Response to the campaign attacking VOP CZ, s.p.

In recent days the media has featured several articles regarding the contract for the purchase of 210 tracked infantry combat vehicles for the Army of the Czech Republic (ACR). In many cases these were mere speculations, not based on facts.
 
As many of them related to the state enterprise VOP CZ, s.p. (hereinafter simply VOP CZ), I feel I must respond to them. The aim of the facts given below is to shed greater light on the matter and also to help those still willing to enter into discussion, verify the relevant information and, on the basis of that information, make a decision or at least form their own opinion on the matter.
First of all I would like to state certain basic information about the state enterprise, as in my experience it is not too well known by the public:
 
The reason for the existence of VOP CZ is described in detail in our Memorandum of Association and our mission can be easily summarised in the following sentence: 
 
We ensure the defence capability of the Czech Republic.
 
Within the defence industry our activities can be summarised as follows:
           
We develop, modernize, manufacture, repair and trade in defence industry products. We focus mainly on the vehicles used in the Ground Forces.
 
As, after the split of Czechoslovakia in 1993, the Ministry of Defence (hereinafter simply MoD) did not invest much in the manufacture and repair of ground vehicles for reasons that are well known, in order to survive, VOP CZ was forced to also focus on civil manufacturing from 1994.
 
However, a similar situation also arose in neighbouring countries after the collapse of the Eastern Bloc in the nineteen nineties.
Yet the situation has gradually changed for the better in recent years. The defence industry’s share in the enterprise’s total revenues is increasing; figures for the last 3 years (including the forecast for 2021) are summarised in the following table: 
 
Table 1: Proportion of special production in the revenues of VOP CZ, s.p. in 2018 – 2021
 
Our aim is to achieve at least 50 % special production by 2025. In order to accomplish this, we want to increase the proportion of contracts for the MoD and ACR; we also want to significantly increase exports in this area. We certainly have a lot to offer.
Naturally, we are only talking about a percentage of our sales here. The absolute value will increase, in both the civil and defence sectors.
And now down to the crux of the matter. I will break down the media speculations into several areas and provide facts for each:
 
1. Defence capabilities of VOP CZ
 
What VOP CZ has already accomplished and what it is able to offer:
  • since it was first established it has repaired, carried out general repairs on, or modernised more than 4,000 tanks (T-54, T-55, T-72, T-72M, T-72M1, T-72M4 CZ);
  • it developed the T-72M4 CZ tank itself for the ACR in 1995–2001;
  • in 2003-2006 it supplied the MoD with modernised T-72M4 CZ tanks (33 of all versions);
  • it regularly services T-72M4 CZ tanks since they were first deployed in the ACR through to the present day;
  • its own development department developed 5 of the following versions (of a total of 7) of the wheeled BVP PANDUR II 8x8 CZ for GDELS-Steyr:
    • medical version (KOT-Zdr);
    • company commander version (KBV-VR);
    • engineering version (KOT-Ž);
    • exploratory version (KBV-Pz);
    • exploratory version with radar (KBV-PzLOK).
  • in 2008-2012 it manufactured and supplied 90 of a total 107 wheeled BVP PANDUR II 8x8 CZ for GDELS-Steyr (the vehicles were subsequently supplied to the MoD by the requisite deadline and at the requisite quality and price).
  • the main subject of the supply of KBVP PANDUR II 8x8 CZ vehicles in VOP CZ involved:
    • body welding;
    • complete chassis assembly;
    • integration of weapon station;
    • final assembly;
    • enterprise and inspection tests;
    • operator and maintenance training for trainers and users;
    • cataloguing;
    • preparation of spare parts catalogues;
    • warranty and post-warranty servicing;
  • in 2014-2016 it carried out general repairs on 69 T-72 tanks for Excalibur Army;
  • in 2015-2017 it manufactured and supplied a total of 450 armoured cabins for the AJBAN 440A 4x4 for NIMR Automotive;
  • in 2020 it manufactured and supplied a total of 42 T-815 armoured cabins for TDV;
  • in 2020 it manufactured and supplied 4 AM-50 engineering bridges for Excalibur Army;
  • in 2019-2020 it manufactured and supplied 10 CAP6M1 (Ground Vehicle Filling Lorry) for the MoD;
  • since 2012 it has been developing an unmanned ground vehicle (UGV) under the name Taros (Tactical Robotic System), in 2020 VOP CZ together with the Military Technical Institute supplied the ACR with the UGV-Pz (Automated Unmanned Ground Surveillance System, which is based on the Taros 6x6 platform);
  • in 2020 it signed a contract for the supply of 7 CAPL (Aircraft Filling Lorry – for helicopters) and 2 CNS (Tanker Trailer System – for aircraft) for the MoD;
  • in September 2020 it signed a contract with the MoD for the technical valorisation of 33 T-72M4CZ tanks;
  • in 2021 it signed a contract for the supply of armoured vehicles for Achleitner, which will include the delivery of an armoured cabin as well as the final assembly of the vehicle as a whole;
  • it has several other contracts under way involving the development of vehicles, the supply of components (armoured cabins, etc.) through to the complete assembly and servicing of special vehicles.
What conclusion can be drawn from the above facts?
  1. VOP CZ has its own development department specialising in ground vehicles.
  2. VOP CZ has the greatest experience of all firms in the Czech Republic with the development, supply and servicing of special armoured ground vehicles for the ACR, both tracked and wheeled (the T-72M4 CZ and wheeled BVP PANDUR II 8x8 CZ projects).
  3. VOP CZ is the Czech Republic’s biggest specialist in repairing tank hardware, and therefore obtains contracts from private entities, not only from the ACR.
  4. VOP CZ is the only firm from which the ACR implements an unmanned ground vehicle, the platform for which is being developed further.
  5. VOP CZ has the greatest experience of all firms in the Czech Republic with welding armoured cabins from high-strength materials.
  6. VOP CZ, owing to its experience in the field, is constantly in demand by the ACR, as well as by private entities from the Czech Republic and abroad.
  7. VOP CZ is fully competitive, otherwise there would be no demand and no order from private entities.
  8. VOP CZ has precisely the experience and know-how that the winner of the tender for the new PBVP for the ACR will need.  
To conclude this point I would like to merely mention that it is a long road from obtaining a contract through to its successful completion and VOP CZ has already proven several times that it is able not only to win contracts, i.e. to be competitive, but, and most importantly, to successfully complete them and deliver them to the customer.            
 
