The first consequences of the third energy package for the Republic of Moldova

The Republic of Moldova is in the process of negotiating a new contract to purchase natural gas from OAO Gazprom. The current contract is valid until December 31, 2011. The main aspect that Moldova is trying to negotiate in the future contract is the formula for calculating the gas purchase price in order to break the linkage to the price of petroleum products.

Currently, Moldovas energy sector is dependent on imported energy resources at a rate of about 95%. From this, the largest share is represented by natural gas imported from one single source, Figure 1, the annual gas consumption on the right bank of the River Nistru being about 1 billion m3. To the data presented in figure 1, it should be also added about 0.29 million kWh of electric power produced annually by the Cuciurgani Power Plant (located on the left bank of the River Nistru) based on natural gases imported from the same source. Hence, the monopolisation of the Moldovan energy mix by natural gases imported from Gazprom is obvious.

Figure 1. Share of natural gas in the energy mix of the Republic of Moldova expressed in % for the years 2002-2009

Moldova became a member of the Energy Community Treaty in May 2010 and currently holds the chairmanship of the Energy Community. On October 6, 2011, the meeting of the Energy Community Treaty was held in Chisinau where the decision made by the community members to implement the European legislation included in the third energy package was adopted. The main issues promoted by this package of rules consists in the separation of production, transport and distribution in the natural gas and electricity sector, granting higher competences to regulatory authorities and greater safety to consumers. The third energy package also sets up the rules for access to transport infrastructure for third parties and introduces solutions that would make it more difficult for foreign companies to take control of the transport systems.

It is certain that this event can not be overlooked by those who hold control over the gas industry in Moldova and are to sign a contract that is intended to contain more favourable conditions for gas procurement by one of the - opponents" of the energy policy promoted by OAO Gazprom. The point at which these two events meet (negotiations of a new contract and the adoption of the third energy package) will demonstrate the effects on the outcomes of the negotiation. At first sight, OAO Gazproms stake does not seem to be high in the agreement with Moldova when taking into account the fact that the quantity delivered that is comparable or even lower than the quantity of gas purchased by some of Gazproms European customers (companies) and is even comparable with the losses of some of Gazproms bigger customers. Analysing in more detail the history of cooperation between Moldova (Moldovagaz JSC) and Gazprom, we can understand that things are not that simple and the interests of this company are less economic and rather reveal the geopolitical aspirations.

Currently, Moldova pays Gazprom 400 US$/1000 m3 of natural gas. Certainly when compared with the 165 US$/1000 m3 that Belarus is paying, it is rather high. But taking into account the cost that was paid by this country to obtain this price, we may understand that the energy security of a country should take priority. Consequently, the energy security of Belarus became more unstable when it ceded the other 50% of the share package of the Beltransgas company to Gazprom, who will now be in control of 100% of the capital of Beltransgas, which manages the whole pipeline network of Belarus.

With Moldova, what is at stake in negotiations for the new contract with Gazprom highlights even more the political price of gas that is to be contracted. More recently, this truth was also confirmed by the Russian Ambassador to Chisinau, Valeriy Kuzmin, in an interview given to a local TV station. Mr Kuzmin says that the gas price for Moldova depends on the political stability of the country. Another condition to benefit from cheaper fuel would be joining the Customs Union of Russia, Kazakhstan and Belarus[1]. This statement actually explains the cause of the stagnation of the negotiation process and denotes the fact that Russia is suggesting Moldova revise the vector of its foreign policy.

The statements set forth above indicate that OAO Gazprom is disturbed by the decision that the Republic of Moldova has taken in adopting the third energy package. In this case, Gazprom will not hesitate to condition the success of negotiations on the implementation of the provisions of the new energy package. In fact, at this moment, precisely this is happening, but the government in Chisinau hesitated to recognise it for two months following the adoption of the third energy package. Nevertheless, the representatives of the Ministry of the Economy that represents the Government of the Republic of Moldova in the process of negotiations said that at the moment, discussions are being held with the European Commission and Energy Committee Secretariat in order to find the best formula for negotiations with Gazprom. More precisely, attempts are being made to identify some facilities while implementing the third energy package[2].

