Representatives of defense industry firms in Estonia say the sector is indeed interested in an additional source of funding, though in Estonia, challenges may arise on this due to the small size of these companies.

EU finance ministers in April this year approved the EIB's plan to provide greater support to the defense industry, removing an earlier requirement that companies must provide at least 50 percent of their output for civilian purposes in order to be eligible for loans.

EIB Vice President Robert de Groot visited Estonia last week to showcase the changes and to gather feedback from Estonian stakeholders.

De Groot told ERR: "We are visiting the most active countries in this sector in order to explain the changes which took effect on May 1."

"We want to work with the Ministry of Finance and the Ministry of Defense, as well as with the Ministry of the Interior, as it too deals with security issues, plus [we want] to establish contacts with the private sector," de Groot went on.

"Estonia is extremely active in this sphere. We have also seen the Estonian government's policy, which is strongly focused on stimulating growth in this economic sector," he added.

According to the EIB vice president, the bank still will not fund the production of explosives, ammunition, or weaponry, but the defense and security sector constitutes much more than just lethal technologies.

"If you look at this sector and consider what people need, both in Estonia and in the Netherlands, where I come from, it is much more than just weapons and ammunition."

"We have to be able to feel safe in our homes, on the streets, at our country's borders, and at sea. For instance, the protection of cables and pipelines in the Baltic Sea is also a part of the security and defense field – and we can fund that too," de Groot enumerated.

De Groot noted that the security and defense sector areas the EIB can fund include the protection of border security, satellite monitoring of ground activity, cybersecurity, the protection of communication channels, as well as military mobility and infrastructure as already mentioned.

Pevkur: Estonia's main focus is on weapons tech anyway

Minister of Defense Hanno Pevkur (Reform) told ERR that, in and of itself, the change in the EIB regulations is welcome, but Estonia's main interest remains the production of lethal weaponry, meaning EIB loan options are not helpful from that perspective.

Pevkur said: "It is certainly a positive thing that the EIB has removed the 50 percent threshold regarding dual use. This is a step in the right direction, but from the perspective of our defense industry and defense investments, there are still too many restrictions in place."

"For example, I asked de Groot if, since [funding eligibility] requires civilian use too, police ammunition could be considered civilian use, since the police is a civilian service. The response was that no it can't, because it ammunition is still ammunition, so they would not support it," the defense minister went on.

"Or for example if we were to look at establishing a large-caliber ammunition plant in Estonia, which might cost around €250-€300 million, then the EIB is actually of no help in that instance," he added.

"However certainly for instance, if a drone manufacturer wants to expand and can demonstrate that their drones would also be useful to farmers or in road building, meaning there would be some innovation component incorporated, then the EIB's solutions should certainly be accessible to Estonian investors and entrepreneurs," Pevkur added.

"Let's say, from the viewpoint of major defense investments, [getting a loan from the EIB] would be somewhat difficult without any innovation or civilian component, but for smaller cases where there is more dual use, there are surely opportunities there to secure funding from the EIB," Pevkur concluded.

As to the question whether Estonia might consider taking a loan from the EIB, for instance, to build up infrastructure within the framework of the military mobility program, such a decision would be based purely on financial calculations, Pevkur added.

Pevkur added: "I hope that the Ministry of Finance will analyze which financial leverage would be the least burdensome on the Estonian taxpayer and what the interest rate might be. The EIB has already provided loans to the Ministry of Finance."

"But one positive message for us is that the EIB funds military mobility because it specifically involves dual use, as railways, roads, bridges, or ports get used daily by civilian ships, vehicles and trains, so financing mechanisms are entirely feasible there. However, as is well known, the roads are built by the state, so the main responsibility lies with the infrastructure and finance sectors, rather than with the Ministry of Defense."

"So I would hive off the two spheres. One is that which the state carries, and the other is that which investors and entrepreneurs conduct themselves when seeking loans from the EIB. It was encouraging for me to hear that smaller EIB loans start at around €10 million, which is certainly attractive to the Estonian defense industry," Pevkur added.

Finance minister hopes to use EIB offering to strengthen internal security.

As for the Minister of Finance, Jürgen Ligi (Reform), he said to ERR that he sees options for using the EIB's new loan mechanism to enhance internal security, and expressed a hope that its regulations might shift towards encouraging more military-oriented usage.

At the same time, the minister pointed out that the volumes of EIB loans are so substantial that, if Estonia wanted to fund its infrastructure projects using these, it might be challenging to find suitable projects. "For example, we would need ten projects the size of the recently commenced Kanama viaduct overhaul ... We are essentially like a dwarf for the EIB; they are on another scale," Ligi went on, in typically Ligi-an fashion.

