Moldova and the EU's Third Energy Package: A Story of Endless Delays

Anton SHVETS May 1, 2021 was another deadline for Moldova to comply with its Energy Community obligations  to implement the European Union's gas and energy directives. No progress has been made in dividing assets. Even if done, all the work by ANRE, Moldovagaz and PremierEnergy is almost not covered by the media Initially, Moldova planned to ensure compliance of the domestic gas and electricity market with the 2009 EU directives by summer 2016. However, already by 2012 ex-Prime Minister Vladimir Filat came to realize the futility of that idea and asked the EU Energy Community for a three-and-a-half-year delay. The subsequent prolongations turned out to be much shorter, but failed to bring  Chisinau closer to fulfilling its obligations to the EU regulator. As to the gas component, neither of the delays (February 1, April 1 or May 1) helped to succeed. Meanwhile, certain steps were taken by Moldova relatively quickly and efficiently. The best progress was achieved in the field of electricity trade, due to the historical context. The major power generation company is a Moldovan hydroelectric power station located on the left bank of the Dniester owned by the Russian Inter RAO which pays taxes to the budget of the unrecognized Transdniestria and has nothing to do with Moldovan Energocom and PremierEnergy - at least, formally. This ensures independence of electricity suppliers from its consumers. Along with this, Moldova holds annual tenders for the supply of electricity to the republic, which implies at least three competitive proposals. In 2017-2018, 25% of the electricity consumed by Moldova was supplied by the DTEK Energo Ukrainian holding. Formal competition forces MGRES to provide a reasonable price for electricity purchased by Moldova. This April an energy contract was again concluded between Moldovan GRES and Energocom for almost 100% of the country's needs, but the formal requirement for competitive offers has been met. On May 1, President Maia Sandu held a working meeting to address interconnection of Moldova and Romania's energy systems. The main task at this stage, which is the construction and commission a Vulcanesti power plant and a power line between this village and Chisinau, should have been solved by 2019, but the project is being delayed. This is largely due to the lack of infrastructural and financial motivation, since the offer of MGRES, all other things being equal, will always be the most competitive due to the reduced cost of raw materials (Russian gas) for the station itself. Moreover, at certain stages MGRES sold generated electricity to Romania, and not vice versa. But from a political point of view, this project is extremely important for Maia Sandu, since it will have a serious symbolic meaning and will allow in the future to improve commercial positions in trade with Tiraspol and Inter RAO at the price of purchased electricity. In addition to some successes in the field of electricity trade, Moldova has successfully created the National Energy Regulatory Agency (ANRE) as a market regulator which became an ACER member. The latter is the EU's Agency for Cooperation of Energy Regulators (Ljubljana, Slovenia) created in March 2011. The agency enjoys such a high degree of political independence that the presidency and the government regularly have claims against it. For example, recently a parliamentary commission found signs of a cartel conspiracy in a series of increases in fuel prices, but ANRE, which still employs many people associated with Vladimir Plahotniuc, did not record any violations. Nor does ANRE sanction Moldovagaz JSC, which has repeatedly missed the deadline for resolving the issue of ensuring the independence of the transmission network operator Moldovatransgaz. In May 2016, Moldova adopted a package of key laws related to the implementation of the provisions of the EU's Third Energy Package, including the Laws on Energy and Natural Gas. However, many of the latter's requirements have not yet been fulfilled. Today JSC Moldovagaz, due to the shares transferred by Transdniestria to the operational management of PJSC Gazprom, is more than 60% controlled by the Russian gas monopoly. The company itself is responsible both for the purchase of gas for the needs of Moldova and for its transit in the Balkan countries direction. Despite the fact that PJSC Gazprom has almost completely minimized transit risks due to the construction and filling of the Turkish Stream (in 2020, only about 1 billion cubic meters of Russian gas was transited through Moldova which is dozens of times less than a few years before), the Russian company is in no hurry to give up its dominant position on the Moldovan market. It is obvious that from the very beginning the Third Energy Package did not take into account the privileged interests of PJSC Gazprom not only in the EU but also in third countries. The Russian gas monopoly is known to keep fighting for its profits where it has leverage over the situation. The PJSC Gazprom's short-term position as the main gas supplier to the Moldovan market is unshakable. Until the gas systems of Moldova and Romania through the Ungheni-Iasi gas pipeline are interconnected, there will be no other supply routes at all. But even the numerously delayed launch of the gas pipeline will not change the situation radically, since only Russian reverse gas from the Turkish Stream can be in it at the first stage. It will be a while before Romania starts producing its own gas on the Black Sea shelf in volumes that could ensure its export. Also, the port capacities of Romania are not enough to receive and transport liquefied natural gas to Moldova. At the same time, PJSC Gazprom is in no hurry to share the profits from the sale of gas to end consumers in Moldova and to give away the transit pipe, which it has been using for decades, to someone else's property for free. Therefore, the separation process of JSC Moldovagaz from Moldovatransgaz is being delayed. The situation is further complicated by the issue of the gas debt of Transdniestria and the property status of the gas transmission system located on the left bank of the Dniester. The Transdniestrian administration does not plan to give its pipe to the ownership of a new Moldovan company, which will not be connected in any way with PJSC Gazprom, a long-time supporter of the region's budget. The issue of debt does not have a realistic final solution at all until the final political settlement of the Transdniestrian problem. Seven billion US dollars is an unaffordable amount for Chisinau for any period of time. However, consolidating the debt to Transdniestria might mean de-facto recognition of the region's independence. As a result, the third EU Energy Package has turned into an trade instrument between Chisinau and the Kremlin, and a sensitive issue for both. How long the EU Energy Community will monitor this process without applying sanctions is difficult to predict.