The Three Seas attracts foreign investors

The war in Ukraine made the Three Seas Initiative more distinctive. More and more international investors are interested in the economic dimension, namely involvement in investments in the region. They are attracted by the Three Seas Initiative Fund, initiated by Bank Gospodarstwa Krajowego, which, after three years of operation, already has 1.2 billion euros in its portfolio for the implementation of projects in the countries of the region. Objective? raise 3 billion euros.

  • The Three Seas Initiative is an initiative of twelve countries located between the Adriatic Sea, the Baltic Sea and the Black Sea, which was founded in 2015 by President Andrzej Duda and Croatian President Kolinda Grabar-Kitarović to promote economic and infrastructural cooperation between the countries of the region.
  • The Three Seas Initiative Investment Fund (3SIIF) is a commercial (market-based) project focused on infrastructure investments in transportation, energy and digital technologies. The initiator and co-founder as well as the main investor is Bank Gospodarstwa Krajowego.
  • After three years of operation, the Fund has EUR 1.2 billion in capital and has already completed five projects. BGK Vice President Paweł Nierada talks about the following in an interview with CIS.

The Riga Three Seas Initiative Summit, which ended in late June, took place in the shadow of the war in Ukraine. Previously seen primarily as a political project, the initiative now takes on a new dimension in the light of this conflict. There is an increasingly urgent need to move from words to deeds. How is this change experienced by the Three Seas Fund initiated by Bank Gospodarstwa Krajowego (3SIIF), which is a specific economic dimension of this initiative?

– The investment strategy of the Three Seas Fund is quite clear and precisely defined. We invest in three priority areas of the economy: the commonly understood energy sector, the transport and logistics sector, as well as digital infrastructure.

The fund, as a commercial project, only invests in commercial ventures on which its investors can earn.

The area of ​​the fund’s investment is also clearly delineated, as these are currently only the Three Seas countries. Therefore – I will avoid the question here – the Fund cannot invest in Ukraine or, for example, in Moldova. This is not to say that it cannot invest in projects that also include projects abroad.

What could these projects be?

– Several such examples can be given to illustrate the Fund’s investment opportunities in Ukraine. For example, one of these could be the construction of a power line connecting the Three Seas countries to the Ukrainian energy system. Part of the necessary transmission infrastructure on the part of the countries of the Three Seas Initiative could be implemented as an investment project in which the Three Seas Fund could participate. The continuation of this transmission line on the Ukrainian side could be carried out with the participation of other players, including perhaps some investors already present in the Three Seas Fund or Polish companies supported by BGK – these were present in Ukraine before the war.

As a development bank, BGK supports the expansion of Polish entrepreneurs, also abroad. So far we have also strongly supported the Polish activities in Ukraine and we still have financial solutions that can support such activities.

But coming back to the question, what we can see strongly as a result of the war in Ukraine is the general increase in visibility of the Three Seas Initiative. Today it is absolutely clear and unequivocal that the importance of this initiative has increased dramatically in the new geopolitical perspective. From our perspective, for example, we see it through the growing interest from financial investors who want to join the Three Seas Fund.

An example of such an interest rate hike is the statement of commitment recently submitted by the American development agency DFC to the Three Seas Fund. Can we expect more investors to join the Fund soon? Will they be private partners?

– The Fund is indeed at the stage of discussions and very proactive investment marketing to investors, especially private investors, both from the Three Seas region and from around the world. It is also worth noting that there are currently two private investors already active in the Fund.

We already have four investments in portfolio; the fifth is underway – it is a gas infrastructure development project in Romania, whose roadmap was signed on the occasion of the Davos summit with the Romanian transmission system operator Transgaz.

With such an investment portfolio, the Fund already has a critical mass that will allow it to enter a new phase in attracting international private investors. The involvement of the American institution also reinforces the message about the quality of the fund.

In the context of the American side’s interest in the region and investments in the Three Seas countries, the war in Ukraine is also not without significance …

– Talks with the US side about this offer have been going on for quite some time. This investment process on the US side was also affected by the change of management and the replacement of Donald Trump’s team with the people of Joe Biden. It is worth emphasizing here that the position of chairman of DFC was only filled in mid-February this year.

