How Romania Gains Super-Profits from the Moldovan GTN

Christian RUSSU

The actions of Transgaz, a subsidiary of the Romanian company, which has taken over Moldova’s gas transport networks, adversely affect both the wallets of end consumers and the overall potential of gas transit through the republic

This week was marked by reports about several events related to the transfer of trunk gas assets to Vestmoldtransgaz. At the end of the summer, the authorities pompously stated the finalization of Moldova’s implementation of the EU Third Energy Package. On 23 August, the Energy Regulatory Agency announced the completion of certification of Vestmoldtransgaz Ltd. as the operator of the gas transmission system. The press release of the regulator, which in theory should be an independent technical body, was for some reason clearly politicized, noting both that this was “an important step in ensuring independence and transparency” and that the goal was to remove the entire Moldovan GTS from Gazprom’s control. On the same day, the agency announced new entry/exit tariffs for natural gas transmission services provided by the new monopoly. And, you won’t believe it, they have increased by 47-59%. By the way, this is already the second growth in less than a year at the request of Vestmoldtransgaz. And in October last year, the rates literally exploded two to five times, depending on the entry points and the direction of transit. The Moldovan regulator again found justifications for such a decision. Among them were a significant reduction in gas transit volumes to 1.3 billion cubic meters (compared to 1.8 billion in 2023), application of updated macroeconomic indicators of the company’s expenses, revision of gas network lease and maintenance contracts, and the need to restore the accumulated tariff shortage. Simply put, it was decided to compensate the Romanian company for the lost profit due to its own inept management of the country’s GTS. Of course, the source of compensation will be the wallets of end consumers in Moldova. It is not difficult to understand where such generosity comes from – the new monopoly player on the Moldovan gas market must bring profit to its shareholders, including Romanian Transgaz (75%) and the European Bank for Reconstruction and Development (25%). This distribution implicates not just formal participation of foreign structures, but also quite real interests of the Moldovan political elite. Victor Bodiu, former Secretary General of the Government and former Chairman of the Board of Banca de Economii, who once brought Maia Sandu into the government, is considered the actual head of the GTS operator. The interconnection of the interests of the current authorities with Romanian structures and the EBRD was proved by the alienation of the Giurgiulesti port. So formally officials talk about foreign investors coming to us, but in fact they transfer strategic objects under external control, receiving their personal piece of the cake. By the way, for the first time in five years, Vestmoldtransgaz issued a press release in which it justified the requested tariff increase by “ensuring national energy security” and blamed the Ukrainian gas operator for its inability to attract the previous volumes of gas for storage “due to the unstable geopolitical situation caused by the armed conflict in Ukraine”. At the same time, it cannot be said that the company was poor before the tariff increase. The Romanian parent company simply decided to improve its financial situation with the help of its Moldovan subsidiary. Especially since, unlike the Moldovan regulator, the Romanian one was in no hurry to fulfil similar demands of Transgaz. From October 2021 to October 2023, the gas transit tariff remained unchanged in order to prevent price increases for consumers. The gas operator’s attempts to revise it in autumn 2022, at the peak of the energy crisis, failed. Therefore, a year later, just after gaining control of Moldova’s gas networks, it again demanded a tariff increase on both banks of the Prut and succeeded. In the first quarter of 2024, the net profit of the Romanian company was up by 150%, and the Moldovan subsidiary, with its twenty-fold increase in revenues, significantly contributed to this. After the current tariff increase by one and a half times, it is possible to calculate how much more Transgaz’s revenues from its assets beyond the Prut will increase. Remarkable fact is that the process of taking over Moldovan assets often not just contradicts the national interests of the country, but also hits foreign participants of the gas market, who were promised profits from the development of Moldova’s transit potential. After the August tariff increase, Vestmoldtransgaz immediately notified all European operators that had booked transit capacities in Moldova about the need to revise contracts and compensate for lost profits. According to European traders, about 10 companies received notifications about “extra payment to make up the difference”, which caused sharp criticism, including from Ukrainian partners. Vestmoldtransgaz was accused of making transit on both banks of the Prut the most expensive in the region, and possibly in all of Europe, impairing its competitiveness. For Ukraine, this year was already promising a significant drop in revenues from storing European gas due to Russian missile attacks on the relevant infrastructure, and now the tariff increase threatens the loss of this revenue stream. The reasoning of European traders and the Ukrainian operator is particularly curious. It is imbued with political messages, but the meaning is directly opposite to what their colleagues in Moldova say. The traders considered the argumentation of the Moldovan monopolist as far-fetched, as Vestmoldtransgaz did not make any investments in the main networks, and the assets taken away from Gazprom did not need any “amortization”. Moreover, they threatened that higher transit prices will block Moldova’s and Ukraine’s access to non-Russian gas supplies in southern Europe, and the decision itself “will put a serious burden on Moldovan consumers, who will have to pay ever higher bills”. The Ukrainian gas operator directly accused us that the transfer of Moldovagaz assets in favor of Romanian owners due to the implementation of the Third Energy Package led to a lower utilization rate of the reverse or vertical route from 83% in 2023 (before the VMTG takeover) to 10% in 2024. Of course, there are no direct accusations and claims in the official press releases of the conflicting parties, but they can be read “between the lines”. For example, in a statement dated 11 September, the Ukrainian gas operator, referring to agreements with Vestmoldtransgaz, promises guaranteed deliveries of up to 7 million cubic meters per day through the Trans-Balkan pipeline in the foreseeable future, but stresses the need to “introduce competitive and economically justified tariffs for this section”. The positive news is the presence of daily transport volumes of 1 million cubic meters, which is in fact half as much as at the end of July. So far, the volumes desired by Ukraine through the Trans-Balkan pipeline are almost entirely going in the other direction, to Greece. The squabbles for the remaining transit resources between the main players who are now in charge of the once unified gas pipeline are quite symbolic. They can hardly be viewed as mere commercial disputes involving political slogans. In fact, they attest to the complete failure of the gradual desovereignization course pursued by the elites of the countries in exchange for personal monetary gains. Alas, in the long run this promises only higher costs and declining prosperity for the people of the countries in the region.