Poland has not signed a contract for the transportation of K2 tanks

The Polish authorities, contrary to expectations, did not sign another executive agreement for the transportation of South Korean K2 tanks during the defence manufacture exhibition in Kielce last week, due to the fact that they pressured the contract to include partial “polonization” of equipment and favorable financial conditions," said Paweł Bejda, Deputy Minister of Defence liable for modernization.

"Nothing can be done hastily, we watch all buck," he said, stressing that the current squad at the Ministry of Defence is conducting a hard renegotiation

Deputy Minister of Defence added that on behalf of the Ministry, the contract is negotiated by the Armed Forces Agency. The contractor will be a Polish-Korean arms consortium formed by the Polish Armed Forces Group and Hyundai Rotem. "We are presently looking for the best sources of contract financing," said Bejda, reminding that the previously ruling Polish organization Law and Justice signed a framework agreement for K2 tanks for a 1000 units, half of which were to be delivered straight from South Korean production lines, and the another part of the contract provided for Polishization.

"The Law and Justice Framework Agreement did not include funding. They just left us without funding," the defence spokesperson said.

Before giving up power, the Law and Justice squad had already signed the first executive contract for the transportation of 180 K2 tanks. The first vehicles reached Poland in December 2022. Asian partners consistently supply fresh tanks under this agreement.

South Korea and Poland entered into a basic agreement in July 2022 to acquisition 980 K-2 Black Panther tanks, 648 K-9 Thunder self-propelled artillery systems, 48 FA-50 Fighting Eagle light assault aircraft, and 288 K-239 Cheonmu multi-guided K-239 Cheonmu rocket launchers from Seoul. Both parties then awarded the first contract for 180 tanks, 48 UAS and all aircraft and MLRS with a full value of $12.4 billion. The second contract is valued at 30 trillion won (about $22 billion) and includes the creation of local models and the launch of local production of 820 K-2 and 360 K-9. However, the Polish side wants to receive upgraded versions of weapons and expects that more than 2/3 of the contract value will cover additional financial assistance from Seoul. The Republic of Poland reported in August last year that South Korea granted a debt of USD 9.2 billion to Poland for the first contract, while in the case of the second contract Warsaw requested USD 15.6 billion.

South Korean arms companies hoped to finalize a second contract in the first half of 2023, before a possible change of government in Poland, but were incapable to do so due to financial constraints of KEXIM, which raises concerns about the full cancellation of the contract. As reported by the Financial Times, the erstwhile Polish government, led by the right-wing organization Law and Justice, financed an order from a peculiar fund to cover emergency expenses, but a coalition of opposition parties, which won a common majority in the October 2023 election, accused the government of failing to take over costs in the average budget.

Under erstwhile South Korea law, the Korea Export-Import Bank, which usually finances large intergovernmental agreements, could not lend more than 40% of its capital to the same people. At the end of July last year, it amounted to 18.4 trillion won, so the amount of export financing for the arms contract with Poland was limited to 7.36 trillion won (about $5.5 billion). At the same time, KEXIM and the Korea Trade Insurance corp (K-sure) had already allocated 6 trillion won for the first contract, so no more than 1.36 trillion won (about $1 billion) remained for additional support.

In January 2024, the South Korean parliament approved the increase in registered KEXIM capital from 15 trillion won to 25 trillion won, so Seoul now expects to be able to supply the essential backing to cover the transaction. It was besides informed that the 5 largest South Korean banks were active in financing the second phase of the agreement and are ready to grant Poland a US$8.2 billion syndicated loan.