG objects to the accusation that its margin is EUR 500, it is implicitly referring to the standard price quoted by Senator Wagenknecht, which is EUR 2,700, which was identified as the fair trade value. However, this price includes all the costs and margins of the traders concerned, and these deliveries are made with a DAP Ukraine + 600 km clause. And this is a figure that CSG otherwise avoids like the devil in its entire response. Indeed, it clearly shows that the actual costs and margins during the period in question could have been around €200 per shell; not around €500, let alone €700.
CSG:"7) From the evidence above, it is also clear that the Czech company, a participant in the ammunition initiative, is certainly not a mere intermediary or reseller, but provides a highly complex service with considerable added value, using its long-established know-how in the field of trade in military material."
This statement is remarkable precisely in comparison with the other six purchases of the same type of shells. How is it possible that the 200,000 grenades of the same type in the December–May orders that Ukraine purchased directly did not require a 'highly complex service with significant added value', but the shells supplied through Excalibur Army did, according to the February offer, and that this added value amounted to EUR 700 compared to the purchase price of the shells under the EXW clause, and EUR 500 over and above the standard price under the DAP clause?
It is not the criticism that threatens the Munitions Initiative, but the lack of transparency and wastefulness
The CSG concludes its press release with a bold accusation of aiding the Russian aggressor by critics of the way in which the Czech Ammunition Initiative is approaching the implementation of the contract, and calls on the media to approach the information with the utmost caution. We assure the Czechoslovak Group that maximum caution is our plan. The company's reaction to the published documents shows a great deal of nervousness which has resulted in very dubious arguments. The price increase in this particular case is not €500, as CSG claims, but €700. In three lengthy paragraphs, it lists, quite unnecessarily, the items that the contractor must provide – ignoring the documented fact that Ukraine was able to obtain the same type of ammunition significantly cheaper when buying direct. It refers to an 'indicative offer', implying that AMOS was actively involved in negotiating the terms of the supply, thus calling into question the MoD's previous claims.
Ukraine needs the maximum amount of safe and usable ammunition. The wasteful and uncontrolled use of public funds, whether German, Danish, Dutch or Czech, jeopardises the fulfilment of these needs. The faire trade value or standard price has been documented by Senator Wagenknecht and has not been refuted in any way. If anyone is threatening the ammunition initiative, it is not the critical voices, questions and doubts, but the fact that the CSG/Excalibur Army have increased the unit price of shells by EUR 500–700, which could potentially have not only reputational consequences for the Czech Republic, which has allowed and advocates such an approach.