The current government’s ambitions are starting to cost Moldova too much
Uncontrolled price hikes
Yesterday the government approved a parliamentary initiative to lower the status of a number of Soviet decorations, which entails a fivefold reduction in the bonuses to pensions for these awards. The cuts will affect more than 7 thousand people. To my mind, this decision clearly indicates the country’s dire socio-economic situation, due to of which budget cuts have to be made even by such measures.
By all indications, it is clear that the authorities are unable to curb the negative trends in the country’s economy so far. Recent weeks were marked by new price rises.
As of June 1, there was an increase of the natural gas tariff. Consumers will now pay four and a half lei more they used to. At the same time Moldovagaz wanted to increase the tariff by an even larger amount, given the purchase price of natural gas, implying that this increase is unlikely to be the last this year.
Electricity tariffs have also increased this month. Premier Energy customers will pay 2.64 lei per kWh, FEE Nord - 2.86 lei. Again, the suppliers demanded even higher increases.
The situation on the fuel market is just as grim, with prices increasing daily. The cost of gasoline for tomorrow exceeded 33 lei, diesel – 30 lei. In addition, for quite a long time there has been a shortage at some petrol stations. ANRE justifies that it is not a “systematic phenomenon”, but many see in it signs of cartel collusion, with which the authorities have long been either unable or unwilling to cope. The unprecedented rise in fuel prices in our country is explained by high oil prices. The latter are caused by the restart of the world economy after the pandemic and the war in Ukraine.
Grim forecasts and helplessness of the authorities
It would be too optimistic to expect that the external environment will change in a favorable direction. Igor Dodon, the imprisoned ex-president, predicts that already this fall the gas tariff could rise to 30 lei, the electricity tariff to exceed 4 lei, the cost of gasoline to be more than 40 lei.
“All this will lead to a chain increase in food prices. The already catastrophic budget deficit will only enlarge, which may create problems in meeting the state’s current obligations to pay salaries and pensions,” Dodon believes.
One may also recall the predictions of the National Bank chairman Octavian Armasu. According to him, the current, record inflation rates over the past two decades, the highest on the continent, are not the limit, and the peak is expected in the fall, when inflation will exceed 30%.
There are reasons for such bleak forecasts: experts believe that oil may rise to $150 per barrel in the near future, the cost of gas will certainly be fueled by rumors about the inclusion of a ban on its imports from the Russian Federation in the next package of sanctions. Taking into account gas prices, firewood is in high demand in the country, but its price has also jumped by 2.5 times. The coming autumn-winter period will apparently be one of the most difficult in the country’s history.
The current government so far reacts poorly to the global and regional challenges in the energy sector and prefers to go with the flow, almost without interfering or applying the tools of state regulation. The creation of two parliamentary commissions charged with developing solutions for inflation and the fuel crisis can be regarded as a kind of capitulation of the government to these problems.
The commissions themselves are said to have been formed for “a very limited period of time” and will have to examine in detail “the efficacy of regulatory enforcement in the petroleum products sector” and “the efficacy of the decision-making process to control inflation and monetary policy over the past 18 months.”
Was there ever a chance?
Speaking of the socio-economic catastrophe in the republic, the current government, first of all, blames external circumstances, as well as the tough legacy of the previous administrators. The conflict in Ukraine in fact incited many negative trends in the regional and world economy, and reinforced the existing ones.
At the same time, we cannot say that the ruling party had chances at all in order to at least try to resist the penetration of crisis phenomena into Moldova or to mitigate their destructive effect on our territory.
Case in point. This month we pay just over $900 per thousand cubic meters of gas, and last month we paid almost $1,200. Both figures are colossal and without external subsidies practically unaffordable in the long run. The government is of the same opinion. Andrei Spinu has recently said that Moldova is interested in revising the existing contract with Gazprom and more stable prices for the blue fuel. He also recognized the competitiveness of Russia’s gas (our experts have repeatedly pointed out that there is no alternative to it at the moment, no matter what the officials say about “diversification”), and that the authorities will not give it up.
The fact that they want to change the contract is good, but there’s no action. Gazprom will hardly unilaterally dare to make such a present to Moldova. This means that we need negotiations. And given the fact that, whether we want it or not, this issue has an obvious political background, especially now, these negotiations must be conducted at a very high level. But as was recently almost proudly announced, practically all contacts with Moscow are frozen. This means that despite all the talk, we will continue to pay a high price – and in light of future anti-Russian sanctions packages and the approaching winter, even higher than now.
The situation with electricity is similar. It is well known that most of it comes to our country from the Moldovan GRES, which is located on the left bank and is part of Russia's Inter RAO UES. Recently, however, there has been a constant talk about diversification of supplies, and even decisions have been made to routinely import electricity from at least two suppliers. It seems that this was done in order to leverage the Moldovan GRES to get a better price. Well, that seems reasonable.
But it’s not very reasonable when the bluff goes so far as to become reality. And now we get 30% of our electricity from Ukraine. The authorities did not want to publish details and, most importantly, the price of the issue. But, according to reports from Ukraine’s Enerhoatom, it will supply at $77 per mWh, which is a quarter of the Moldovan GRES price (since, by generating energy with virtually “free” Russian gas, the plant can always make a commercially superior offer). It is clear that the authorities do not particularly want to sponsor the Tiraspol administration, and Kyiv, due to the well-known events, has released a large amount of electricity for export. But should we support our Ukrainian neighbor and increase domestic tariffs in the current, close to disastrous, socio-economic conditions?
This year, the ruling party officials began to consistently instill in the society the idea that the high payment for energy resources is the price for Moldova’s independence. In fact, now we are changing one dependence – on Russian energy resources – to another, and paying a high price for it as well. It seems that the really sovereign state could quite successfully cooperate both with the west and the east, getting the appropriate discounts and bonuses from the balance of their interests inside the country. There are life examples. But the incumbent power clumsily realizes its geopolitical ambitions, regardless of any accompanying damage. By demonstrative refusal to communicate with Russia and costly for the budget and the population attempts to weaken energy ties with Moscow, it probably wants to please Washington and Brussels, which this month will decide the fate of our status of candidate for accession to the EU. Well, we will soon find out if it was worth it.