 
2. A country’s security interests should allegedly be resolved with the involvement of a private entity 
 
The answer to this is simple and will be understood by anyone who has ever owned anything.
 
Can you manage something that you own? Yes, of course, it is yours.
 
Can you manage something that you do not own? No, as the owner will not permit it.
 
The state, or the MoD, currently controls 4 relevant entities:
  • VOP CZ, s.p. (Military Repair Enterprise);
  • VTÚ, s.p. (Military Technical Institute);
  • VVÚ, s.p. (Military Research Institute);
  • LOM Praha s.p. (Malešice Aircraft Repair).
Of these 4 enterprises the logical choice was VOP CZ, as this enterprise specialises in ground vehicles and is able to develop, manufacture and service them, and also has experience with similar projects.
In addition, VOP CZ:
  • has NSA security clearance to the level of "Secret" pursuant to Act No. 412/2005 Coll.;
  • has begun the certification process to obtain ISO27001 and ISO27002, which are prestigious standards relating to the information security management system;
  • implements standards applicable in the automotive industry in its internal production processes and is a category A supplier for the most prominent customers that require these standards;
  • is financially stable with an adequate available financial reserve.
In conclusion to this point I would like to state that, in my opinion, there is currently no entity in the Czech Republic that would be better able to defend the security interests of the Czech Republic.
 
 
3. Financial standing of VOP CZ
 
It is true that for the last few years VOP CZ has achieved a negative economic result. This is one of the reasons why the then director of the enterprise was dismissed in April 2019. The reasons for my appointment to this position in October 2019 included the facts that I had spent most of my professional life working in engineering, I am business-oriented, I have an economic educational background and I have achieved a number of successes as a manager.
 
This course of action adopted by the Defence Minister was also seen as rational by Security Magazine, which has otherwise been critical of VOP CZ, in its article dated 21 October 2019.
 
After taking up the position, the main tasks I was assigned by the Defence Minister were to stabilise the enterprise’s finances and get it making a profit as soon as possible.
 
The enterprise management started working hard to accomplish this and since November 2019 has achieved a major reduction in all kinds of costs and has streamlined processes within the enterprise. The bulk of the restructuring measures were carried out in 2020. Unfortunately, we did not manage to make a profit in 2020 due to the coronavirus crisis, but we greatly cut costs, particularly overheads, and strengthened our business activities, which has had a considerably positive effect. The result of these activities is that the enterprise plans to make a profit in 2021.
 
As regards the financial stabilisation of the enterprise, this task has also been fulfilled and in 2020 we managed to agree with the financing banks to modify the funding structure and obtain new financial frameworks (worth several hundred million CZK). The enterprise is not yet drawing on these funds, but has them prepared to finance expenditure associated with new contracts (the PBVP or any other project).
 
It should be mentioned here that the enterprise is funded solely through private financial institutions (banks) and does not receive any state support. The reason why banks are willing to loan funds to VOP CZ is simple. The banks see that the restructuring measures are working, the enterprise’s overhead costs are decreasing and its business plans are accomplished.
 
