Russia’s Strikes and Moldova’s Energy Problems

Anton SVET

Destruction of Ukraine’s critical infrastructure directly affects Moldova’s energy sector

Since the beginning of the week, Ukraine’s territory has been subjected to massive shelling by Russian precision-guided sea and land-based weapons, as well as drones. The main target of the strikes (although there have been some arrivals near civilian objects) is energy infrastructure, primarily thermal power plants in regions of the country that are far from Russia. Despite the statements that the shelling was of a preventive nature and, therefore, would not be carried out systematically, the Ukrainian energy system has suffered tangible damage. On Wednesday morning, Ukraine’s energy minister spoke about the damage to one-third of the energy infrastructure. Of course, these facilities will be restored at the fastest possible pace, but, for example, in the Lviv region, they say that two thermal power plants have been totally destroyed and that it will take months to rebuild them. As Russia controls Europe’s largest nuclear power plant in Enerhodar, which since yesterday was disconnected from the Ukrainian energy system by both sides (it was previously transferred to Russian ownership by decision of the Russian government), Ukraine is experiencing a severe shortage of electricity generation. There have been rolling and local blackouts (in Lviv, for example). The shutdown of many large industrial enterprises does not compensate for the decrease in electricity production. Previously, such problems could be balanced by supplies from Belarus, but under the current circumstances, there is no help to be expected. Therefore, as early as Monday, Ukraine stopped selling electricity to the European Union. In fact, the electricity supplies to Moldova were paused for an indefinite period as well. Practically, this means that the obligations of Rinat Akhmetov’s DTEK Energo to supply 33% of Moldova’s consumption have been disrupted. The recent events did not have an immediate critical effect on Moldova. The arisen deficit was promptly compensated by increasing supplies from the Moldovan GRES located in Dnestrovsс and controlled by the Transdniestrian authorities and Russia's Inter RAO. The terms of the deal are not clear. Even if we assume that we will pay for these additional (not contracted) supplies, which is doubtful, in monetary terms it will result in substantial savings because this energy is cheaper than that from Ukraine. Yet, this does not spare the authorities from the trouble. For example, the station in Dnestrovsс requested 0.9 million cubic meters of gas daily for additional power generation (exactly 1/6 of the daily volume supplied by PJSC Gazprom, which has already decreased due to problems with transit through Ukraine). JSC Moldovagaz had to provide these volumes. It will not become the right bank’s debt, so financially Moldova wins again. But at the same time, gas consumption on the territory controlled by the constitutional authorities had to be further reduced. It is already confirmed that the key Chisinau CHPP-2 (Sursa-1) has switched to a mixed fuel cycle – using as much fuel oil as possible. Additional costs for purchasing and transporting raw materials and damage to the capital’s ecology are inevitable in this case. In winter, the right bank will need both Russian gas and Transdniestrian electricity. It is too early to predict how authorities will get out of this situation, since both increasing the volume (up to the contractual limits) of Gazprom’s supplies in transit through Ukraine and gradual restoration of Ukraine’s own energy infrastructure are possible. The government will be monitoring the situation in the coming days. On the other hand, the situation can seriously worsen if the strikes on Ukraine’s generating companies continue and/or if PJSC Gazprom fulfills its threat to cut off supplies after October 20 because of the right bank’s historical debt, the audit of which is openly sabotaged by our authorities for unclear reasons. In this case, Romanian electricity will probably be the only alternative, since the neighboring country has developed power generation with extensive use of nuclear and hydroelectric power plants. High-capacity infrastructure to deliver electricity from Romania is also in place, although it runs partially through the territories of Ukraine and the Transdniestrian region. The problem is the cost of such electricity. For example, the volume that cannot be currently purchased from Ukraine will be bought from Romania starting October 14 at a price almost one and a half times higher than that from MGRES and much higher than that from Ukraine. Besides, it is possible that payments will have to be made in foreign currency, a factor for inflationary pressure. High winter consumption and huge gas prices can force consumers into a critical situation. Money budgeted and raised through donor funding will definitely be not enough to compensate the most vulnerable social groups. In this situation, the lack of sufficient negotiation skills is a serious constraint for Maia Sandu’s team. While threats are still a way to reach an agreement with the left bank of the Dniester River, now that Chisinau fully controls the region’s trade turnover, it is necessary to learn to have a businesslike discourse with Moscow, without hysterics. Whether the deeply ideologized ruling party is able to do that is doubtful.