How the 'Danish model' for investing in Ukraine’s defense works

BLUF: Denmark, along with other Nordic and Baltic countries, allocated $556 million to the Ukrainian defense sector. They allocate funds for arms contracts but are not a party to the agreement. Also, after several changes with the Defence Procurement Agency, Arsen Zhumadilov is appointed interim head, instead of Maryna Bezrukova. And: Frontline started serial production of Buria, while Aerobavovna passed codification from MoD with its aerostats.

THE BIG STORY: How the Danish model boosts Ukrainian miltech 

Unused production capacity is one of the main challenges faced by Ukrainian manufacturers. 

Domestic defense companies can produce military goods worth some $20 billion, but the state's budget can only fund a third, or about $6 billion, explained Oleksandr Kamyshin, minister of strategic industries.

One of the latest initiatives to support Ukraine is directly financing its defense industry. Denmark launched this initiative in April 2024, investing $28.5 million in the production of 18 Ukrainian self-propelled howitzers Bohdana for the needs of the Ukrainian army. 

Thus, this investment format was dubbed the 'Danish model.'

Later, other countries joined the initiative: Iceland, Lithuania, the Netherlands, Norway, Canada, and Sweden. Through this project, the Ukrainian army received weaponry worth $559 million over the course of 2024, including artillery, missiles, and long-range kamikaze drones.

Financing also comes from interest on frozen Russian assets held by the countries in the initiative — $399 million. Other funds included government spending: Denmark allocated $128 million, Sweden $20.5 million, and Iceland $2.77 million.

Why is the Danish investment model important? 

Ukraine has implemented deregulation in drones, EW, and ammunition in the last few years to increase its capabilities. 

This has led to a situation where Ukrainian manufacturers can produce vastly more than the government, charity funds, and volunteers can order. With this excess capacity unfulfilled, companies may need to shed jobs, forgo capital investments, or even move production abroad to seek more revenue sources.

Weaponry export remains a matter of political will. For now, it works on a case-by-case basis, and the level of disapproval of applications has risen from 10 percent in 2021 to 31 percent in 2023, said Oleksandr Pavlichenko, head of State Service for Export Control, in an exclusive interview (read it here).

Therefore, the option of Denmark and other countries financing production is an opportunity to use excess production capacity and retain people in manufacturing, explained the Ministry of Defense. 

The Ukrainian army has already received at least 18 domestically developed Bohdana self-propelled artillery (with more to be produced), an unknown number of deep-strike drones, anti-tank systems, and anti-ship missiles.

How does the Danish investment model work? 

Firstly, Ukraine's Ministry of Strategic Industries and Ministry of Defense compiles a list of the needs of the frontline. 

This list is shortened based on negotiations with foreign partners, the Ministry of Strategic Industries told us. Each country chooses which project it will finance. For example, the Netherlands may choose drones, while another country may choose missiles.

In the case of Denmark, all projects are examined by a specific commission, headed by its defense attaché in Kyiv, a deep-strike Kamikaze drone maker told Counteroffensive.Pro. Due to the sensitivity of the field, the manufacturer asked for anonymity. 

In their case, this process took two months, and they received funding in two weeks after signing a contract. This drone maker received funding through the Danish government and shipped 890 drones ahead of schedule. 

This Danish commission includes procurement agencies, military experts, and people with military experience and knowledge of quality control. There are a few criteria that are important for Denmark's commission:

• capabilities to produce X numbers of products;

• history of fulfillment of state orders – it is essential not to have troubles with deadlines;

• quality control;, and

• reviews by the military, which is the end user of the products.

After the review, Denmark chose the most attractive contractor to receive funds. However, partners provide this money to Ukraine, not directly to companies, said Jeffrey Scott Saunders, CTO at Denmark's National Defence Technology Centre. 

The MoD or the Defense Procurement Agency (DPA) sign direct contracts with manufacturers using partners' funds, so Denmark and other initiative members are not direct parties to the agreement.

