Production of Tanks Returns to Bumar. Marcin Idzik: Selection of Partner for Ammunition Production in Its Final Stages [INTERVIEW]

Jędrzej Graf, Defence24.pl: Let’s start with ammunition. PGZ submitted its funding application on 31st March of this year, but as late as last year the leadership of MAP [Ministry of State Assets] and the Ministry of Defence were announcing that the document would be delivered in Q4 of next year. PGZ seems to be delaying, while other European firms are accelerating capacity builds and making acquisitions. What is the cause of the delay, and what are the next steps?

Marcin Idzik, PGZ Board Member: First, it should be noted that PGZ is already producing 155 mm ammunition, despite occasional claims to the contrary. Under the contract signed in December 2023 we are producing and delivering a total of 283,000 rounds of ammunition. We are also increasing our capacity under licenses with Slovak and French partners. That contract covers ammunition for the Krab self-propelled howitzer. Meanwhile, the Polish Armed Forces have introduced the K9 howitzer and its ammunition must be appropriately adapted.

The Ministry of Defence says that the K9 has the capability to use Polish ammunition.

The capabilities of the Armed Forces and the potential of our industry should be complementary.

But the most important thing is something else. We are striving to acquire the ability to carry out the entire production process for 155 mm ammunition. We’re not only talking about primers, detonators, fuzes, self consuming cartridge cases, but above all about the production of multi base propellants. Today we lack the capacity to produce these in Poland. Thanks to submitted applications and international cooperation, however, we will endeavour to gain these capabilities. Poland wants to become the second country in Europe able to independently build a complete 155 mm round—including the projectile and propelling charge.

You mentioned cooperation with the Slovak and French industries, yet PGZ is still publicly searching for a strategic partner. Seven or eight months ago at MSPO it was said a partner would be chosen, but despite earlier cooperation with France and Slovakia, no decision has been made. When will it be taken? Don’t you feel PGZ has been dragging its feet, while all of Europe is ramping up its ammunition production?

PGZ has been in a real hurry—if we hadn’t been, we would have picked a partner who handed us everything on a plate. Instead, PGZ has had to carefully tailor its offer to leverage the capacity we already have within the PGZ group. That capacity has been built up since 2011, when the Ministry of State Treasury first co funded Bumar. Minister Mikołaj Budzanowski provided Bumar with its initial funding, and today that investment shows in Projects 400 and 447 for 155 mm ammunition.

If you look at the map, we have, in specific locations, nitroglycerine production, elaboration, TNT production, case body manufacturing, filling lines. Our aim was to use the capacity we already possess, and avoid a situation where an external company builds a new factory and our existing facilities are sidelined.

We seek to choose a bidder whose proposal complements our strengths and supports us where we are weaker, rather than duplicating what we already do well. That’s why the study and negotiation phase has taken so long: to develop a model that optimally uses PGZ’s existing potential. I should add that we’ve broadened the pool of potential partners, since signals emerged that some companies were being overlooked. Previously no one paid attention to BAE Systems—yet it has significant ammunition expertise—and we’ve also recently held talks with Nammo. It’s worth exploring these options, even if it takes a little longer. I can assure you, though, that the partner selection negotiations are in their final stages.

Are we talking about a single partner, or could there be more?

Theoretically there’s no limit on the number of partners, because the complexity of this process makes it impossible to cover the full production cycle with just one. However, given the capacity we already have, working with one partner would make it easier to integrate into a global supply chain. For example, if we launch nitrocellulose production, demand may exceed what the domestic market needs.

It would be advantageous today to bind ourselves in a cooperative chain with an external firm that lets us utilise our own production capacity. We also need a competitive product and an unrestricted export licence. I assume we will produce ammunition primarily for the domestic market for the next eight to ten years, but eventually the cycle will slow, depots will fill up, and we won’t be able to use all that capacity. Therefore, we must look ahead and secure export opportunities.

Our Armed Forces are keen on the Heavy IFV and New APC programmes, because this equipment will replenish donations sent to Ukraine. At first, PGZ’s president Trofiniak and earlier PGZ management said a foreign partner was essential; ten months later, it turned out PGZ could develop it alone.

Regarding production capabilities for such vehicles, I have no concerns—PGZ has strong manufacturing capacity. The question was how to acquire the know how: either carry out R&D based on the Armed Forces’ requirements and build a bespoke vehicle, or purchase a licence and adapt an existing model.

