Energy Diversification for Moldova: a Problem with No Solution?

Energy diversification, densely laced with dubious schemes and geopolitics, fell through. The country lost tens, if not hundreds, of millions of euros, as well as minimal stability in gas and electricity supplies

Vladimir ROTARI, RTA: Until recently, the words “energy resources” and “diversification” were scarcely a part of the everyday vocabulary of ordinary citizens. Electricity came more or less steadily from the left bank, sometimes partially mixed with Ukrainian imports, and gas from Russia. And this state of affairs, although not satisfactory to everyone, but in general it was considered an unspoken and profitable norm.  Of course, there were also difficulties and risks with the same gas, but they were mainly related to its transit through Ukraine, which was periodically at risk after 2014. However, the PAS that came to power, many of whose representatives, while still in opposition, often expressed dissatisfaction with this energy status quo, began to zealously turn the Moldovan ship westward, leaving the east far behind. Awkward actions quickly led to the first iteration of the gas crisis, ending with the notorious “domination” of Deputy Prime Minister Andrei Spinu and the contract, which sharply increased the cost of blue fuel for Moldova. But this was just the beginning. In February, the Russian army’s invasion of Ukraine began, which led to tectonic shifts across the continent – including in terms of integration processes. Our country unexpectedly got a chance to make a historic breakthrough toward the European dream, which happened with obtaining candidate status for EU membership. But everything has a price – and in this case it was equal to solidarity with the Western community, which quickly hinted that it was unacceptable for an applicant for EU membership to use energy resources of the “aggressor country”. In fact, at that moment there was a lot of talk about the need to throw off Moscow’s energy leash and get rid of the “dependence” so burdensome in today’s geopolitical realities. Words were matched with actions. As we remember, during the last crisis the government of Gavrilita organized the first purchase of gas from an alternative source in the history of the country. Then, however, it turned out that the volume was minimal, expensive and, most importantly, it was the same Russian gas, just delivered through intermediaries. This year, the search for “alternative suppliers” was resumed with redoubled vigor. Our delegations went more than once to Azerbaijan, Norway, and, of course, Romania. Many loud words were spoken at those meetings, but in fact the main mission – to find gas – was not fulfilled.  There were nuances everywhere. For example, in conditions of reduced Russian supplies to Europe, Norway has become the main exporter of gas to the EU. All of its volumes are “involved”, and despite the encouraging appeals, it is not very clear where Moldova could find something. Azerbaijan seems to have additional capacities, but there are problems with transportation of resources, plus there are certain moments with Russia – it is not certain that Baku will want to quarrel with Moscow because of such trifling amounts. The main hopes are for Romania, which many our experts believe could become a gas hub for Moldova, did not come true as well. Again, there are many words of support, but the fact is that Bucharest still avoids the conclusion of a “solid” contract and only makes promises. Perhaps the reason is that our western neighbor is also experiencing certain difficulties. It does not have enough of its own production even for its own needs, and promising fields in the Black Sea shelf are yet to be developed. In the future, gas from across the Prut may indeed become the norm – but clearly not now. That is, in fact, the problem of finding some other gas, not Russian, by the autumn-winter period has not been solved. However, it seems that the government decided that there is something behind the banal words of support and proceeded to the final breaking of the traditional energy ties. By failing to fulfill the terms of the contract with Gazprom, Moscow was almost forced to cut off supplies so that the ruling party could present itself as a victim. The plan partially worked – Russian gas exports went down, which allowed the transition to the second phase – the cessation of imports of cheap electricity from the Moldavskaya GRES and manipulations with Russian gas, which should certainly have buried the agreement with Gazprom, and as a bonus, allowed the formation of the necessary reserves for the winter. All of this happened under constant chants about willingness to pay more, about this being the price of independence and dignity, about not giving in to Kremlin blackmail, which were broadcast daily by members of the ruling party and even personally by President Sandu. However, at X-hour it turned out that the it was all fake. Alternative gas turned out to be a fiction. There was a shortage of electricity from Romania, and its cost was rising by leaps and bounds – last month, on average, we were paying more than $230 per MWh, and by the end of the month – $415. In December, the price would have been even higher. And, smelling the reek of total disaster, the government had to humiliate itself by going back to supplying electricity from the Moldavskaya GRES, for which it had already received a whole flood of criticism from all directions. So, what do we have? Because of clumsy and inept moves by the authorities we get less than half of what we need from Russia. No real alternatives have been found. All the actual volume of Russian gas will now have to be redirected to the left bank to generate cheap electricity, since the Romanian one proved to be too costly and insufficient. Besides, the price of the MGRES energy will be much higher than before. While we will have to consume gas from “other sources”, in fact from the stocks accumulated in the past months and left in the Ukrainian and Romanian storages. Some volumes will indeed come from other countries, for example, through the Greek LNG terminal, but in fact it will be the same Russian gas only much more expensive as it will pass through many “hands”. It is good that the authorities have finally recognized that diversification will not happen overnight. Better if they listened to other smart people, including my fellow RTA experts, who have repeatedly mentioned that there are no reasonable alternatives to Russian energy resources, at least for the next couple of years. Besides, it was proven again that a firm contract is the best option for our not-so-wealthy country. Moldova, with an already impoverished population and a mounting budget deficit, which is largely covered by grants and loans, cannot rely on a market that has been very volatile in recent years. After all, instead of dependence on one supplier, we get a much worse dependence – on market conditions which will never be good for us. Now it is funny to watch the changing tactics of the ruling party tops who have switched from the old talks about the price of independence to reflections about figures, arguing that the contract with the MGRES is a true blessing. But the damage is already irreparable – stability in energy supplies is unlikely to be restored. Russian gas imports can stop at any moment – Gazprom has enough reasons for that, while the decision on MGRES electricity is definitely for the short term and is also tightly linked to gas. So it is likely that we will have to return to an unfriendly market. The whole calculation of the government is probably to survive the winter, after which prices will stabilize and then we will think what to do next. Such optimism, as we remember, wasn’t justified this year and cost us dearly.