“We had no direct legal relations with the Danish side. It was at the Ministry of Defense, the Defense Procurement Agency level," said a representative of the deep-strike kamikaze drone maker.  

After all the checks from the commission, the Ukrainian enterprise receives funds and begins manufacturing products. The Danish model allows all advance payments to be made on time, so the contractor can buy all needed spare parts. However, in case of contract non-fulfillment, the enterprise will face the same consequences as regular state orders — penalties — a one-time fine of seven percent for a one-month delay, with increasing penalties for each additional month.

However, the Danish model doesn’t mean that all participating countries have the same approach to financing, said Yaroslav Kalinin, CEO of Infozahyst, an EW manufacturer. 

Currently, they’re negotiating with one of the Danish model countries to receive the funding for state orders. So, proposing one particular project will demand different approaches for each country, including different document demands. 

“There is no single funding approach within the Nordic countries, Denmark, Norway, and Sweden. And that’s a problem,” Kalinin said.

The future of Danish model

Military equipment purchased by the Danish model is already proving its effectiveness on the battlefield, said Minister of Defense Rustem Umerov. He hopes more countries will take similar initiatives of army financing.

This year, Ukraine proposes scaling the Danish model to producers of non-lethal equipment for the army. 

The goal for 2025 is to raise over $1 billion for the defense industry, said Denys Shmyhal, Ukraine’s Prime Minister. Ukraine also plans to create Danish model 2.0, expanding the scope from just financing weapons production to also funding defense innovation and accelerating weapons delivery.

The first contract on Bohdana was signed in Summer 2024. From this time to November 2024 nine more contracts for weapons supply to Ukraine were signed under the Danish model for $629 million.

The latest scandal involving the Defence Procurement Agency and the Ministry of Defense did not influence the future of the Danish model, said Dzhyhyr. (read our detailed coverage on that issue here, and below). 

He met with Danish and Lithuanian representatives, who were trying to understand what happened between DPA and the Ministry of Defense. As for now, partners have not made any decisions about freezing the program, Dzhyhyr told Counteroffensive.Pro.

BUSINESS LUNCH TOPICS: What our reporting shows!

1. Aerobavovna passes the codification process with aerostat

A Ukrainian startup that produces aerostats has received military certification for its aircraft with a payload of up to six kg. Now, this aircraft may be officially purchased by the state and used by the armed forces.

Aerostats are often used to mount signal relay equipment to boost radio signals for FPV drones or radio communications. Their main advantage over drones is the flight time. An aerostat can stay in the air from 6 hours to several days, depending on the battery capacity (the heavier the relay equipment, the shorter the battery life). In comparison, regular drones only stay airborne for 20-25 minutes, explained Iurii Vysoven, CEO of the startup.

The aerostat's stated specifications include:

• Payload capacity ranging from 6 to 40 kg (but only the version with 6 kg payload is codified);

• Price starting at $13,000;

• 5-minute deployment time;

• Maximum wind speed tolerance of 15 meters per second;

The company has already provided tests for this aerostat. During testing, an elevated radio relay mounted on the aerostat achieved a coverage radius of up to 85 kilometers.

2. Procurement agency’s dizzying director changes

Last week, the Defence Procurement Agency (DPA), which supplied the Ukrainian army with lethal weaponry and equipment, received a new interim director — Arsen Zhumadilov. Currently, he is a director of the State Logistics Operator (SLA), which is in charge of AFU's non-lethal supply.

Previously, Rustem Umerov, Minister of Defence declined to prolong the contract with DPA’s former director Maryna Bezrukova, despite the Supervisory Board supporting extending the contract on January 21st (read out detailed coverage following the link). 

According to Ukrainian news outlet Babel, the minister was dissatisfied with the results of her work, in particular, due to overdue contracts and the purchase of low-quality mines. 