So what happened in the Heavy IFV programme over the past year? PGZ produced no recommendations, even though the military urgently needs equipment. The previous management spoke of a demonstrator in 2023.

Over the past year we’ve held technical dialogue with all bidders. We intend to prepare recommendations for the MoD—taking into account the competencies we hold within PGZ, our production capabilities, and the choice of a specific platform. The final decision on approach and partner selection, however, rests with the Ministry of Defence.

We recognise that choosing between building a vehicle from scratch to meet all military requirements or buying an off the shelf solution and adapting it is a political decision. We have experience with both, as seen with Rosomak and Borsuk. We aim to make that decision together with the MoD before MSPO, so the next steps are clear. I’ll add that while know how for vehicle design is key, on the manufacturing side every PGZ subsidiary involved has the necessary skills and experience. It’s also vital to locate production smartly to diversify risk.

Speaking of the armoured domain, recent protests at Bumar Łabędy have unionists questioning the plant’s future and upcoming orders.

I’ll begin by noting that the Bumar Łabędy investment started mid last year. The Ministry of State Assets contributed, via PGZ, real estate that enables us to execute the investment agreement. First, we contributed land and buildings where new or modernised production halls will be established.

Originally, the funding plan was to build infrastructure supporting Krab howitzer production at Huta Stalowa Wola. Today, though, HSW is handling Krab production itself to meet MoD demand. The plant has hundreds of subcontractors and can produce the required number of Krab howitzers.

We modified our application, deciding to create the ability at Łabędy to build a universal tracked platform [UMPG]. This would allow manufacture, assembly, or maintenance not only of the Krab but other vehicles as well.

The funding needs to have a goal of some sort though. What project does PGZ plan for Bumar Łabędy?

I can’t disclose all details—trade secrets apply—but we’re discussing placing a very important and sensitive PGZ product at Bumar Łabędy. Our intention is to restore Łabędy as a manufacturing company. I emphasise that Bumar Łabędy has huge production potential.

We want tanks to be built in Łabędy again. We’re committed to that. We’ve provided the company with necessary infrastructure and funds. Soon we’ll sign the agreement enabling tank production’s return to Bumar. It’s a matter of two or three weeks.

And what about the Military Automotive Works [WZM] in Poznań?

That’s another strong company I’ve overseen for many years. It has a very competent staff and has evolved over time. Today it has unique expertise in Abrams tanks and support vehicles, and earlier built capacity for Leopard 2A5. We believe that the task of developing capability to overhaul, prepare for production Abrams and Leopard tanks will fall to the Poznań works. It’s possible one option will include New IFV production there.

Additionally, there’s the Propulsion Systems Centre, a test bed for MTU engines and RENK transmissions.

Let’s return briefly to ammunition. Nitro Chem has won another U.S. government contract to supply TNT. However, voices say it will export rather than fulfil domestic orders.

Any company exporting as well as serving the domestic market faces the dilemma of splitting production capacity. Nevertheless, landing a U.S. government order—outside Ukraine, the world’s largest TNT customer—is a major success, integrating us into the global supply chain. It’s significant that the U.S. places critical defence orders on our market.

Obviously, Nitro Chem must expand with a second and third production line for 155 mm ammunition filling. That first line was built under the F 16 offset programme over a decade ago. I was criticised at the time—I oversaw that process. Today we’re reaping the rewards of that investment. Likewise, early issues with Rosomak ammunition in Afghanistan were solved, and now nobody questions its production—an industry military success.

I hope that once current investment projects are completed, 155 mm ammunition production will be as smooth. Our investments bear fruit over time, and so it will be here.

Tell us about PGZ exports. This has been problematic since PGZ’s inception. Last year Fabryka Broni made mistakes in the U.S. market, and mid last year Maskpol withdrew from a $1 billion Nordic uniform tender. Over ten years, companies that exported have continued. What measures have been taken to systematise exports?

We carried out major PGZ restructuring for exports. Previously, the export department was part of the Armaments Programmes Department as a complementary sales subsystem. We spun it off into a central sales office coordinating group wide sales. We’ve identified target countries for PGZ investment and monitor those markets closely. Our offers must be fully adapted to them.

Regarding Maskpol, the company chose to be a subcontractor rather than a consortium member, believing it offered similar economic benefit but higher chance of work. Perhaps some decisions were made too hastily.

