EU foreign and defence ministers have agreed to supply 1mn rounds of ammunition to Ukraine within a year, buying new shells only from European arms producers even as they face bottlenecks in ramping up their production.

The plan envisages using €2bn from a joint fund, the European Peace Facility (EPF), and comes in response to demands by Kyiv for 155mm shells and other artillery supplies it says it needs to fight back against Russian attacks.

But the sum is unlikely to satisfy the European arms industry’s projected needs, with Armin Papperger, chief executive of Rheinmetall, calling for larger commitments from governments.

Papperger, who leads Germany’s largest defence contractor, on Monday told the Financial Times that a planned new gunpowder factory in the country required substantial financial support. He said he had asked Berlin for a cash contribution of “a minimum” €500mn to cover the estimated construction costs of up to €800mn. The factory aims to address bottlenecks that could affect the production of artillery and tank munitions.

“We cannot invest everything by ourselves, because it’s an investment into national security,” Papperger said.

Under the plan agreed in Brussels, €1bn would be used to partially reimburse supplies of shells coming from existing ammunition stocks or already passed orders. Another €1bn should be used to underwrite joint purchases of fresh ammunition for Ukraine until the end of September.

The ministers agreed to negotiate only with arms producers from the EU and Norway for the joint purchases funded by the EPF, according to the text seen by the FT. Countries including France had pushed for this to prop up the domestic arms industry.

Some 18 countries signed up to pool their orders through the European Defence Agency, the Brussels-based body said. In addition, individual member states can co-ordinate multi-country talks with suppliers.

German defence minister Boris Pistorius said Germany was already negotiating with suppliers to extend existing arms contracts.

“We want to open our framework agreements with the industry for other partners and are already in talks with some,” said Pistorius, citing Denmark and the Netherlands as parties interested in joining.

He also said Germany would sign new contracts with industry, expecting offers by the end of March.

Ministers acknowledged that extra funding would be needed, calling on the European Commission to make proposals on how to ramp up defence manufacturing in the bloc, including by mobilising the EU budget, according to the text seen by the FT.

A possible top-up of the EPF by €3.5bn is likely to be discussed by EU leaders at their meeting in Brussels at the end of the week.

Estonia had previously estimated that supplying 1mn of fresh shells would cost about €4bn. Its defence minister, Hanno Pevkur, expressed confidence that the needed funding would be secured, if needed, through the top-up. “If we say today all together that Ukraine will get 1mn rounds of ammunition, then we will find a solution,” he said.

The United States on Monday also approved further military aid for Ukraine, including ammunition and other equipment worth $350mn, according to a statement by State Secretary Antony Blinken.

Additional reporting by Henry Foy in Brussels