Policy Potential of the Three Seas Initiative

09/06/2023

Policy Potential of the Three Seas Initiative

The article was published in partnership with the Warsaw Institute (options: Polish & English)

Daniel Hinšt, Vice President of the Centre for Public Policy and Economic Analysis (CEA)

In November 2024, we will mark the 10^th anniversary since the Three Seas Initiative (3SI) was initiated. The initiatory document of the Atlantic Council and Central Europe Energy Partners Completing Europe – From the North-South Corridor to Energy, Transportation, and Telecommunication Union envisaged an integrated set of energy, transportation, and digital links spanning from the Baltic to the Adriatic and Black Seas. The North-South Corridor is the starting point to the creation of a single European market and a cornerstone to the vision of a united Europe[1].

We will soon mark 10 years since the Croatian and Polish presidents launched the 3SI in 2015, or when the first summit was organized a year later in Dubrovnik.

Since then, 3SI has opened opportunities for many investment projects.[2] In the case of Croatia, this is certainly the LNG terminal on the island of Krk. This article provides an overview of that project and considers additional areas of potential cooperation with the 3SI.

Policy history of the Croatian LNG terminal

In 2012, First Deputy Prime Minister of the Croatian government Radimir Čačić initiated the LNG terminal on the island of Krk[3] by estimating the annual capacity of an investment of 5 billion cubic meters and EUR 600 million, with the expectation of 25 % funding from the EU budget.[4] In the same year, leaders of Croatian and Polish companies Plinacro and Gaz System signed a declaration about a gas transport corridor between the Baltic and the Adriatic. This cooperation was found important for connecting the Polish LNG terminal in Świnoujście, with the future LNG terminal on the island of Krk. [5] [6] [7] This Croatian-Polish cooperation could be seen as a policy forerunner of 3SI.

In 2015, the Croatian government decided that the LNG terminal is a strategic investment project,[8] while in 2018, such a decision was amended by adding that LNG is a strategic project in all phases[9]. In 2016, the government decided to speed up the process.[10] Therefore, in 2018, the LNG Terminal Act was passed in the Croatian parliament.[11] The act determines LNG as a Croatian interest and a company LNG Croatia as an investor.[12] [13] In 2019, the government made a decision about financing for the first phase in the amount of EUR 100 million, while an additional EUR 101.4 million was provided from the EU budget and EUR 32.6 million from the state energy companies as owners (LNG Hrvatska, HEP, and Plinacro). Therefore, the value of the initial investment was estimated at EUR 234 million[14]. The terminal has been operating since January 2021.

In 2022, the government decided to increase the capacity of the LNG terminal from 2.9 to 6.1 billion cubic meters of gas per year[15] [16] – especially due to expressed interests from neighboring countries (Slovenia, Austria, Hungary, Germany, and BiH).

The European Union and the United States strongly backed the Croatian LNG project. For example, former US Secretary of Energy Rick Perry (former governor of Texas) strongly supported European and Croatian LNG investments at the 3SI summit in Bucharest in 2018.[17] Also, the conservative think tank Heritage Foundation mentioned the LNG terminal in its report on Croatia[18].

Potentially new policies for deepened cooperation

This is one of the successful examples within the 3SI. However, the main question is what countries in 3SI can do to increase the potential and benefits of their cooperation by the end of 2025, if not earlier. Also, marking 10 years of the 3SI will be a moment to evaluate our achievements and reflect on possible policy directions in the future. While we need to continue with the current projects, there is also room for new policies within the 3SI.

First, we have a chance to increase the military spending of NATO members on the eastern flank. Currently, NATO members have a goal of spending 2% of their GDP on defense. However, it has been a long time since that goal was agreed upon. In the meantime, we have been facing Russia’s full-scale invasion of Ukraine and a larger geopolitical risk as well. After all, 2% is just the minimum, and the United States already invests much more than that — more than 3% of their BDP. Moreover, due to increased investments in defense[19] and the air force, Croatia has exceeded this target[20] and belongs to the TOP 10 NATO members in defense spending, together with Poland and the Baltic States.[21] In the meantime, Poland announced its plan to increase defense spending to 4% of GDP by the end of 2023[22]. Without any suggestion of European “independence” in relation to the U.S., there is an urgent need for Europe to increase its defense investments, especially in missile defense. This includes countries in Eastern Europe that share 3SI and a large border with Russia and Belarus. Poland seems to be a frontrunner in this initiative.

In addition to the previous item, there is a chance for increased collaboration between national intelligence agencies under the model of the Five Eyes: the UK, US, Canada, Australia, and New Zealand[23]. In addition to government cooperation, opportunities should be open for private intelligence enterprises, under the assumption that they could make a complementary and additional contribution to our security.

