(Bloomberg) -- The European Union’s foreign-policy arm has presented member states with a proposal to revamp a fund that provides military support to Ukraine, as the EU shifts from sending weapons from existing stockpiles to procuring new ones.

A document by the European External Action Service, seen by Bloomberg, sets out the terms to establish a previously proposed Ukraine Assistance Fund with an annual budget of about €5 billion ($5.4 billion) that EU governments have failed to agree on.

Under the current funding mechanism, known as the European Peace Facility (EPF), member states are reimbursed for weapons they send Ukraine. The facility’s size has been expanded several times but decisions to allocate and disburse funds require unanimous backing and there’s a backlog that will need to be covered.

Seven packages totaling €3.5 billion have been approved since Russia’s full-scale invasion of Ukraine almost two years ago, as well as €2 billion to supply ammunition. Member states have argued over reimbursement rates and use of the facility to offset purchases, while Hungary has blocked an eighth funding tranche to compensate EU nations for deliveries.

Diplomatic envoys from several countries, including Germany, suggested at a meeting on Wednesday that the EPF as it’s set up now is becoming less effective since more future deliveries will be newly purchased weapons rather than drawn from existing stocks.

Other member states would prefer to see the assistance fund baked into the EPF, while some nations want to continue with the current mechanism, Bloomberg previously reported.

Read more: EU Eyeing New Russia Sanctions Ahead of War’s Two-Year Mark

The EEAS proposal seeks to reconcile the various positions by changing the fund’s governance, including fixing its reimbursement rates and providing a higher bonus for joint initiatives between European and Ukrainian industry. Reimbursements for deliveries from stocks and from unilateral procurement would gradually phase out, the draft says.

The fund would have two main “European pillars” supported through the EPF: the provision of lethal and non-lethal support to Ukraine via joint procurement through European industry, and continuing to train and equip Ukrainian troops.

The instrument would complement any bilateral assistance provided by member states.

The EEAS envisions that the fund would be used to meet Ukraine’s most urgent needs for artillery, specialized munitions, drones and air defense, as well as non-lethal elements such as demining, military medical support and cyber.

As part of the proposals, the EU should consider establishing targets with specific deliverables and timetables and member states set out how they intend to contribute to meeting those.

Bloomberg previously reported that the EU is unlikely to hit a pledge to provide Kyiv with 1 million rounds of artillery ammunition by March.

Read more: EU Says Very Unlikely It Will Meet Ammunition Pledge to Ukraine

Coverage of non-European equipment and services in the bloc’s work to train and equip Ukrainian troops, for example as part of the F-16 coalition, should be considered on a case-by-case basis, the draft suggests.

An EU diplomat said that provision was a nod to countries like France that want the fund to be spent primarily on EU industry. Some member states have criticized that approach, arguing that weapons for Ukraine should be sourced from wherever they’re immediately available.

“A political agreement is needed as soon as possible on the proposed objective to reach an increase of the overall financial ceiling of the EPF by €5 billion, specifically dedicated to Ukraine,” according to the paper. Further comparable annual increases could be envisaged until 2027, based on Ukrainian needs and subject to political guidance by member states, it adds.

©2024 Bloomberg L.P.