The minister also said that providing loans for military purposes could negatively impact the bank's credit rating, which is currently triple-A, but which may be one reason why the EIB wishes to avoid supporting the production of purely lethal weaponry.

Association representative: Estonia's defense industry certainly needs more loans

Meanwhile Kalev Koidumäe, CEO of the Defense and Space Industry Association (Kaitse- ja kosmosetööstuse liit), also told ERR that the sector is currently growing at a rate of 30 percent in turnover annually, so bearing this in mind, companies in the field will definitely require additional capital.

In addition to producers of purely lethal weaponry, there are also plenty of firms in Estonia offering dual-use goods and services, making the options provided by the EIB potentially suitable for them too.

"While we currently have 150 companies in the Estonian Defense and Space Industry Association, 20-30 of these have portfolios which concern 1defense and security products or services 00 percent , while others have more varied portfolios," Koidumäe said.

"In the main, we have dual-use products which can also be pressed into use for civilian purposes, including sensor technology software solutions and situational awareness systems. And there are also those products designed solely for military purposes, such as unmanned platforms, Threod drones, and Milrem's unmanned ground platforms – these are products which only have a military application."

And while the defense industry largely operates with a business model in which the contracting partner is the state, there may still be a requirement for working capital loans, to start fulfilling orders, Koidumäe added.

The association chief said that in the course of his meeting with EIB vice president de Groot, he also outlined Estonia's unique characteristics and scale.

Under the EU's understanding, a medium or small business is one with up to 500 employees, compared with the situation in Estonia, where a firm with more than 50 staff is already considered large, he noted.

"We also reflected on the fact that we have many startups and pseudo-start-ups which are in an embryonic stage with their product and want to achieve their first contract," Koidumäe noted.

Koidumäe also called to mind that while the EIB had previously focused largely on major infrastructure projects, industries may need to form joint consortia or jointly participate in large-scale projects, in order to optimize funding.

Up to €6 billion available under the EIB's offer

As part of the Strategic European Security Initiative (SESI), established to finance the defense and security industry, the EIB has made €6 billion available in respect of defense sector investments.

Furthermore, in January 2024, a new defense capital fund was set up with €175 million for capital investments for small and medium-sized enterprises and startups operating in the security and defense fields.

EIB Vice President de Groot stressed that this amount has not been pre-allocated between eligible recipient states, and loans are granted based on the receipt and suitability of all applications received.

He said: "We are a bank owned by all EU27 member states. We have projects across Europe; we don't have set amounts for specific countries because we respond to demand. So this means there is no specific figure for Estonia," he said.

When asked whether that €6 billion might be hiked further still any time soon, de Groot replied: "I would say that six billion is available, but it hasn't been fully utilized yet. Let's get to the stage of using that up first, which I don't think will happen just in the next couple of years. We'll take things from there."

"We can fund firms and projects, but we can also offer loans to governments or local authorities; we are not confined to lending only to firms. This means we have a wide range of options; we can finance startups via our subsidiary, the European Investment Fund, we can finance larger companies, and we are also looking at what we can do for small to medium-sized enterprises," de Groot said.

As to how much interest he sensed in Estonia for the EIB's offerings, de Groot said: "There was a great deal of interest here as your government is so active in the security and defense fields. But security and defense are also areas where we haven't been active for very long, so we're now paying our dues on that and need to catch up quickly. We are still at the learning phase; how all this works, getting to know each other, understanding what this sector requires. We already know the energy sector, we know the transport sector, we know hospitals, but with this sector, we are still at the learning stage. However, I am highly optimistic that by 2025 and 2026, this will pick up in pace."

As to how soon loans might start being issued, de Groot emphasized that applications must first be submitted, but the decision-making could take a few months.

"We are awaiting projects. First, projects which meet the criteria need to arrive with us. We can look at it almost like dating. We meet with the defense and security industry companies, and maybe at some point, a spark will ignite. The evaluation process, once we receive a project, would take a few months," he outlined.

EIB will take on NATO and the European Defense Agency as advisors

The EIB noted in its press materials that it recently formed a partnership with the NATO Innovation Fund and the European Defense Agency, both of which will act as advisors to the EIB on specific projects and help identify specific needs and priorities in this arena.

Among those projects which have already received funding, the EIB highlighted the financing of dual-use satellites made in Poland, and the upgrade and expansion of a port in Denmark to meet that country's naval needs, including in respect of NATO vessels.