The UK’s export credit agency has provided some £9bn in guarantees to help Poland build a missile defence system as the country bolsters its armed forces in the wake of Russia’s invasion of Ukraine.
UK Export Finance (UKEF) chief executive, Tim Reid, in May sought permission from then-trade secretary Kimi Badenoch to go “significantly beyond” its risk limits to support Poland’s Narew air defence programme, according to correspondence published by the agency last week.
UKEF is required to seek “ministerial direction” to approve transactions which are deemed to be in the UK’s national interest but exceed the agency’s regular risk appetite.
Missile manufacturer MBDA UK is a “key supplier” to the Narew programme, according to Reid’s letter.
The company, a joint venture between Airbus, BAE Systems and Leonardo, is making more than 1,000 anti-air missiles and over 100 launchers for the air defence system, according to a November 2023 press release, which valued the contract at £4bn.
The total support package for Narew “will involve UKEF incurring total contingent liability that could approach approximately £9bn”, Reid’s letter said.
A UKEF spokesperson says the agency is providing support in the form of guarantees to commercial lenders, but declined to name the banks involved due to commercial sensitivities.
Reid said in the letter: “I am satisfied that the overall risk in relation to Poland is low, and that UKEF would receive adequate premium to compensate it for its estimation of that risk on each transaction it supports.
“However, the quantum of exposure that UKEF could be required to take relative to the overall size of its portfolio is high”, which means it risks breaching its financial objectives set by the Treasury, he said.
Badenoch, who was replaced by the Labour Party’s Jonathan Reynolds after the UK election in July, said she, alongside other ministers, considered arguments that the outsized liability was in the national interest.
“I believe that these arguments are sound – Poland is a close ally of the UK,” she wrote to Reid. “We share common security interests, and the Narew programme will help develop our existing strong strategic bilateral relationship.”
Reid’s letter asked Badenoch to keep the transaction confidential “for reasons of commercial sensitivity” and said UKEF would only publish the correspondence when the financing “has become effective”.
Badenoch said she would inform parliament “in due course” of the instruction for UKEF to take on the liability.
The MBDA deal to supply Narew is the largest commercial agreement ever secured between the UK and Poland, the government said last year. Narew is part of a three-tier air defence upgrade, according to industry journal Army Technology, and will provide short-range air protection for troops and facilities.
Poland has ramped up defence spending since Russia’s invasion of neighbouring Ukraine in 2022. Its defence budget is projected to reach 4.7% of GDP next year, Reuters reported in October, which would be the highest proportion of any Nato member.
UKEF has historically played a large role underpinning the UK’s defence export industry, helping finance sales of weaponry and fighter jets.
Reid’s letter says a “series of large prospective defence related orders by Poland that involve UK suppliers”, including the Narew transaction, “could require UKEF to take up to £15bn of risk in this market”.
The exposure vastly exceeds UKEF’s current risk appetite for Poland, which currently stands at between £2bn and £3bn, according to the agency’s website.
A UKEF spokesperson tells GTR: “Our financial guarantees come at no net cost to the taxpayer and support Poland’s Narew air defence programme, in which MBDA UK is a key supplier.”
MBDA did not respond to a request for comment.
Image credit: MBDA