Since January 25, the name of the current director of DPA has been changed five times in the public register. Timeline since January 25:

• January 25 – Arsen Zhumadilov appointed the new director;

• January 28 – Zhumadilov was appointed acting head for the period of Bezrukova’s suspension;

• January 29 – Maryna Bezrukova appointed director;

• February 1 – Bezrukova, the head of DPA, has a note about her suspension for the duration of the internal investigation. Zhumadilov now has the right to sign a contract with DPA.

• On the evening of February 1 – Arsen Zhumadilov, appointed interim head of the DPA, has the right to sign contracts.

3. Frontline begins serial production of Buria Turret 

A Ukrainian defense tech startup has started serial production of a turret system for the American Mk19 automatic grenade launcher. Several batches of units were already delivered to the front lines, said Mykyta Rozhkov, Chief Marketing Officer at Frontline, speaking to Counteroffensive.Pro. 

Now, Frontline has received orders for Q1 2025 and is expanding its production capacity to meet demand.

Turret systems allow military personnel to engage targets remotely without risking their lives. In the future, Frontline plans to integrate the turret's targeting system with reconnaissance drone data for real-time coordinate transmission, said Rozhkov.

In Collaboration with CENTRE UA – Ukrainian orders/legislation we’re tracking:

Cabinet of Ministers Resolution №1234 prohibits discrimination against military servicemen.

Status: Entered into legal force

The document prohibits discrimination against military service members for any reason. It declares that all army members have equal rights and opportunities, regardless of whether they are men or women. 

The document prohibits discrimination and payment reductions based on gender, race, age, health, political or religious beliefs, and other characteristics. It also provides for the creation of departments and positions to combat discrimination, including gender-based violence and sexual harassment. Commanders are also obligated to care for the psychological health of military personnel and respond promptly to any problems.

The document also updated the rules to consider women's material needs. This includes hygiene products and clothing adapted for women. 

ON THE MOVE:

• Karolis Žemaitis was appointed as the Managing Director of Frankenburg Technologies in a new office in Lithuania. It's an Estonian-Ukrainian startup developing missiles. Previously, Žemaitis was a Vice-Minister of the Economy and Innovation of Lithuania.

• Yuliya Maltseva (a business developer), Larysa Visengeriyeva and Eveline M. Beer (co-organizers of European Defence Tech), and Anna Wojtas (was a director of Germany & Northern Europe at Tadaweb), launched the Community Women in Defense Tech. They will concentrate on mentorship, supporting women, and creating a network of women leaders in Defense Tech across Europe.

• Maksym Bakhmatov became the new CEO at Techosystem, a union of Ukrainian technological companies. He is also the founder of the Head of Transformation Office, a Ukrainian NGO aiming to increase the efficiency of state and municipal institutions. He was a counselor to the Kyiv mayor, Vitali Klitschko, from 2019 to 2020.

30 SECOND ELEVATOR PITCH:

Lutyi Power is a Ukrainian company based in Ivano-Frankivsk that develops military equipment like portable charging stations, electronic warfare systems, turrets, and FPV drones. Their solutions have been tested in actual combat conditions and can withstand the most extreme circumstances. They are expanding production and preparing to launch new high-power charging stations for the military. They are looking for an investment of $250,000 to take these projects to the next level.

“Our task is to provide our defenders with equipment that works flawlessly in any conditions. The investment will allow us to scale up production and support more units,” said Dmytro Korol, co-founder of the company.

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2. Russia is engaging Orion drones with guided missiles to counter Ukraine’s naval drones. Russians used Kh-BPLA laser-guided missiles to attack a still naval drone.

3. The MoD adopted a logistics robot, Logistic Zmiy, for use in the Ukrainian army. It is equipped with ballistic and mine protection and was designed for evacuation tasks and logistics operations, including delivering goods to soldiers.

4. Russians started to equip a dummy drone Gerbera, with 3-5 kg warheads. These drones are used during massive drone attacks on Ukraine to overwhelm air defense, but before that they were without any warhead.

5. For the first time, DroplaVision, a Ukrainian-Danish demining startup, was deployed under contract to detect landmines. It can find not only mines but animals and equipment as well.

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