14 August 2019

Billions of Euros for infrastructure in the Three Seas countries

[Gazeta Polska daily, 14 August 2019]

Bank Gospodarstwa Krajowego initiates the Three Seas Fund

The possibility of using the synergy effect vis a vis economic development of Poland and Europe has led to the creation of the idea of ​​a transnational investment vehicle, meaning the Three Seas Fund. It will be one of the main pillars of financing key infrastructure projects in the region, from the Baltic to the Black Sea and the Adriatic. The co-founders of the Fund are development institutions from the Three Seas countries, including Bank Gospodarstwa Krajowego, which was the initiator of the whole concept. According to forecasts, in the decade to 2030, investments in infrastructure in the Three Seas countries may amount to over EUR 1 billion, of which approximately half of this amount is to be allocated to network infrastructure, such as roads, tracks, airports, electricity and gas networks. For the purpose of financing these projects, the Three Seas region needs new sources of support.

The Three Seas Fund will provide resources

The Three Seas Initiative, which in addition to Poland covers 11 countries of Central and Eastern Europe, is gaining more and more popularity. The new challenges facing European countries today create a need for closer cooperation in logistics, energy and telecommunications. The practical dimension of the Initiative is the Three Seas Fund, says Beata Daszyńska-Muzyczka, president of Bank Gospodarstwa Krajowego, who is also the main initiator of the creation of the Fund. Its purpose is to improve the quality of transport, energy and digital infrastructure in the from the Baltic States, through Poland, to the Balkans. The fund, which will operate fully on a commercial and market basis, will accumulate and provide capital for the implementation of investments important for the further development of the region, explains the President of the Bank.

BGK authorities assumed that one of the foundations for Poland’s development is the harmonious growth of the entire region. The Polish economy will be able to develop rapidly provided that the surrounding economic environment, i.e. neighboring countries, develop at an appropriate pace. In order to make it happen, further massive investments are needed. The SpotData economic data analysis center report shows that the demand for financing network infrastructure in the Three Seas region by 2030 is EUR 520 billion. The Three Seas countries, as part of Europe trying to converge their economies to the economies of the richer Western countries, are not able to generate such funds themselves from taxpayers’ money, hence the need for private money, explains Mateusz Walewski, BGK’s chief economist. In addition, there is the question of shrinking European Union support in the coming perspective, which is the reason why money from private or institutional investors, filling the gap after EU funds, will become necessary in the coming years.

BGK as a guarantor

The Three Seas Fund is exactly in line with the goals and mission of Bank Gospodarstwa Krajowego, which for 95 years has been supporting the development of the Polish economy and improving the quality of life of Poles. Thanks to the Bank’s support, a transport infrastructure is being created in Poland, new power units are being built, and many investments needed by Polish regions are being implemented. As a development bank, BGK ensures continuous and even growth of all voivodships. Since 2017, BGK, as part of the Digital Poland Operational Program for 2014-2020, provides telecommunications companies with loans, funds (their total of PLN 686.8 million) for the implementation of investments related to the construction, development and reconstruction of broadband access networks Internet. The Bank implements the EU plan for 2014-2020 in the field of managing funds, offering non-subsidy support for, inter alia improving the country’s energy efficiency.

Via Carpatia to speed up

Poland is consistently involved in improving the transport accessibility and communication coherence of the Three Seas region. Via Carpatia is such a key transport project, part of which in Poland expressways S61 and S19 are already under construction. The European international route ‘north-south’, which is built in stages, connecting Klaipeda in Lithuania with Thessaloniki in Greece, in Poland will run through Białystok, Lublin and Rzeszów, and then Košice and Debrecen (Slovakia, Hungary). In Romania, the trail splits towards Konstanz seaport and towards Sofia and southern Bulgaria. The estimated budget of the Fund for this project is 3-5 billion euros estimated already. The Via Carpatia completed would significantly increase the mobility of our entrepreneurs and increase the investment attractiveness of Eastern Poland, but it would also have a significant impact on the non-business dimension of the inhabitants of Podlasie, Lublin or Podkarpacie would be easier to go on vacation to the Adriatic Sea or the Black Sea in comfortable conditions. Furthermore, improving the quality of life of Poles is one of the Bank’s missions, says President Daszyńska.

Investments in rail and clean energy

In the years 2020-2030, the Three Seas Fund will focus on investments requiring special attention due to negligence to date. Apart from the roads, which require EUR 165 billion, one of the areas requiring attention is the region’s rail infrastructure, in particular international connections. The investment requires both passenger rail and transport of exported goods. If energy transformation leads to mass electrification, rail will be an important investment destination as a natural way to electrify transport. As part of the BGK Fund, it estimates the needs related to railway infrastructure at EUR 100 billion. In addition, the investments will also include water transport infrastructure, the so-called River roads (EUR 13 billion is needed here) and aviation infrastructure (EUR 11 billion). Investments in energy will be a response to the growing pressure on the introduction of low-carbon technologies. The amount of funds needed for electricity transmission, distribution and gas infrastructure is EUR 21 billion, EUR 51 billion and EUR 16 billion, respectively. Expenditure also requires investments in energy connectors between countries, because the Three Seas countries, including Poland, still has low indicators of energy integration with the pan-European market. In addition, expansion and modernization will also cover domestic energy networks, which are important for the functioning of regional markets. In turn, the creation of new gas connections between countries will allow a fast gas transmission and strengthening of the single gas market throughout the European Union. Investments in digitization will include telecommunications infrastructure (for which EUR 130 billion would be needed) and digitization in transport and energy (EUR 30 billion). The main element of this development will be the construction of the 5G network and the digitization of services such as logistics, in which the Three Seas countries, including Poland, have a special advantage due to attractive labour costs and employee competences.

Importantly, the Three Seas Fund, which was established at the end of May 2019 by BGK and the Romanian EximBank, will be involved in infrastructure projects on a commercial basis. This means that all investments will defend themselves in terms of economic calculation, and their task will be to bring profit to investors. Therefore, one can hope that soon, thanks to the Polish Development Bank, infrastructure in the region will become similar to the German, Austrian or Spanish ones. The article was created in cooperation with BGK.  

Photo source: BGK (logo), BiznesAlert