Estonian Defence Minister Hanno Pevkur resigned on Wednesday, accepting political responsibility for a collapsed €70 million (approximately Rs 770 crore) arms procurement deal intended to supply 155mm artillery shells to Ukraine. The resignation follows a critical report from Estonia’s National Audit Office, which scrutinized the management of the contract and the subsequent failure to deliver viable ammunition to the front lines during a period of critical shortages.
The procurement, funded through the European Union’s European Peace Facility, has become a significant political liability for the Estonian government. As the country’s longest-serving cabinet minister, Pevkur’s departure marks a major shift in the administration, which is already navigating a loss of its parliamentary majority. The government is now engaged in complex legal and diplomatic efforts to recover the funds, while the controversy has sparked broader questions regarding the oversight of rapid-response defence spending.
The Procurement Controversy and Contract Failure
The failed deal originated in 2024 when the Estonian Centre for Defence Investments (ECDI) awarded contracts to Datasel SRL, an Italian-registered company that had been acquired in March of that year by Nagpur-based Neco Defence Munitions, a subsidiary of the Jayaswal NECO Group. At the time of the award, neither the Italian entity nor its Indian parent company possessed a documented track record in the manufacturing or supply of artillery shells.
Despite these concerns, Estonia proceeded with the contract, utilizing EU funds to make substantial advance payments. By the end of 2024, total advance payments had reached approximately €70 million. However, the project faced immediate operational hurdles. Deliveries were repeatedly delayed, and when initial batches of ammunition finally arrived in 2025, they reportedly failed to meet the required quality and safety standards. The ECDI subsequently terminated the contracts, leading to the current legal dispute.
Legal Dispute and Counterclaims
Jayaswal NECO and Datasel have vehemently rejected allegations of wrongdoing, framing the dispute as a consequence of shifting European regulatory and funding frameworks rather than a failure of product quality. Datasel has initiated a counterclaim against the Estonian government, seeking damages in the tens of millions of euros and arguing that the contract termination was premature and unjustified.
According to company executives, Datasel had delivered and invoiced goods worth €58 million after receiving €59 million in advance payments. The firm maintains that these goods were inspected by Estonian officials prior to the government halting the project. Datasel further alleges that the cancellation was driven by the expiration of EU funding, which left a significant quantity of completed inventory unused. The matter is now being contested at the European Arbitration and Mediation Centre in Strasbourg, France.
Political Fallout and Accountability
Pevkur’s resignation comes at a precarious time for the Estonian government, which lost its parliamentary majority in August 2026. Opposition lawmakers had been actively preparing a no-confidence motion against the minister, citing the audit findings and the potential loss of state funds. In his resignation statement, Pevkur emphasized that while he did not personally negotiate individual contracts, he accepted political responsibility for the broader defence sector.
"Estonian security is not a one-man project. It is our joint responsibility. That is why I must take political responsibility for the entire defence field today," Pevkur stated. Prime Minister Kristen Michal had previously expressed that he did not believe Pevkur was personally at fault, yet the political pressure proved insurmountable. The government is now working with the European Commission to determine if the €70 million can be recovered, with the National Audit Office warning that the state budget may have to absorb the loss if EU recovery efforts fail.
Broader Implications for Defence Spending
The scandal has reignited debates regarding the speed and oversight of defence procurement in the Baltic region. Estonia’s defence procurement agency had previously prided itself on being a fast and nimble facilitator for international donors, having executed approximately €400 million in contracts on behalf of various nations. The current crisis has forced a re-evaluation of these processes, with the National Audit Office highlighting systemic issues in the accounting of military assets and the use of public funds.
As the government prepares for parliamentary elections in March 2027, the ammunition scandal remains a focal point for opposition criticism. The European Commission has confirmed it is in contact with Estonian authorities, emphasizing that established safeguards and recovery procedures are in place to protect taxpayer money. The outcome of the arbitration in Strasbourg will likely determine the final financial impact on Estonia and set a precedent for how the country manages high-stakes, rapid-response military procurement in the future.
