‘Irregularities found’ at Poland’s biggest armament manufacturer

The Mesko company logo. Photo: PAP/Michał Walczak

According to the “Rzeczpospolita” daily, a recent audit at the defense company Mesko – part of the strategic Polish Armaments Group (PGZ) – revealed major irregularities between 2012 and 2017.

Missiles for Polish Army plagued by faults: audit

see more

The audit, which mostly covers the period under the previous government, was performed by an external auditing company but never fully completed due to the firing of Mesko’s previous boss.

Findings from the audit were first reported earlier this week in connection with the discovery of serious safety concerns affecting the surface-to-air missiles manufactured by the company, which led to major delays in the implementation of the arms deal.

According to Thursday’s report, the award-winning Mesko – the largest state-owned weapons manufacturer with more than 5,000 employees – could be standing on shaky foundations.

The audit revealed that while the company was profitable on paper with EUR 5.3 million in revenue, it received approximately EUR 36 million from the government. This means that its overall financial performance left much to be desired. In spite of this, the company allegedly paid a dividend to its shareholders in both 2015 and 2016.

The Mesko factory manufactures munitions for the German-manufactured Leopard 2 tanks serving in the Polish Armed Forces. Photo: Sean Gallup/Getty Images

The Bulgarian connection

The report suggests that one of the causes of Mesko’s financial woes could be reliance on “suspicious contractors” which provide the company with parts and components sold at inflated prices. One of these companies, based in Bulgaria, is said to have sold propellants for three times the price offered by Polish manufacturers from PGZ, and may have in fact been a “shell corporation” acting on behalf of two privately owned Bulgarian defense contractors.

The selection criteria which led to the choice of this particular supplier remain unclear, the audit concludes – an issue which continues to appear throughout the report with respect to other contractors.

In some cases, design specifications were drafted so that no other supplier could be selected. One example, according to Rzeczpospolita, includes wooden crates for the Leopard tank shells, which the company buys for an inflated price instead of manufacturing them in-house because the design for the crates was incorporated into the technical specifications for tank munitions.

Inside the Mesko munitions factory (photo taken in 2014). Photo: PAP/Michał Walczak

Conflict of interest?

The data gathered by the auditors in the course of their probe into Mesko’s operations also suggests that the company may have been misspending large amounts of money – more than EUR 90 million in total – on consulting services, some of which were allegedly provided by lobbyists, while others give rise to suspicion of a conflict of interest.

A contract concluded with the daughter of an army general who is also the head of a major trade union at the company was cited as one of the latter, even though the general himself denies allegations of cronyism. In some cases, the consulting services were to be provided by the chairmen of other companies within the PGZ group, with the auditors suspecting that the contracts may have been fictitious.

According to the authors of the article, the audit was discontinued following a change of guard at the company, with the new acting chairman promising to perform a new internal probe. Whether the audit will go ahead is now uncertain, however, since the acting chairman announced his resignation on Monday following earlier reports concerning defective missiles. The authors of the article also claimed that Poland’s Defense Minister Mariusz Błaszczak has already been notified of the results of the incomplete audit.