EU allies query Estonia’s bumper refund from weapons to Ukraine

BRUSSELS — Estonia’s EU allies are questioning the Baltic country’s calculations for the reimbursement of weapons it is sending to Ukraine, suggesting Tallinn’s bill way outstrips its peers as it is using EU funds to significantly upgrade its military through the pay-back scheme.

Estonia insists its claims for new weapons are in line with the rules on replacing vital kit and simply reflect its massive contributions to the war, but its critics note the EU refund scheme would be under heavy strain if every country, particularly bigger ones, operated the same accounting methodology as Tallinn. While Lithuania and Latvia have also made similar contributions to Ukraine — valued about €400 million or more — their demands on the fund under the same conditions as Estonia are far less.

In a historic first after Russia’s full-scale invasion of Ukraine, EU countries have been partially reimbursed for providing military aid with money from a joint fund called the European Peace Facility (EPF), to which member countries contribute based on the size of their economies.

In public, EU countries have hailed the fund as a sign of solidarity — but behind the scenes tensions are growing over the amounts of money a group of countries has been expensing to the fund, seven European diplomats and officials told POLITICO’s Brussels Playbook. Those concerns boiled over at a meeting of EU diplomats earlier this month, when the European External Action Service, the EU’s foreign service, shared data on how much each country had received last year to replace military kit sent to the war. Those sums related only to a first tranche of refunds, but gave a sense that Estonia was an outlier.

“Only after repeated questions, the EEAS named the countries that have asked to be reimbursed based on the new purchasing price” rather than the actual price of the military equipment donated, read the notes from one diplomat present at that meeting and shared with Playbook.

The accusation that emerged from those discussions is that one country in particular — Estonia — found a (perfectly legal) way to replace its old stocks primarily by not making its claim based on the value of the old kit dispatched to Ukraine, but on brand new replacements.

“They are sending their scraps to Ukraine and buying brand new material for themselves, financed with EU money,” a second EU diplomat said about Estonia.

What Estonia is doing is not unique, but its reimbursements stick out because of the money it is claiming is so much higher.

According to classified data from the EEAS seen by POLITICO, six countries have calculated their refund claims for the first tranche of the EPF based on the price of new weapons. Finland claimed 100 percent of the reimbursement based on new purchase prices, Latvia claimed 99 percent under those terms, Lithuania 93 percent, Estonia 91 percent, France 71 percent and Sweden 26 percent.

The core part of the other countries’ complaint is that Estonia has been particularly skilled at getting very high reimbursements for old gear. In absolute numbers Estonia put in a claim for €160.5 million of new weapons under the first EPF tranche, for which it was then reimbursed €134.2 million under the standard 84 percent pay-back rate.

By way of comparison, Sweden claimed back €7 million, Finland €4.7 million, Latvia €59 million, Lithuania €31 million and France €28 million.

The numbers are shown here in an overview from the European External Action Service (EEAS) obtained by POLITICO. The central difficulty exposed by the controversy is that there is no common system for calculating the price put on suitable replacement weapons. “There are widely different approaches, each country is using their own methodology,” the official said.

Generally speaking, there are three different values countries can claim: The replacement value, based on the price of new material; the actual cash value, based on estimated price at which the gear could be resold; and the original procurement value, based on the price originally paid. Diplomats say the debate over Estonia’s reimbursement has exposed the fact that there is no clear methodology over which system to use for payback.

A third diplomat from a different EU country confirmed that Estonia’s methodology had raised eyebrows across the EU, as a “particularly blatant case” — even though no one wanted to call Tallinn out to avoid any sign of divisions.

Estonia’s status as an exception is particularly clear from comparison with its Baltic neighbors, as both Riga and Vilnius claim similar levels of weapons donations to Ukraine. According to the Foreign Affairs Ministry, Estonia has so far provided close to €400 million worth of military assistance. Latvia in January pegged its support at about €370 million, while Lithuania says it is more than €400 million.

Germany, in comparison, has written off as zero the value of old Soviet kit it donated from East German stocks and is only claiming the original procurement value, rather than the price of new material, a fourth diplomat said.

Spokespeople for Estonia’s permanent representation to the EU and Estonia’s defense ministry did not respond to a request for comment by the time of publication in POLITICO Playbook on Tuesday morning.

However, in a statement released after POLITICO’s Brussels Playbook was published Tuesday, the Estonian Defense Ministry said the report contained “lies” and was a “malicious attempt to undermine aid to Ukraine and the unity of allies.”

“The declaration of European Peace Facility donations on the basis of recovery value is completely in accordance with the rules and applies in the event that the production of the donated equipment has been terminated and the restoration of its capacity is important from the point of view of national defense,” the statement read.

A spokesperson for Estonia’s defense ministry confirmed to POLITICO that under the first tranche of the EPF, Estonia donated 122 millimeter D-30 howitzers to Ukraine, which is a weapon model that entered service in 1960, and which Estonia had already decided to replace before Russia started its invasion. Estonia then claimed the price for a new “comparable piece of towed artillery,” according to the spokesperson.