Moreover, we need to strengthen our intellectual capacities by creating clusters and policy communities for detecting disinformation[24] and authoritarian influence (from Russia and China). Such cross-border policy communities could consist of nongovernmental, governmental, and business organizations working together on joint funding, policy analysis, and sharing important information about disinformation and authoritarian influence that present policy risks to our institutional systems within the EU and NATO. Moreover, there is also an opportunity for educational institutions to cooperate on developing curriculums that would tackle disinformation, encourage critical thinking, and support civil education about our liberal democratic systems. We already have many initiatives and projects in this policy area. The 3SI can provide a framework to facilitate existing efforts and encourage new ones.

Furthermore, countries in 3SI could assess the need for additional investment projects and put priority on additional investments in LNG capacities, the defense industry, and further modernization of rail infrastructure. Regarding infrastructure projects, the 3SI is important for enhancing vertical transport connectivity, including military mobility. The current transport routes in the EU are predominantly horizontal in nature, given that the emphasis was placed on connecting Western and Eastern Europe.

Finally, the 3SI region gathers market economies that strive for additional developmental convergence. The Baltic States represent frontrunners in free market reforms, as can be seen from their high global rankings in terms of economic freedom[25]. Countries in the whole region can create strong cross-border policy communities in various areas. Their aim would be to encourage learning best practices associated with increasing economic freedom[26] and building institutions for long-term policy improvements[27].

Conclusions

All members of 3SI, except Austria, share a common history of being part of communist regimes (either Soviet or Yugoslav). Now we share a common future within the EU and NATO. Considering the political and economic transition between these two opposite legacies, which represent the essential reason behind Russia’s geopolitical frustrations with the West, the 3SI will need to develop a long-term and extended policy within the whole region. Such a policy should consider existing investment projects and include new policies to create a broader framework for development.

Endnotes

[1] https://www.ceep.be/www/wp-content/uploads/2014/11/Completing-Europe_Report.pdf

[2] https://3seas.eu/about/progressreport

[3] https://www.tportal.hr/biznis/clanak/cacic-pokrece-uspavani-lng-terminal-na-krku-20120418

[4] https://www.reuters.com/article/croatia-lng-project-idUSL6E8I36O620120703

[5] https://www.tportal.hr/vijesti/clanak/croatia-poland-cooperate-in-linking-lng-terminals-20120913

[6] https://www.poslovni.hr/vijesti/cacic-lng-terminal-mogao-bi-biti-gotov-2017-godine-215691

[7] https://www.plinacro.hr/default.aspx?id=420

[8] https://narodne-novine.nn.hr/clanci/sluzbeni/2015_07_78_1513.html

[9] https://narodne-novine.nn.hr/clanci/sluzbeni/2018_02_11_257.html

[10] https://vlada.gov.hr/UserDocsImages//2016/Sjednice/2016/27%20sjednica%20Vlade//27%20-%208.pdf

[11] https://www.sabor.hr/hr/prijedlog-zakona-o-terminalu-za-ukapljeni-prirodni-plin-s-konacnim-prijedlogom-zakona-hitni

– 77 votes in favor (the center-right governing majority – HDZ, HNS, HSLS) and 22 against (socialist opposition led by SDP, anti-EU populists from Human Shield and others)

[12] https://narodne-novine.nn.hr/clanci/sluzbeni/2018_06_57_1156.html

[13] https://lng.hr/en/terminal-regulations/

[14] https://narodne-novine.nn.hr/clanci/sluzbeni/2019_02_12_239.html

[15] https://vlada.gov.hr/sjednice/140-sjednica-vlade-republike-hrvatske-35921/35921 – item 7

[16] https://vlada.gov.hr/vijesti/povecavanjem-kapaciteta-lng-terminala-na-krku-hrvatska-ce-postati-regionalno-energetsko-cvoriste/35625

[17] https://ro.usembassy.gov/secretary-of-energy-rick-perry-at-the-three-seas-initiative-business-forum/

[18] https://www.heritage.org/index/country/croatia

[19] https://mvep.gov.hr/press-22794/by-investing-in-its-own-defence-and-security-croatia-is-strengthening-nato/249318

[20] https://n1info.hr/english/news/nato-croatia-exceeds-2-of-gdp-for-defence-first-in-allocating-for-equipment/

[21] https://www.morh.hr/hrvatska-medu-osam-zemalja-koje-izdvajaju-vise-od-2-posto-bdp-a-za-obranu/

[22] https://www.bbc.com/news/world-europe-64457401

[23] https://en.wikipedia.org/wiki/Five_Eyes