And Fabryka Broni Radom, which delivered to the U.S. despite payment arrears?

The article by Marcin Wyrwał and Edyta Żemła, despite the respect we have for the journalists, alarmed us for two reasons: first, its allegations needed reflection; second, the supervisory board had ordered an audit whose findings were leaked. Comparatively, it’s like a football striker running half the field: sometimes not the best team choice. Perhaps past management feared halting deliveries before payments to avoid losing the U.S. market.

We have since taken internal and partner level measures. One agreement is being honoured, a second is being renegotiated to accelerate payments. The U.S. demand for small arms is high, so disposal shouldn’t be an issue. We’re talking about Beryl rifles—used by Poland’s army but no longer produced for it. The Armed Forces’ preference is paramount. Remember, Fabryka Broni’s main activity is large contracts for the Polish military, unaffected by this incident.

We expect an excellent financial result this year, with profits up by tens of millions. Viewing this episode as a risk to the entire company is disproportionate. We will, however, learn from it so our group’s reputation remains untarnished elsewhere. I’ll add: the U.S. market is crucial; we’re certifying the Grot rifle and our pistol there, and based on Ukrainian combat use experience, they’ll be key products. The U.S. market is huge, and interest is strong, though our core business remains in Poland, so we must avoid overly risky deals.

Where do you see PGZ’s best export opportunities in coming years?

There are clear possibilities. When I managed exports at Bumar Group, Polish equipment was successfully used in Afghanistan, and Bumar subsidiaries — WZL 1, Rosomak S.A., PIT RADWAR, PCO — supported its operation in theatre. We couldn’t fully capitalise on that, as bids were challenged with “only Poland uses this euipment” argument by the potential partners.

Now, thanks to Poland’s aid to Ukraine against Russian aggression, we can claim our equipment is battle proven. That’s a selling point global leaders like the Israelis tout. We can now do the same for Rak, Rosomak, Piorun, individual gear, and PCO equipment. It impresses foreign partners.

Let’s go back to K2PL. How are tasks divided with the Korean partner, and what does PGZ expect?

First, we were invited into this contract only after it was signed. The framework agreement negotiated by the previous MoD leadership lacked offset provisions. Thus there’s no built in compensation to establish maintenance or industrial capacity here—a standard offset practice. I speak as a former deputy head of the Offset Committee, involved in many such negotiations to secure significant compensations for foreign purchases.

I understand the contract was signed immediately after tank donations to Ukraine to fill the equipment gap, but was it the optimal approach? Today, our and MoD’s priority is delivery of new tanks and establishing in country overhaul, repair, and modernisation capabilities. That’s essential given long sea routes from Korea and current geopolitics. We must fully domesticate component production so we can substitute them if threatened. Alongside tank production, this is our top priority—and we’re nearing that goal.

Some say Polish components for K2PL are more expensive than Korean ones.

When you replace series produced parts of a thousand units with a batch of sixty, unit cost is naturally higher due to scale. Yet these tanks will serve 30–40 years, including those acquired directly from Korea. They’ll need upgrading, too. Building domestic K2PL component capacity also builds our ability to modernise existing tanks—what we call MRO. Over a 30–40 year lifecycle, we’ll replace some current K2GF components with Polish ones.

Another matter is that by concluding this agreement we open up the market for the K2PL tanks in Europe both for ourselves and for the Koreans. Slovakia is interested, but also other countries such as Romania, as well as Sweden and Norway. I would like to stress that this is a very good tank; in our view it has enormous potential. We describe it as a medium, fast, maneuverable tank—unlike heavier tanks, it is adapted for operations in very difficult terrain, and at the same time it is highly advanced in terms of firepower, crew protection and other parameters. There is a gap in the western market for such a tank, because competing designs are significantly heavier, and this tank fits that gap.

However, Slovakia insists that the production, servicing and distribution capabilities for this tank must be located close to their country, in Europe—much closer than in Korea. The Slovaks understand how crucial this is for security. And we, as PGZ, under the K2PL agreement, intend to provide that capability—both for ourselves and for other European customers. Paradoxically, transferring the K2PL tank technology could also benefit the Korean side, because it will open the door to other European markets.

At Military Aviation Works No. 2 [WZL-2] there were particularly frequent leadership changes, and in the background are two UAV programmes run by PGZ—Wizjer and Orlik—which have suffered multi year delays, especially Orlik, led by the Bydgoszcz plant. How is the current management approaching these programmes, and what conclusions have they drawn?

