Ukraine: Difficulties in repaying European armament funds

Ukraine: Difficulties in repaying European armament funds

*The article has been updated with new comments and clarifications from the European Commission on reimbursement.

The European Peace Facility (EPF), the EU’s extrabudgetary fund designed to replace member-state arms donations to Ukraine, is struggling to meet the bulk of incoming demands, EURACTIV has learned.

Following a political agreement between EU ambassadors on Wednesday (12 October), a sixth envelope of 500 million euros is expected to be approved by foreign ministers next Monday, bringing the amount to 2.6 billion euros in lethal and non-lethal Aid raises a total of 3.1 billion euros.

Days after Russia’s invasion of Ukraine in February, the EU agreed to release an initial €500 million package to member states to encourage them to buy arms for Ukraine’s armed forces, promising to cover some but not all of the costs take over .

However, dissatisfaction over how they will be reimbursed is currently simmering among some members of the bloc, according to several European diplomats, and this week almost scuppered the agreement to proceed with the next steps.

The original formula of the reimbursement system was to match countries’ claims with the money intended to reimburse Ukraine’s requested weapons donations.

L’Agreement of the Member States includes the principle of «flat allocation»meaning that everyone is expected to receive the same percentage of the requested value for deliveries made within a certain time frame.

At the same time, each reimbursement rate is linked to the deliveries made within a certain period of time.

For the first turnover of 500 million euros, the “clearinghousethe FEP, which coordinates the efforts, received around 600 million euros in applications.

But for the €1.5 billion envelope, around €3.3 billion in applications were received, with Poland accounting for more than half of the revenue.

As demand grew, the reimbursement rate fell from an initial 85% to around 46% of applications, according to estimates provided to EURACTIV by several member states.

The demise has particularly enraged Poland, one of the EU’s biggest arms donors to Ukraine. Warsaw therefore blocked an agreement to pay out the second envelope in hopes of negotiating a higher payout rate.

«For them, less than 50% is not enougha European diplomat said at a meeting of EU envoys on Wednesday evening, adding: “the Poles hold the key to unlock the 1.5 billion euros and payments to Slovakia in 2022 and to themselves in 2023».

Poland has so far handed over a significant amount of tanks, howitzers, anti-aircraft weapons and other military equipment to Ukraine, but claims it has still not received the German replacement tanks that Berlin promised in Warsaw in return for the military aid provided to Ukraine.

But officials off l’UE reported a large number of late refund requests for this second envelope.

In the end, Warsaw relented and agreed to a 46% repayment rate on the second €1.5 billion package, according to EU diplomats, paving the way for payouts to start.

But the delays have made many member states impatient. EURACTIV understands that no payouts have been made yet and that they will only start this fall.

Portugal is among the first in line, with a relatively small payout of several thousand, European diplomats have confirmed.

«We need the advance payments to order the equipment we are missing or would like to providesaid a European diplomat.

When asked about the current status of reimbursements, the European Commission said: “The EPF has successfully provided an outlet for the EU to show its unity and solidarity and to demand concrete support for Ukraine’s heroic military effort».

«The first contract has been signed and payments are being made according to the agreed scheduleNabila Massrali, EU spokesperson for foreign affairs and security, told EURACTIV.

«Please note that the exact reimbursement rates will be determined by a number of factors, most notably the value and volume of the equipment provided relative to the funds available.“, she added.

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Not for eternity

But seven months after invading Russia, Ukrainian demands are mounting. Kyiv has revised its Western nations’ weapon wish list as troops prepare for tough winter combat.

At the beginning of the war, the extra-budgetary financing instrument amounting to 5.7 billion euros was called “ideal vehiclebecause the EU treaties prohibit it from using its regular multiannual budget to fund operations with military or defense implications.

Most EU officials and diplomats are confident that the debate on replenishing the fund will take place sooner rather than later, ideally by the end of the year, with some member states proposing to double the total deployment force.

The fund has also been used for more modest initiatives such as military aid to Georgia, Moldova or the EU training mission in Mozambique, which has helped narrow the financial scope of an instrument originally intended to last until 2027.

Especially since EU foreign ministers are also expected next week to agree to fund part of the budget for the new EU military assistance mission in Ukraine, partly from the EFF budget.


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