What Should Moldovan Consumers Expect from Joining the EU Energy Market?

Christian RUSSU

The current decrease in electricity prices is a temporary phenomenon based on electoral motives. Further integration of Moldova into the EU energy market or its absorption by Romanian business inevitably bodes us higher energy tariffs

Another reduction in electricity prices, solemnly announced by the authorities, has a lulling effect on the population. The other day, Energocom chief Victor Binzari announced the optimistic news that the state-owned company, which is the main manager of energy resources in the country, has reached the profit threshold, which requires adjusting the electricity tariff. According to him, ANRE will be asked to reduce it by 10% early next month. If approved by the regulator, this would be the first good news for consumers this year, after 7-10% price cut in November (depending on the supplier). Although this is an obviously positive event, questions still remain. Thus, the planned reduction occurs in the absence of any objective factors. The main supplier for the right bank - Cuciurgan power station - has already been supplying electricity at a fixed price of $66 per MWh for 5 months. The contract will remain in force for another 7 months. Perhaps, the increase in profit was due to the decrease in the volume of supplies from the Romanian exchange OPCOM, but one cannot say for sure: for unknown reasons Moldelectrica stopped publishing real-time data on the country’s energy balance. At the same time, there is clearly no reason to expect that electricity prices in Romania were down in the past cold weeks. So, the only realistic explanation for the next tariff reduction is internal political motives, namely the election campaign of the incumbent president. Apparently, this possibility was calculated at the expense of Energocom’s internal resources with stable electricity supplies from the left bank. It should be noted that when responding to media enquiries about the plans to reduce the tariff on gas supplies, the authorities do not show much optimism. Recently, Binzari himself has irritably urged citizens not to look at the current price quotations on European exchanges, where they dropped to 300 euros, as they do little to help us in the current situation. According to hem, all European countries buy gas for the cold season in advance, i.e. for the warm season, and there are no other alternatives for Moldova. He also provided technical arguments: the main networks are loaded in winter, the prices for transport are twice as high, and nobody will supply us gas at the current exchange price. Of course, we can agree with the head of Energocom that it is quite risky to rely solely on current rates, trying to fulfil all supplies on the basis of short-term contracts. The argument that with summer transmission parameters of 4 million cubic meters per day the country would not have enough gas in cold weather, when daily consumption reached 7 million cubic meters, is highly debatable, given the capacity of the main gas pipelines. For example, the daily technical capacity of natural gas transmission only along the Trans-Balkan route after reconstruction in 2019 is 18 million cubic meters. However, over the past three months, only Romania has been receiving gas volumes missing for domestic consumption via this route. Supplies in the direction of Ukraine and Moldova have been stopped. And this does not take into account the traditional route through Ukraine, whose prospects of being preserved do not seem so hopeless after the visit of the new Slovak Prime Minister to Kyiv. We may also recall the hyped Iasi-Ungheni gas pipeline, which at times transported up to 2 million cubic meters per day last year. However, this project continues to generate scandals. Recently it was found out that three companies, carried out the construction of the gas pipeline by order of the current manager of the main networks, Vestmoldtransgaz, went bankrupt and still owe the Moldovan budget tens of millions of lei. All this became known when the state was forced to auction the right to recover debts from them. In fact, by the end of the month, an extremely interesting situation had developed in the country’s gas industry. A latent conflict of interest emerged between all the major players. The authorities appear in a very tight spot. On the one hand, the financial gap from the purchases made first by Andrei Spinu last season at a price of about 1000 dollars and then by Victor Parlicov (about 420 dollars) should be closed by raising tariffs for the population. The remaining gas reserves in Ukrainian storage facilities at the beginning of January were estimated at 400m cubic meters, which is more than enough to cover the needs in the coming months. On the other hand, the patience of consumers has reached its limit – it is necessary to reduce tariffs. This is where the conflict of interests between Romanian Vestmoldtransgaz and the authorities arises, of which Russian Gazprom is trying to take advantage through Moldovagaz. Last week, the subsidiary of the Romanian Transgaza requested another increase in the transport tariff for all sections: from 31.6% to 57.6%. The company needs to demonstrate profit, but consideration of the internal political interests of the Moldovan authorities is not part of such plans. Thus, even the hyped first delivery of American gas from LNG terminals in Greece at near-market prices will cost Energocom a lot more. A week later, Moldovagaz came out with a proposal to reduce the weighted average tariff for natural gas supplies this year to 13,347 lei per thousand cubic metres, or by 12.5%. The company considers the fall on the European exchanges and the cost of supplies from Gazprom to be the reason for this, even if the latter is not intended for the right bank. The company outlined three scenarios of tariff reduction, depending on when it will be accepted by the national regulator. In other words, Moldovagaz actually supported the public request to reduce prices for end consumers and pointed out its validity. Now the ball is on ANRE and Energocom’s field. Prospects of the European electricity market If we return to the situation in the electricity supply sector, which is becoming less acute for ordinary consumers, it is worth recalling that integration into the European electricity market will require Chisinau to fulfil a number of obligations. Among them is the introduction of a full-fledged 20% VAT on electricity and gas. Nobody will make us concessions in preserving the current privileges, when the VAT on gas is 8%, and electricity in general is at a zero rate. Unified taxation conditions are necessary for commercial cross-border flows and access to the EU market, which our renewable energy producers dream of. By the way, Victor Parlicov said back in the summer that it is time for Moldova to abandon subsidies in the matter of VAT payment. At that time, the authorities tried to blot the revelations of the Minister of Energy out the information space as toxic. But in its technical plans, taking into account the EU integration, Parlicov’s department continues to speak about the inevitable. In the current situation, the imposition of a 20% VAT will immediately offset for consumers the impact of the last two waves of tariff reductions (Premier Energy consumers pay 2.39 lei, FEE Nord - 2.88 lei). However, even this will not be the key factor in determining market prices for electricity in the future. All the interconnection projects between Moldova and Romania (Vulcanesti-Chisinau, Balti-Suceava, Straseni-Iasi power lines), which are being implemented in an accelerated mode, mean the expansion of Romanian electricity market operators in Moldova. It is foolish to have illusions that the prices on the Moldovan part of the common Romanian-European market will be different. Therefore, it is worth looking at the current tariffs for Romanian consumers: 2.63 Moldovan lei for consumption up to 100 kWh, 3.10 lei - from 100 to 255 kWh, and above this norm – up to 5.04 lei. According to the Romanian Court of Accounts, the neighboring country has been among the leaders in electricity costs in the European Union for several years, except for the last half of the year. Bucharest’s main task was to turn the tide when the price of imported electricity during peak hours significantly exceeded the cost of export supplies from renewable generation operators. Moldova’s territory and infrastructure are extremely important for Romania in terms of eliminating the then energy imbalance, first of all, with regard to transit opportunities. So, our consumers are destined to appreciate all the charms of integration into the common European market very soon – perhaps, right after the election campaign of the incumbent authorities is over, which, ironically, will run parallel with a vote for this very integration.