Gas Price Hike for Moldova Turned Out to Be Inevitable

Anton SHVEC

The unfavorable situation on international markets and the sum of foreign policy factors have led to almost inevitable increase in purchase prices for Russian blue fuel imported by Moldova. As a result, end consumers will suffer the most

Supplying gas to households, especially in the autumn-winter period, has been a serious problem for the population of the republic for many years. The prices for gas sold to end consumers have been steadily increasing over the years. Autumn 2020 was a happy exception, when its cost was reduced by 12.2% (for economic agents connected to high and medium pressure networks - by 6.8 and 10.7%), which was largely due to agreements between JSC "Moldovagaz" and PJSC "Gazprom" ahead of the presidential elections. Today, however, the overall negative trends are motivated by both objective market factors and problems in Moldova-Russia relations. This year's increase in prices on international markets is unprecedented, being directly related to the intensive recovery of the global economy. For example, in May 2020, the cost of one thousand cubic meters of Russian gas in Europe reached a record low of 34 US dollars (compared to normal prices that in previous years fluctuated between 150-350 dollars). However, by July 2021, due to the shortage of its own generation in the European Union, as well as the extremely high demand in Asian markets (as a result of expanded investments to revive the economy, which collapsed due to the coronavirus quarantine and lockdown), gas prices increased to $500 per thousand kilometers. And finally, in September, due to a gas shortage in European storage facilities and an accident at one of the Gazprom largest production facilities in Novy Urengoy, the cost of gas approached a $1000 mark. On September 17, the chairman of the JSC Moldovagaz board informed that negotiations with PJSC Gazprom to extend the contract for the Russian natural gas supply had completed. Its duration has not yet been determined, but the decision can be adopted and made public in the very near future. Despite the fact that Vadim Ceban described the agreed gas price for Moldova as profitable, he announced an increase in the cost of a cubic meter of blue fuel for household consumers to 6 Moldovan lei, i.e. by about 35%, which is a very sharp increase as compared to the previous periods. Alongside the specific situation on international markets, the price is hiked by a number of purely political factors that radicalize PJSC Gazprom's negotiating positions. First of all, extension of the contract (officially, these talks were commercial and didn't involve the two governments) takes place amid Moldova's obligations to the European Community under the so-called "Third Energy Package". Its implementation (the corresponding package of legislative changes was adopted back in 2016) strongly contradicts the long-term interests of the Russian gas monopoly in the region. Under the terms of the legislative amendments, PJSC Gazprom will have to eliminate its stake in JSC Moldovagaz, although today the company controls 50% of the shares independently and also trusts about 13% of the shares owned by the so-called "Gas transmission system of Transdniestria". Moldova has already registered and licensed trader companies which must be engaged in the purchase of blue fuel from a manufacturer (for example, PJSC Gazprom) and its sale to end consumers. Along with this, the Russian gas company also has no right to have legal or commercial connection with the operator of gas transit through Moldova (today - JSC Moldovatransgaz). It's not only that these companies cannot be "Gazprom's subsidiaries", but they also must recede any traceable legal relationship and subordination with the Russian monopoly. Transdniestria's historical gas debt, which has reached 7 billion US dollars over a decade and a half, adds spice to the situation. Legally, JSC Moldovagaz is a debtor to PJSC Gazprom and any of its successors must assume this debt. However, various politicians of our country, including those who are in power right now, have repeatedly stated that they do not plan to pay for the gas consumed by Transdniestria. The fact is that due to the activities of the Moldavskaya GRES in Dnestrovsk, owned by the Russian energy company Inter RAO, Transdniestria annually uses twice as much gas as Moldova itself. Notably, all Russian gas is supplied to the right bank of the Dniester in transit through the so-called "Transdniestria's gas transportation system", which also provokes a question about the property of the gas transmission system that needs to be addressed given Moldova's compliance with the requirements of the EU gas directives. These factors combined create a situation of uncertainty for PJSC Gazprom, as well as various commercial and political risks, which inevitably pushes the company to search for tools to maximize profits. Moreover, there is currently no political cover in the form of a full-fledged participation in power of the Moscow-friendly Igor Dodon and his party of socialists. Vadim Ceban received the post of chairman of the JSC "Moldovagaz" board largely under the former president's patronage. However, today his freedom to maneuver is limited by the Gavrilita-led government and primarily by the National Electricity Regulatory Agency, whose board of directors is dominated by officials who openly show their proclivities for the pro-European vector of our country. In this situation, leadership of Moldova cannot seriously count on the Kremlin's loyalty, especially as more and more prerequisites appear to cool down Moldovan-Russian relations. Plans to organize meetings with Maia Sandu or Natalia Gavrilita in Moscow do not look truly realistic, although initially both sides showed some interest. Moreover, Chisinau and Moscow cannot even agree on a meeting at the level of foreign ministers Nicu Popescu and Sergey Lavrov, although there was such in 2019. The sharp reaction of the MFAEI and the Moldovan expert community to the holding of elections to the Russian State Duma on the territory of Transdniestria, where 25 polling stations were opened, in no way promotes mutual understanding between the two states. Despite the fact that more than 200 thousand Russian citizens live in the region and that Russian elections were held in Transdniestria in previous years, Chisinau responded extremely negatively to the 17-19 September voting, which the Kremlin won't like, since it actively campaigned for the participation of citizens in the electoral process. Another reason for discord may be the ban on the entry of Pridnestrovian vehicles to Ukraine, which Tiraspol blames on Chisinau. The introduction of the ban jeopardized the reputation of the Deputy Head of the Presidential Administration of Russian Federation Dmitry Kozak, who after negotiations with Maia Sandu publicly stated that "there will be no transport blockade". The fact that the situation developed in the exact direction that Tiraspol feared guarantees mutual distrust between the responsible officials of Russia and Moldova. Moreover, Chisinau has not taken any special actions to prevent the ban, reasonably preferring the desovereignization and breakdown of the economic basis of Pridnestrovie jointly with Ukraine to certain promises given to Moscow. The pricing system will not achieve the state of equilibrium even after the possibility of reverse gas supplies from Romania via the Iasi-Ungheni-Chisinau gas pipeline appears. Firstly, the compressor stations in Romania still need to be completed. Secondly, the gas pipeline capacity will not meet the natural gas needs of both banks of the Dniester, especially in winter. Moreover, it is not entirely clear where to get the gas from. If it's Russian gas coming through the bottom of the Black Sea, such logistics makes no economic sense and does not solve the pricing issue in any way. Besides, such an approach will violate the financial interests of Ukraine, aimed at maintaining the transit of Russian gas, especially in the conditions of the projected loss of income after the launch of Nord Stream–2. Whether Chisinau is ready to achieve imaginary diversification (alleged, since either way it's about natural gas owned by the Russian monopolist) at the expense of Kiev's interests is an open question. In any case, the final consumers are the ones who will suffer from the increase in gas prices on a global and Moldovan scale. Even now, it's so expensive that not everyone can afford to pay. Therefore, in the districts, people often heat with firewood, dung or warm themselves using the not less expensive electricity. Along with this, there developed a phenomenon of traveling to Pridnestrovie or abroad for the winter period due to high prices. I think that the new pro-European authorities should pay the closest attention to the humiliating situation of many of our fellow citizens and still take at least some measures. Otherwise, the number of people leaving the country will become even greater in the future.