Three Seas Fund invests in the future of the region
Author: Paweł Nierada, first vice president of the management board of BGK, Polish Development Bank and member of the supervisory board of the Three Seas Initiative Investment Fund
10 investors, close to a billion euros of raised capital and three infrastructure investments – this is the balance of the so far activity of the Three Seas Initiative Investment Fund (3SIIF). All investments are cross-border and aim at improving infrastructure on the north-south axis.
For decades, infrastructure investments have focused on the effective connection of the Three Seas region with industrial centres in Western Europe. Contrary, the infrastructure linking northern and southern countries of the region has been neglected. This significantly reduces the competitiveness of the region and prevents the region from benefitting from its geographical potential created by being located between the three seas – Adriatic, Baltic and Black.
The 3SIIF is a commercial project – in addition to strengthening cooperation between countries and improving infrastructure in the region, the aim of the Fund is to make a profit for investors. Without this aspect, it would not be possible to attract private investors.
We set a clear goal for the Fund – developing cross-border infrastructure investments in the region. The infrastructure gap in order to match the quality of Western European infrastructure is almost EUR 600 bn. Improving connections between our countries are key to building economic growth.
Despite the pandemic, the Fund made the first investments within a very short time after it was set up. The first one in October 2020 and the last one in May 2021. The strategy of the Fund allows for investments in three areas: transport, energy and digital infrastructure. In each of these sectors, we already have one investment. It is very important that every investment benefits more than one country. I am convinced that, in this way, we are able to respond much better and more effectively to the needs of our countries in this part of the European Union.
In May 2021, the Fund made its first investment in the energy sector and acquired shares in Enery Development GmbH. The company has solar power plants in Romania, Bulgaria, the Czech Republic and Slovakia. Thanks to the funding received, Enery will be able to invest more than EUR 1 billion in the energy transformation of the Three Seas region.
The investment in the digital infrastructure sector is the construction of the largest and most energy-efficient data centre in the Baltic region. The project is carried out by the Estonian company Greenergy Data Centers, whose digital solutions will be available to as many as 12 countries of the region.
The first investment of the Fund in the area of transport is Cargounit – the leader of the locomotive rental market in Poland. The company plans to expand its activities to several countries in the region, which will help reduce transport costs in the Three Seas countries.
The region’s infrastructure needs are significant. Public and EU funds will not be sufficient to cover this expenditure and will need to be complemented by private funds. The need to increase in the participation of private investors in infrastructure investments was one of the key reasons for the creation of the Three Seas Initiative Investment Fund in 2019.
The target size of the 3SIIF is set to be EUR 3-5 billion. At present, 10 investors are involved in the Fund, most of them are regional development banks, but there is also the first private investor. We hope that there will be more and more private funds involved as there are many projects worth investing in. The Fund’s financial adviser has so far identified over 200 infrastructure projects.
According to the estimates, among others of the Spotdata, the share of private funds in infrastructure investments in the region is currently around 30-40 per cent, whereas in Western Europe it is 60-70 per cent. In the long term, the Three Seas countries should strive to achieve similar proportions.
State development banks, which help to combine public and private funding, play a particular role in achieving this objective. Therefore BGK, Polish Development Bank was the initiator and co-founder of the Three Seas Fund, and its first investors are state development institutions from the countries of the region.
The region itself has many advantages that are important for investors: rapid economic development, political stability, well-educated society and favourable geographical location. The current geopolitical situation can bring changes in global supply chains and make the region better positioned on global markets. To make full use of this opportunity, the countries of the Three Seas need to increase their infrastructure investment spending today.