The press in Chisinau has been writing more often about the blockage of the new contract negotiation lately and it invokes Gazproms insistence as the main reason, but also of the Moscow government, that Moldova is giving up its intention to implement the European Unions Third Energy Package. In fact, the insistence of the press caused the Ministry of the Economy to recognise that the EUs Third Energy Package has already had an impact on Moldovan-Russian negotiations related to gas imports, without providing details[3]. As recently as in early December, this issue was publicly confirmed by the prime minister of Moldova. He admitted that negotiations have entered a deadlock and mentioned that in order to import gas at a lower price, Gazprom suggested Moldova give up its commitments towards the EU concerning the achievement of the third energy package[4].   On the whole, Moldova will not be the country that will be able to help Gazprom escape from the market rules proposed in the new energy package. It will try to obtain other privileges similar to those in Belarus. Even previously, representatives of Gazprom stated that negotiations on natural gas delivery in Moldova will continue and will take the proposals aimed at new investment projects across the country into account, since they are more interested in companies from the thermal energy system.

In the context of the implementation of the second energy package an important task of the Moldovan government is the physical interconnection of the national gas pipeline system to the Romanian system, the interconnection Ungheni-Iasi, with the possibility of pumping natural gas in both directions. The importance of this interconnection has been discussed for more than 10 years. The energy crises of January 2006 and January 2009 have shown the consequences of an energy shortage and reconfirmed the need for real measures to strengthen energy security and not the presentation as a priority in various strategies that remain only on paper. Although the government promised at the end of 2010 that construction works would start in 2011, so far only feasibility studies have been prepared, the proper work being planned for 2012. The slow pace of construction work on the Ungheni-Iasi gas pipeline seems again to be conditioned by the fear of Gazprom losing its monopoly position on the Moldovan market. At this point, the negotiation of the contract may also be a tool to hinder work. The importance of this project is also demonstrated by the attention paid by the European Union, which allocated 7 million euros (3 million euros to Moldova, and 4 million euros to Romania) out of the necessary of 20 million euros through the Joint Operational Programme Romania -“ Ukraine -“ Republic of Moldova.

On the other hand, Moldova is in a strong position from the geo-strategic point of view. Being located in the immediate vicinity of the European Union and being energy dependent on the Russian federation, its actions are very important because these can serve as a model for other member countries of the energy community that import natural gas from OAO Gazprom. Accordingly, its economic interests may be significantly affected as a result of the implementation of the third energy package. Consequently, the actions of the Republic of Moldova are being watched over with increased interest by both East and West.

At the moment, there is a certain fear expressed by a category of citizens and businesses that the insistence of Moldova on an uncompromising position to implement the third energy package would be followed by a possible cessation of natural gas supply by OAO Gazprom. It is hard to believe that this could happen because, lately, its image has been  damaged in relations with many European customers, including Turkey, and the interest to participate in major projects to supply energy to Europe, including the South Stream, will temper any possible actions of discontent.

Moldovas current situation, however, represents a test to demonstrate what the vector of energy policy actually is. Will Moldova implement the principles of a liberalised energy market with non-discriminatory rules or will it tolerate the blackmail from the East? Regardless of the solutions/offers that will be identified to obtain a lower gas purchase price from Gazprom, one thing is clear: sooner or later these concessions will have to be returned and their cost will be much higher. At the same time, the image of the Republic of Moldova as a credible partner to the EU is also endangered; the European Union has been quite generous regarding investments in the energy sector over recent years. Therefore, there is a need for fair negotiations to be carried out so that Moldova will pay a price justified from the economic point of view and any necessary measures should be undertaken to increase the capacity of Moldovan consumers to purchase imported natural gas. For the medium and long-term, the reduction of their share in the countrys energy mix is needed to enhance the energy security of the country and to take advantage of other energy sources available in the Republic of Moldova.  

[1]TV station "Pro TV"

[2]Broadcasting station"Radio Europa Liberă"

[3]Newspaper  "Adevărul"

[4]Newspaper  "Timpul"