ROME and MILAN — Plans by the European Union to instruct suppliers of ammunition raw materials to give priority to orders from EU munition makers are ringing alarm bells among member states and firms which fear trade secrets could be revealed and rivals compelled to bail each other out.
The plans are part of a bold EU move announced last month to beef up the output of munitions in Europe – particularly 155-millimeter artillery shells – to supply Ukraine’s defense against Russia’s invasion.
One billion euros has been earmarked to compensate bloc members for the shells they donate from their stocks, another billion is to fund the joint purchase of more munitions from EU states and Norway. In a third initiative, the EU will fund member states’ investments in factories and accelerate permits for new facilities to speed up production.
The scheme has been hailed as taking the EU into new territory as an arms buyer and catalyst for rapid growth in the defense industry.
The third initiative also goes further, putting the EU in the role of an industry arbiter and go-between which will be able to ask firms selling raw materials – like explosives – to prioritize sales to ammunition companies which lack those materials.
“The Commission’s proposal provides for priority rated orders to help manufacturers – for example – with the supply of necessary raw materials where the Commission could ask suppliers to prioritize selling to those manufacturers,” a European Commission spokesperson told Defense News.
The “Temporary emergency measure” is now winding its way through the EU’s approval approval process, the spokesperson added.
The plan has however already raised fears the EU is getting too proactive in managing the continent’s ammunition business, the spokesperson acknowledged.
Member states had expressed concerns, she said, that the plan “could require the notification and possible violation of commercial secrets or sensitive information and hand too much power to the EU.”
A manager at Norwegian ammunition firm Nammo foresaw the possibility of defense firms with excess materials being asked to sell to rivals with shortages.
“We still await the legislation but I expect it will have an impact on strategy and competition if they force companies to sell raw materials to other companies. There will be pushback from dominant companies,” said Vegard Sande, the vice president of Large Caliber Systems at Nammo.
Sande suggested that if the EU asked firms to share stocks with competitors, it might not find the firms totally forthcoming about what they have in their warehouses.
“If a defense company doesn’t want to sell to a rival it could be difficult for the EU to find out if they have that capability,” he said.
The Commission spokesperson said companies and states had little to worry about.
“The Commission has long-standing experience in handling such information in the context of other procedures and has the necessary safeguards in place,” she said.
Sande said there were also questions to be answered about the so-called Track 2 of the EU’s ammunition plan: the €1 billion joint purchase of ammunition.
In an FAQ document released about the purchase plan, the Commission claims the actual acquisitions could be managed by the EU European Defense Agency or by individual member countries.
“Practically, joint procurement can be done through the European Defence Agency, (which) will be acting as the contracting authority, management body, and ordering entity. Alternatively, member states will be able to join national procurement schemes at the invitation of ‘lead nations,’”the FAQ states.
“I am a little bit confused about this,” said Sande, adding, “We see Germany making its own plans to buy one million rounds of ammunition. Is there is a risk Germany will be competing with the EDA to purchase ammunition?”
Speaking last month at the European Defence & Security Summit, Saab CEO Micael Johansson, said the Commission needed to decide whether the joint purchase should be handled by nations or the EDA.
“There needs to be much greater direction and guidance in the long term from the Commission,” he said.
The EU has said products purchased must come from the EU and Norway, although products partly assembled elsewhere are permitted if they have “undergone an important” part of their manufacture in the EU or Norway, including final assembly.
“There are rumors some firms would order complete shells from India, make the fuzes outside the EU too and then assemble them in Europe,” said Nammo’s Sande.
One problem facing Europe is a shortfall in explosives, he said, adding that a joint purchase might not be able to drum up more than half a million shells.
“We would need explosives from outside the EU and the U.S. to make it up to a million shells and I don’t see strong support for that,” he said.
A source at France’s Nexter, however, claimed the firm’s supply chain was 90 percent in France and ten percent within the EU, including its controlled firm Simmel in Italy.
In an interview with Germany’s RedaktionsNetzwerk Deutschland on June 10, Rheinmetall CEO Armin Papperger said his firm was able to produce 450,000 155mm munitions a year, almost half the million shells Ukraine will need this year.
He said that if Rheinmetall can complete its planned purchase of Spain’s Expal this summer, it will boost its annual capacity to 600,000 shells.
Saab’s Johansson said last month his company could produce 400,000 shells a year by early 2025, so the EU’s aim to produce one million was “realistic.”
“We at Saab, as a company, were fortunate to have started investing twice as much when it comes to ammunition production and supply weapons long before the war. But it needs to be much much more, so we are again increasing this two-fold as we speak,” he said.
He added, “Countries’ defense forces have been used for a long time to have little money and lots of time. Today, it’s a whole different mindset and process. They find themselves having lots of money, from all the recent investments and demand announced, but with little to no time. It takes time for these changes to happen, and it will take some time as well for acquisition processes to evolve, but they have to.”
Tom Kington is the Italy correspondent for Defense News.
Elisabeth Gosselin-Malo is a Europe correspondent for Defense News. She covers a wide range of topics related to military procurement and international security, and specializes in reporting on the aviation sector. She is based in Milan, Italy.