On Wednesday morning, a Riigikogu special committee discussed disarray in the defense sector's accounting. The hearing was prompted by a National Audit Office summary report that identified major problems in the defense sector.

It also emerged Wednesday that Estonia had sought to buy artillery shells for Ukraine and paid a total of €70 million in advance to Indian companies that had never previously sold a single shell. Instead of military materiel, Estonia received repeated promises and the dispute is now in court.

The National Audit Office criticized the Estonian Center for Defense Investments (RKIK), which is responsible for procurement, for failing to provide it with the contract for the €70 million shell deal despite repeated requests. RKIK said the contract had been sent on June 5. The National Audit Office maintained that it had not received the contract and the hearing failed to establish which side was correct.

RKIK was also unable to comment on the terms of the contract at the hearing because of a confidentiality clause.

Urmas Reinsalu (Isamaa), who chaired the hearing, asked Defense Minister Hanno Pevkur (Reform) why the contract had not been made available to the National Audit Office.

"I can't recall all the details right now, but as far as I know, some of these contracts simply contain confidentiality clauses agreed with suppliers. Perhaps RKIK can clarify that better," the minister replied. He stressed, however, that in his view, the National Audit Office must be given access to the contracts.

Reinsalu noted that advance payments had been made to a company that had not previously produced ammunition and asked whether the contracts had reached the defense minister in writing and whether the decisions had been documented in writing.

Defense Ministry Permanent Secretary Kaimo Kuusk replied that procurement is RKIK's responsibility and that RKIK also assesses the risks. "Advance payments don't go before the minister for a decision. That's not how it works," he added.

Reinsalu asked whether the Cabinet had also been informed of the risks associated with the intermediary contracts.

Pevkur said the Cabinet had discussed aid to Ukraine in broader terms.

"How to implement the million-round initiative and how to use foreign donors to purchase equipment for Ukraine — implementation of all of that was handed over to the Estonian Center for Defense Investments, which negotiated with the European Commission and donors, agreed on the financing terms and then searched the global market for materiel," Pevkur said.

When Reinsalu again asked whether the minister's position was that no memorandum on the risks had been presented to the Cabinet, Pevkur replied that this was part of RKIK's ordinary business operations. Reinsalu took this as a no.

Kuusk added that information about the contract that had gone sour had also been shared with the Internal Security Service (ISS) and that officials had been in contact with the ambassadors of the countries connected to the contract. "When it became clear that this wasn't producing results, RKIK was instructed to terminate the contract and go to court," he said.

Reinsalu asked how the problematic companies had come into contact with Estonia.

"We trusted the Estonian Center for Defense Investments. The ministry gave the general instruction that assistance needed to be found for Ukraine," Pevkur said.

Pevkur: The minister does not pick contractors

The defense minister confirmed that he had not personally read the problematic contract. The permanent secretary, for his part, stressed that negotiations are RKIK's responsibility.

"We contacted the Internal Security Service (ISS) when delivery deadlines had been missed across the board and the RKIK leadership at the time kept saying that they would still get it done, that the contracts would be fulfilled despite the delays. That no longer inspired confidence. Negotiations over the substance of these issues are RKIK's responsibility," Kuusk said.

Pevkur stressed that the defense minister does not decide who contracts are signed with.

"The minister's decision-making meeting takes place every two weeks. RKIK provides an overview there and it also provided updates on aid to Ukraine. Of course, it reported who contracts were being signed with and what was being procured for Ukraine. This was always agreed with Ukraine and the European Commission as well. These were three-way arrangements. The information presented at the minister's decision-making meeting was who the contractual partners were and what was being procured. It was provided for information purposes," Pevkur said.

The defense minister confirmed that he had been informed of heightened risks related to aid for Ukraine, but said the ministry's position was that those risks had to be mitigated.

"There were no additional risks with the vast majority of partners. Those deliveries reached Ukraine without problems. The delivery from this partner might also have arrived, but the goods they supplied were not of sufficient quality and those goods are still being held pending resolution," Pevkur said.

Kaimo Kuusk told Eesti Ekspress that while the company did deliver some components to an intermediary warehouse, the goods were not of sufficient quality. "The shipment was completely lacking in essential components," Kuusk said. "An artillery round requires a fuse, a propellant charge that ignites in the gun barrel and a primer. Without any one of these components, the round is unusable. Estonia rejected the incomplete shipment," the weekly wrote.

Because RKIK has undergone personnel changes, its current leadership is unable to comment on the problematic deals.

RKIK's current director general, Elmar Vaher, told ERR in an interview that former RKIK director general Magnus-Valdemar Saar bears responsibility for the failed €70 million shell deal.

Estonian Defense Forces lack a modern inventory management system

The hearing also revealed that the Estonian Defense Forces (EDF) lacks a modern inventory management system.

The National Audit Office has criticized the Defense Forces over problems with inventory records both in previous reports and at Wednesday's hearing.

Chief of Defense Lt. Gen. Andrus Merilo told the hearing that the EDF has more than 200 million items subject to inventory checks, but insisted there is no issue with whether the items actually exist.

"What can improve the situation are technical solutions that we don't have today. Inventory management and everything else is very much done manually. We don't have the kind of system used by companies with highly advanced warehousing operations because our core mission isn't inventory management, but carrying out military tasks. Once those systems are introduced, things should improve," Merilo said.

Auditor General Janar Holm noted that the inventories conducted by the Defense Forces do not provide sufficient assurance that the items are actually there. Holm stressed that the Defense Forces has been entrusted with a large amount of money and said he did not want to hear the issue dismissed as a "pointless" accounting problem.

"I have never said that accounting is pointless," Merilo replied. "At the same time, I don't accept that after 34 years of service, I'm now hearing suggestions that I have somehow siphoned off money or that the entire Defense Forces has done so. Once again, the supplies exist and are in the possession of subordinate units."

The chief of defense said much of the confusion was related to paperwork. "So I won't allow this to be framed in a way that suggests we don't know where the money is or that money has disappeared when it comes to the Defense Forces," Merilo said.

The auditor general replied that, in that case, the Defense Forces must provide that assurance.

Merilo stressed that Defense Forces personnel are not professional accountants, but said the organization is working to recruit people with the necessary expertise.

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