The Republic of Moldova presents a unique combination of economic and political vulnerabilities to Russian energy servitude. The Kremlin has underscored this situation by hitting Moldova’s recently elected, Western-oriented government with a natural gas supply crisis on the cusp of winter.
Russia’s gas export monopoly, Gazprom, and electricity export monopoly, Inter-RAO UES, are acting in an informal tandem in Moldova. The country depends exclusively on Gazprom for natural gas, and heavily on Inter-RAO UES for electricity. Both the gas and the electricity supplies flow into the Moldovan government-controlled territory (right bank of the Nistru River) from Russian-controlled Transnistria (left bank), exposing Chisinau and the entire right bank to risks of energy supply cuts.
The gas agreements signed on October 29—a five-year supply contract and a comprehensive protocol on cooperation—have ended the crisis for the time being on Russian-designed terms. Such terms are inevitable as long as Moldova lacks non-Russian gas supply options. Russia has framed these agreements to ensure that Moldova’s new, Western-oriented authorities remain dependent on Russian natural gas supplies—and, as a consequence, on gas-based Russian electricity supplies—for years to come (see EDM, October 28, November 3).
Moldova is a relatively small market for Gazprom, with an annual average consumption of 3 billion cubic meters (bcm) under the long-term supply contract. Of that amount, however, the Moldovan government-controlled territory (right bank of the Nistru river) requires only 1 bcm per year for its own consumption at full throttle; whereas Russian-controlled Transnistria (left bank) consumes 2 bcm per year and is not paying for it, causing multi-billion-dollar losses to Gazprom over the years (see below).
With such a small market on the right bank, and massive unrecoverable losses on the left bank, Gazprom is clearly not motivated by commercial interests in clinging so tightly to Moldova. It is, instead, acting to support the Kremlin’s geopolitical interests: 1) retain a tool of influence on Moldova through the gas supply monopoly, and 2) maintain an economically viable proto-state in Transnistria as a pressure lever on Moldova and outpost for Russian troops. Transnistria, moreover, makes it possible for Russia to monopolize electricity supplies to right-bank Moldova through the Inter-RAO UES thermal power plant on the left bank, fueled with Gazprom’s gas.
Moldova’s gas procurement company and transmission system operator, Moldovagaz, is basically a Gazprom subsidiary (Moldovagaz.md, accessed November 15). Gazprom holds 50 percent plus one share, Transnistria’s gas supply and distribution company holds another 13.4 percent (under Gazprom’s trust management), the Moldovan government has 35.3 percent, and the remaining 1.23 percent of the shares are apparently free-floating. Gazprom holds the majority of seats on both of Moldovagaz’s boards: the oversight board (usually headed by a Gazprom vice president doubling as Gazprom Export president) as well as the management board (traditionally chaired by a Moldovan, which is little more than a polite gesture, since a local figure is not free to represent Moldova’s interests beyond what is acceptable to majority-owner Gazprom).
Given this ownership structure, Gazprom is strongly placed to defend its Moldovan subsidiary against market-liberalization measures planned by Moldova’s new government. Moldovagaz is the local vehicle of Gazprom’s supply monopoly in Moldova.
The country is, however, twice committed to de-monopolizing its energy market: first, as a contracting party to the Energy Community since 2010; and second, by its Association Agreement with the European Union since 2014. The latter document requires Moldova to implement the EU’s Third Energy Package through the “unbundling” (separation) of Moldovagaz’s supply, transmission and distribution activities, so as to open the existing pipelines to competing suppliers other than Gazprom (third-party access). Some of the previous Moldovan governments have attempted to implement those commitments. Gazprom has blocked all such attempts thus far, using its majority ownership of Moldovagaz as well as threatening to enforce repayment of Moldovan debts for past deliveries of Russian gas. This has compelled Chisinau time and again to postpone the unbundling of Moldovagaz. The EU has shown open-ended patience with these postponements, obliquely acknowledging Gazprom’s strong leverage over Moldova.
The Protocol signed on October 29 (Infotag, October 30) postpones the unbundling of Moldovagaz until 2027—the longest of all postponements thus far, and without creating premises for unbundling after 2027. Should Moldovagaz’s transmission pipelines, nevertheless, be unbundled and open to non-Russian suppliers sooner than 2027, such suppliers are not discernible on the horizon at this time. If and when the unbundling happens and alternative suppliers emerge, the Moldovan government might consider procuring more expensive gas from European suppliers, so as to avoid the full and direct dependence on Gazprom. It might also use the just-completed Romania-Moldova interconnector (see Part Two) to access gas of Russian origin bought and resold by European companies to third parties on the market. Ukraine has pioneered this model since 2015, importing gas from European companies that buy those volumes from Russia and resell to Ukraine with a price markup. Ukrainian consumers (and voters) have accepted the higher price in order to end the country’s dependence on direct procurement from Gazprom. But Moldova’s politics are different, its consumers and voters cannot be counted on to accept or even understand the need for that kind of solution.
Unbundling Moldovagaz’s local distribution networks poses a different, possibly easier problem. Moldovagaz has decided to merge its 12 local distribution networks, operated by local authorities, into one country-wide network to be operated directly by Moldovagaz. This decision is presented as a cost-cutting, efficiency-enhancing measure. It can also facilitate the local networks’ unbundling in one fell swoop, if the majority-owner Gazprom consents. It is a commonly held view in Moldova that Gazprom owns local distribution networks. In reality, what Gazprom owns is its shares in Moldovagaz, which in turn owns those distribution networks (Moldpres, November 10).