EU approves construction of Croatian LNG terminal at Krk island

The European Commission greenlights Croatian plans to support the construction and operation of a LNG terminal at Krk island, as they are in compliance with the EU state aid rules. The project will participate in the security and diversification of energy supplies.

Croatia passed a law enabling the construction, which will be partly funded by the EU, on the construction of the LNG terminal on the island of KrK in 2018.

The approved measures will support the construction and operation of a floating LNG terminal, consisting of a floating storage and regasification unit (FSRU) and the connections to the national gas transmission network. The LNG terminal is developed to transport up to 2.6 billion cubic meters per year (bcm/y) of natural gas into Croatia national transmission network as from 2021.

Commissioner Margrethe Vestager, in charge of competition policy commented

The new LNG terminal in Croatia will increase the security of energy supply and enhance competition, for the benefit of citizens in the region. We have approved the support measures to be granted by Croatia because they are limited to what is necessary to make the project happen and in line with our State aid rules.

Croatia notified the Commission of the €100 million direct financial contribution, as well as of the security of supply fee.

Concerning the EU State aid rules, the Commission assessed the measures below:

1. the aid measures are necessary, as the project would not be carried out without them. In this respect, the Commission’s financial analysis has shown that the revenues originating exclusively
2. from the tariffs charged to the users of the LNG terminal would not be enough to recoup the investment costs and ensure a sufficient remuneration of the LNG promoter;
3. the aid measures are proportionate and therefore limited to the minimum necessary, as they will only cover the “funding gap”, that is the difference between the positive and negative cash-
4. flows over the investment lifetime, discounted to their current value (using the cost of capital).

Therefore, the Commission concluded that the measures are in line with EU State aid rules, as they contribute to further key strategic objectives of the EU, including diversifying gas supply sources and increasing the EU’s security of gas supply, notably in the Central and South-Eastern regions, without unduly distorting competition.

The financing of the terminal will be through:

1. a direct equity contribution of €32.2 million from the LNG terminal company shareholders;
2. a contribution of €101.4 million from the Connecting Europe Facility, which is centrally managed by the European Commission, through the Innovation and Networks Executive Agency (INEA);
3. a direct financial contribution of €100 million from the Croatian State budget.