According to the Estonian reporting, neither Datasel nor Neco had previously produced artillery shells when the contracts were signed.

Pevkur, who had served as defence minister since 2022, said on Wednesday that he was resigning to take political responsibility for problems in the area under his ministry, while stressing that he was not personally responsible for negotiating individual procurement contracts, according to ERR.

How did the €70 million ammunition deal go wrong?

The procurement involved four contracts signed by RKIK with Datasel in 2024, according to ERR. The first, signed in August, involved a €15 million advance payment, followed by another €10 million payment in October. Further contracts were subsequently signed, bringing the total advance payments to about €70 million.

The ammunition was expected to start arriving in November 2024, but deliveries were delayed. Estonia subsequently terminated the contracts and began seeking recovery of the money, ERR reported.

What happened to the ammunition is disputed. Pevkur told ERR that ammunition had been delivered, but said it was incomplete and did not meet the required quality standards. The Defence Ministry has said inspections found that the ammunition did not meet contractual requirements.

Datasel disputes Estonia’s account. According to ERR, an attorney representing the company told Eesti Ekspress that Datasel had supplied a substantial quantity of ammunition and could have fulfilled its obligations had Estonia not terminated the contracts.

The company has also rejected allegations of wrongdoing, according to reports on the dispute.

Estonia takes dispute to court and arbitration

RKIK has taken legal action against Datasel in Estonia, while the dispute has also gone before the European Court of Arbitration in Strasbourg, according to ERR.

The case remains contested. Estonia says the ammunition failed to meet contractual requirements and has sought recovery of the money, while Datasel disputes the termination and says it supplied substantial quantities of ammunition.

The ongoing legal proceedings also mean that Estonia has not disclosed all details of the contracts and procurement process, according to reporting on the case.

Why did Pevkur resign?

Pevkur announced his resignation as pressure mounted over the ammunition procurement and a broader National Audit Office report on the management of money and assets in Estonia’s defence sector. Euronews reported that the audit had criticised both the Defence Ministry and the Estonian Centre for Defence Investments.

In announcing his resignation, Pevkur said Estonia’s security was a shared responsibility and that he had to accept political responsibility for the defence portfolio.

Pevkur also argued that the defence minister does not negotiate individual procurement contracts or oversee the detailed accounting of military supplies. He said he had not personally read the contracts involved in the ammunition procurement, ERR reported.

The detailed procurement process was handled by RKIK, Estonia’s defence procurement agency.

Audit found wider problems in defence spending

The ammunition controversy came against the backdrop of repeated criticism from Estonia’s National Audit Office.  In an audit published on August 28, the watchdog said serious problems persisted in the Defence Ministry’s area of administration, including weaknesses in contract management, monitoring whether contracts were being fulfilled, checking whether goods had arrived and met requirements, and accounting for defence assets.

The National Audit Office said these weaknesses increased the risk of misuse of state property and funds as defence spending grows.

The audit also found that the Defence Forces had retroactively increased their inventory balance by €99.7 million, from €723.9 million to €823.6 million, but could not provide supporting documentation explaining the adjustment, according to the watchdog.

The audit’s findings followed similar concerns raised by the National Audit Office in previous years over contract management, monitoring and the verification and registration of goods received by defence agencies.

Criminal investigation launched

The financial-management controversy has also taken on a legal dimension. ERR has reported that Estonia’s Prosecutor’s Office opened criminal proceedings following concerns raised in National Audit Office reports about the Defence Ministry’s area of administration and finances.

The criminal proceedings should not be conflated with the Datasel contractual dispute. There is no finding in the reporting reviewed that Datasel or Neco Defence Munitions has been convicted of fraud or other criminal wrongdoing.

The contractual and criminal matters remain under investigation or legal review.

EU could seek repayment of €70 million

The dispute also raises questions over European Union funding. The ammunition procurement was financed through the European Peace Facility, the EU mechanism used to support military assistance to Ukraine. The European Commission has said the facility is an important instrument for enabling military assistance and delivery of equipment to Ukraine.

At a September 3 briefing, European Commission spokesperson Christian Wigand said Brussels was in contact with Estonian authorities to examine whether Estonia would have to repay money received through the facility for the ammunition procurement.

Wigand said safeguards and recovery mechanisms exist to ensure EU taxpayers’ money is properly used, but stressed that it was too early to say whether Estonia would ultimately have to repay the funds.

As of the latest reporting, the European Commission has not announced that Estonia must repay the €70 million. It is still examining the matter.

What is the Indian connection?

The Indian connection is through Neco Defence Munitions, which acquired Datasel S.R.L., the Italian-registered company involved in the Estonian ammunition contracts.

According to ERR, Neco acquired Datasel in March 2024, shortly before the Estonian contracts were signed.

The unusual aspect of the deal was that Datasel had not previously had an established record of producing artillery shells, according to reporting based on the Estonian investigation.

Datasel and its representatives have rejected wrongdoing and disputed Estonia’s version of events. The company has argued that it delivered a substantial quantity of ammunition and that supply-chain issues contributed to delays, according to reporting on its response.

The controversy involves an Indian-owned private company. The reporting reviewed does not indicate that the Indian government was involved in the procurement or the dispute.

A wider procurement problem

The Datasel case comes as Estonia faces broader questions over defence procurement and asset management.

The National Audit Office has warned that weaknesses in contract management, inventory accounting and oversight have persisted despite earlier warnings. Its August 28 report said the risks were becoming more significant as Estonia’s defence spending expands.

The controversy has therefore moved beyond a dispute over one ammunition supplier. It has raised questions about how suppliers were selected, why large advance payments were made, how incoming military equipment was checked and how defence assets were recorded.

Pevkur’s resignation is the political fallout so far. The Datasel dispute, the prosecutor’s investigation and the European Commission’s review of the EU funding remain unresolved, according to the latest reporting.

(The story has been curated by Aditi Anand, who is an intern with The Indian Express)