How cash-flow is managed in the firm can easily be evaluated on the basis of how many liabilities the firm has after due. VOP CZ is doing very well in this regard and since the end of 2019 this figure is generally zero, or very close to zero, and the enterprise continues to hold this position in 2021. If one of our readers were to take the time to study the financial statements of similar firms, they would find that our enterprise’s results are well above standard with regard to this indicator.
 
In conclusion to this point I would like to say that banks are not in the habit of funding untrustworthy, unpromising and risky companies, so the concerns of certain entities are definitely unfounded with respect to this point.
 
 
4. Interest in the real state of VOP CZ
 
Obviously, the best information about how VOP CZ is run is possessed by its founder, i.e. the MoD through the MoD Corporate Governance Section. This section receives regular detailed monthly reports on the state of the enterprise. It also nominates its representatives to the enterprise’s supervisory board.
 
As regards the interest of other entities, the situation is as follows:
  • the last visit of the members of the Defence Committee of the Chamber of Deputies of the Parliament of the Czech Republic took place in VOP CZ on 14 May 2019,
  • since then we have not received any request for a visit or a request for more detailed information about the status of VOP CZ from any state institution;
  • since I took up my post as director, the enterprise has not received any request for information about the preparedness of VOP CZ for the PBVP project, from journalists, the professional community or from anyone else.
I am therefore very surprised at how external entities are able to comment so knowledgably about the situation in VOP CZ and draw such conclusions when they do not possess the relevant information and, what is more, have made no effort to obtain it.
 
 
5. Competitiveness of VOP CZ and increase in the cost of the PBVP contract, if VOP CZ is involved
 
In this part I would like to respond to the numerous points raised by various entities that imply that VOP CZ is not a competitive enterprise.
 
VOP CZ is an export firm, which for many years now has exported more than 70% of what it produces, particularly to the markets of Western Europe. We supply primarily to private entities. The ACR is the only exception.
All the bids and offers we submit to customers are subject to selection procedures and market price verifications. We also supply our products in accordance with stringent quality standards.
 
We also supply to competing armaments companies, as we possess the relevant know-how and are able to supply our products at competitive prices.
 
To conclude this part I would merely like to state that if certain readers still think that the above facts are less than convincing, I must repeat that the banks trust us, and definitely do not loan funds without a detailed financial analysis of the client and without the client submitting convincing business plans and a clear strategy. 
 
 
6. Do PBVP Suppliers have a choice as regards their subcontractors?
 
I would like to clarify one important point for readers, one which is probably misunderstood.
 
The supplier of the new PBVP for the ACR will be selected through a tender. There are currently three candidates participating:
  • BAE Systems Hägglunds AB (expected to offer the CV 90 MkIV);
  • Rheinmetall Landsysteme GmbH (LYNX KF 41);
  • General Dynamics European Land Systems-Santa Barbara Sistemas SA (ASCOD 42).
The supplier of the vehicle to the ACR will therefore be one of the above firms. Each of them seeks their own potential subcontractors. VOP CZ is just one of many possible subcontractors and as the integrator appointed by the MoD draws up bids for selected activities requested by Suppliers. Who will eventually supply the winning company and under what conditions is entirely at the discretion of the selected Supplier.  
 
What can be said to conclude this matter: in order to protect the essential security interests of the Czech Republic the MoD has designated our enterprise as the main subcontractor in the acquisition and VOP CZ has been designated the decisive enterprise for ensuring the life cycle of the public contract for the same reasons. This procedure was explained in the material presented to the government of the Czech Republic on 17 December 2018. Moreover, it is in accordance with the government-approved Strategy for Armament and Support for the Development of the Defence Industry until 2025. In addition, on 30 January 2019 the MoD and VOP CZ signed a Memorandum on the coordination of activities during the project.
 
 
7. Conclusion
 
The new hardware will feature the most advanced available military technology, designed to protect the lives of our troops as well as the lives of our fellow citizens in the event of an armed conflict. In order for the task of manufacturing this new hardware to be completely fulfilled, it is crucial that this technology and the accompanying documentation are protected against misuse by third parties.
 
Essentially, the decision on this strategic state contract is entirely at the discretion of the state and the rules it sets and how it finally decides lie wholly within the competence of the state.
 
At least the following 4 basic parameters must be fulfilled in order for the right decision to be taken:
  • the strategy in the area being decided upon;
  • adequate information (ideally verified);
  • adequate time;
  • competent people.
We are able to ensure all these decisive parameters and are fully prepared to carry out, to the requisite quality and by the stipulated deadline, all the tasks associated with the contract “Tracked Infantry Combat Vehicle and Modification Thereof - Purchase”.
 
Radovan Putna
Company Director  
 

 



Contact

VOP CZ, s.p.
Dukelská 102
742 42 Šenov u Nového Jičína
+420 556 783 111
vop@vop.cz
Data Box: rkga8r5