Wizjer is an excellent product that has completed its trials and will be used by the Polish Armed Forces. The appropriate procedure is already underway. It is a very good system with unique parameters, and we will also offer it to export customers.

In the Orlik programme, by contrast, we commissioned an audit from the Military Aviation Technical Institute (an MoD supervised body). Why? Because at the heart of Orlik was the EC 310 airframe. A decision was taken to purchase it with modifications, even though the airframe could not meet the requirements of the Polish Armed Forces. In our view, if the EC 310 did not meet those requirements, that project should have been closed in that form and true developmental work should have begun.

Today, however, the Orlik UAV has been very heavily modified and now meets the Polish Armed Forces’ requirements to the fullest extent possible.

Yet PGZ faces contractual penalties.

Amendment No. 6 to the contract was not signed, and we have provisioned for the risk of penalties of around PLN 200 million in our financial statements. I’d like to return to how we got here. The EC 310 system was sold to PGZ by the former Bumar back in 2014 as a platform for potential UAV programmes.

The military evaluated it, and on that basis requirements were drawn up. After signing the contract—again, on a “purchase with modification” basis—it became clear that this airframe, with the chosen engine, could not meet all the Armed Forces’ needs. Despite that, the programme continued in that form, even though to meet all conditions you would in fact need to treat it as a development project. Under a “purchase with modification” you need a base that you can legitimately modify.

Meanwhile, PGZ companies such as WZL No. 2 and PIT RADWAR invested their own funds—buying sensors, components and engines—and the platform itself was so extensively modified that, in many respects, a new airframe emerged, one that now satisfies most of the Armed Forces’ requirements. In our view, it should be offered to the Armed Forces so that they can exploit the potential PIT RADWAR and WZL No. 2 have built. As for the penalty risk, in our opinion all parties involved in the Orlik procurement—not just PGZ—contributed to the situation, and that risk should be shared. What role will the ITWL [Air Force Institute of Technology] audit play here?

The audit is crucial for us because it will determine whether the product is ready for use by the Polish Armed Forces. If the result is positive—as we hope—we will sit down with the MoD to offer our solution. I emphasize that the Armament Agency should also recognize the series of investments the companies made from their own funds to create this product, even though formally it remained a “purchase with modification.” Of course, if the audit is negative, we will bear the penalty risk and seek to minimize it.

I’d like to move on to matters concerning the entire Group rather than individual programmes. Today PGZ and the defence companies are overseen by the Ministry of State Assets, but talks are underway about transferring that oversight to the Ministry of National Defence. From your perspective, would that be a good idea?

Those decisions will be made at the government level, and we will implement them. They are not mine to make. Today, the ownership oversight carried out by the Ministry of State Assets is highly professional. As Deputy Minister of Defence, I once supervised the former Military Repair and Production Enterprises, and that oversight system worked very well.

In countries that have rapidly built a defence industry—such as Turkey or the Republic of Korea—there is a direct link between the defence ministry and industry, which facilitates information flow. On the other hand, there are doubts whether the purchaser should also serve as the supervisor.

Naturally, this raises questions of “imperium” versus “dominium.” On one hand you have a client relationship; on the other, ownership oversight. Theoretically, these should be separated, in line with standard corporate governance principles that apply to most market companies.

On the other hand, one must ask how these relationships should operate under heightened wartime threat. I stress again that the decisions rest with the government, and we will abide by them.

President Krzysztof Trofiniak recently tendered his resignation. There is much speculation about PGZ’s future leadership and whether the new president will come from the current board or from another sector. How do you comment?

I believe that an excellent candidate for the post is today’s Mr Arkadiusz Bąk. To end the speculation: I do not intend to stand in the competition for that position. Personally, I view the appointment of an acting head from the current board as a vote of confidence in our management. I would add that we are currently conducting many intensive proceedings and negotiations, and staff stability is crucial for us.

There is also discussion about restoring the old divisional structure within PGZ, as existed in the Bumar era. That could help support companies that are weaker in particular areas. It is no secret that the Poznań HCP plants are among those companies.

Cegielski has a sterling brand and its place in history. However, we must remember that it joined us under special circumstances. It was absorbed into the Group by a political decision in December 2023, lacking suitable real estate, products or contracts. When HCP was brought into PGZ a number of promises were made, but these were largely political declarations—just as the decision itself was more political than business driven.