Also read: Americans are going to invest in Three Seas Fund

On the other hand, strategic cooperation and the importance of the Three Seas Initiative, in particular our Fund, were at the center of the discussions from the start.

The region’s investment needs are enormous and increasing in light of the challenges posed by the outbreak of the war. Will the need to accelerate investment in the logistics, energy and digital infrastructure of the Three Seas region force the need to increase the Three Seas fund?

– Currently, taking into account the US commitment of USD 300 million, the fund has a potential of EUR 1.2 billion. Ultimately, we want to reach the level of 3 billion euros, heavily dependent on international financial investors.

This is a huge amount, but in the context of the needs we see in the region and its investment potential, it is a drop in the ocean. Let’s not forget that only in the three designated strategic areas I mentioned, ie in the fields of energy, transport and logistics and digital infrastructure, the investment needs in Ukraine before the war were estimated at almost 600 billion euros.

The Three Seas Fund does not in any way have the ambition and ability to replace public funds from individual countries or EU Structural Funds, which by definition fit into the building and development of cross-border connections of the economies of the countries of the European Union.

Nevertheless, we hope that the positive example of our fund, which invests in lucrative, profitable cross-border projects in the Three Seas region, often in the form of private-public partnerships, will contribute to the intensification of other investors.

Within what time horizon is it possible to raise the aforementioned capital of 3 billion euros, which the Fund wants to raise for investments in the region?

– We intend to do this within approximately 5 years from the start of the Fund’s operation, ie until approximately 2025.

You mentioned investments that the fund is already working on. These are four projects, the most recent being the Bulgarian investment in Port Burgas. Will more be added to this list this year?

– So far, the Fund has analyzed more than 220 projects, four of which have been completed, and the fifth, mentioned pipeline in Romania, is underway.

We are not yet able to make the details of the ongoing talks public. We expect another transaction to be announced by the end of this year. More investments will also be made next year.

Since we can’t talk about the details yet, can you at least say in which sectors these projects will take place?

– These will be investments from the three sectors mentioned above, which are the focus of the Three Seas Initiative. Until now, the target investment division was defined as 40-40-20 – that’s 40 percent. we want to invest in transport infrastructure, 40 percent in energy, and 20 percent. at digital.

Perhaps it pays – in the context of the war in Ukraine and new aspects of digital security – to redefine these relationships.

So the Fund does not go beyond these areas?

– Perhaps as we see other interesting investment areas in the Three Seas Initiative countries, it would be worth considering creating a separate fund or sub-fund that will focus on such new assets.

However, there are currently no reasons to fundamentally change the Fund’s investment strategy focusing on these three areas.

So what influences the Fund’s decisions to make a specific investment? What is crucial when choosing the projects you are involved in?

– First, the project must fall in one of these three key sectors for the initiative. Second, it must be ready for deployment. We are not interested in ideas in the analytical works stage, but in investments that are ready to be launched. In addition, the Fund only invests in projects that are profitable and have business tightening. They must have the potential to generate a good return that guarantees a minimum profit for investors.

Here, the Fund’s ambitions are quite clearly and ambitiously defined. The total return on investment (IRR) should be 13-15 percent.

Importantly, the investment project must be associated with at least two countries of the Three Seas Initiative. These cannot be projects carried out in only one country, for example in Poland, Slovakia or Romania. The idea behind the Fund, as well as the entire Three Seas initiative, is to build interactions between the countries in the region and intensify economic exchanges between them.

When are the returns on the individual investments in which the Fund is active or are summarized?

– We are a long-term investment fund, therefore the payback period of our investments is 15 years with the option to extend for a further 5 years. As a rule, the final closing of the Fund and the settlement of returns on all investments will take place approximately 20 years after launch.

This period is part of the entire development cycle of the Three Seas Initiative Investment Fund – the first 5 years are an investment period, during which managers and investment advisors search, analyze and invest in projects. Then comes the time to develop and build these projects – that’s another 10 years or so. The last 5 years are the period for closing the Fund, ie the sale and completion of projects.

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