In defence firms the brand is important, but the products are paramount. HCP is now part of our Group and we will seek to involve it in our production processes.

Looking more broadly, which programmes HCP and other companies will join will be determined by the Group’s strategy. We plan to concentrate by domain, but it will not be a simple return to Bumar’s old divisions. Bumar had a narrower scope and no aviation arm; the Military Repair and Production Enterprises were separate and focused on support. Today, as PGZ we believe the Group should offer the Armed Forces the entire product lifecycle: development, implementation, production, then repair, modernization, through to disposal. We want the MoD and Armed Forces to commission us for the full lifecycle of their equipment.

Why this approach?

A lifecycle spans 30–40 years; that requires a completely different budgeting and project management perspective. A project management approach could show us how much money will be needed for the upkeep of a given asset serving the Armed Forces, which in turn allows us to allocate development and production capacity funds differently.

Of course, PGZ must be strong in the individual products its companies offer. After all, products are what make a defence company, grow it, and once fielded give it the means for sustainment.

This also raises questions about Poland’s system for acquiring and maintaining capabilities in the Armed Forces. Today we have two specialized and highly capable procurement bodies under different authorities. One is the Armament Agency, under the MoD, responsible for purchases and modernization; the other is the Support Inspectorate, under the Chief of the General Staff, responsible for repairs and maintenance. From the industry’s perspective, a broader integration of procurement and maintenance would be very beneficial. It would give us predictability around repair and manufacturing costs.

I’d like to ask about Jelcz. It is currently engaged in many programmes, from rocket systems to logistics, but its production capacity is insufficient. There are already indications that the military will seek to order certain trucks from foreign manufacturers. Wouldn’t it be better to subcontract component production to other domestic suppliers, both within PGZ and outside the Group? So far that has been avoided.

I’ll start by saying that Jelcz is an example of channeling orders to domestic industry. As Deputy Minister of Defence, I planned to deploy Jelcz vehicles in the Coastal Missile Squadron, replacing foreign vehicles. Today Jelcz indeed has many contracts, but the plant has not undergone the necessary investments, modernization or expansion. As a result, production must be split up.

That is why we want to leverage the potential within PGZ, Autosan, and possibly Military Communications Works No. 2 in Czernica, to gradually clear this backlog. We do not rule out wider involvement of private firms. We are aware that a client’s discontent is the worst thing that can happen to Jelcz.

Since the personnel changes, the new management has created a path out of this backlog; I do not rule out that production will need to be split up even more than in the current plan. Jelcz supplies chassis in virtually every programme. I believe this issue will be resolved before this year’s MSPO fair.

Today there are voices that Jelcz’s throughput is a bottleneck even for far more complex programmes involving key weapon systems.

When Jelcz was brought into the HSW Group, its capacity was one vehicle per year per employee. Today, in pure vehicle per employee terms—after increasing staff—it is less than one, which of course reflects the fact that alongside simple 4×4 vehicles we now build specialized, more complex 6×6 and 8×8 platforms.

It is true that Jelcz’s production capacity is insufficient, and we must consider further splitting up production, including at firms like HCP or private companies. We must guarantee delivery stability to the military, our customer. We realise that should we fail to meet delivery schedules, decision makers might react by introducing another type of 6×6 or 4×4 vehicle—which would put Jelcz at risk of losing a substantial market.

It is certainly better to split up production and modernize the plant so that deliveries meet the military’s needs. That is our goal. I realize that Jelcz is present in critical programmes such as Wisła and Narew, whose execution is vital for our security.

On April 15, WB signed an agreement with Hanwha Aerospace to produce munitions for the Homar K system. One might ask: why the private WB Group and not PGZ?

In my view, companies should develop in areas where they already have expertise. We use WB’s solutions as a technology partner—in fire control and communications—whereas in Poland large caliber ammunition and rocket system expertise rests with PGZ. Directing this order to WB was the Armament Agency’s decision; the first contract was signed at last year’s Kielce fair, shortly after PGZ came under new management.

From our side, I can only assure you that we regard WB both as a partner and as a competitor. As PGZ, we intend to demonstrate that we are—and will remain for a long time—the unequivocal leader in ammunition and rocket systems, and number one in Poland.

Thank you for this conversation.